(D.E.1) Complaint NCUA V Bear Sterns & Co N/k/a JPMorgan Chase Securities 13-cv-06707 (S.D.N.Y.)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
NATIONAL CREDIT UNION )

ADMINISTRATION BOARD, )
as Liquidating Agent of Southwest Corporate )
Federal Credit Union and Members United )
Corporate Federal Credit Union, )
) Case No.
Plaintiffs, )
) JURY TRIAL DEMANDED
v. )
)
BEAR, STEARNS & CO., INC., )
n/k/a J.P. MORGAN SECURITIES, LLC, )
J.P. MORGAN SECURITIES LLC, )
J.P. MORGAN ACCEPTANCE CORP. I, )
)
Defendants. )
COMPLAINT
TABLE OF CONTENTS
I. NATURE OF THE ACTION ...............................................................................................1
Table 1 .................................................................................................................................2
II. PARTIES AND RELEVANT NON-PARTIES ...................................................................4
III. JURISDICTION AND VENUE ...........................................................................................7
IV. MORTGAGE ORIGINATION AND THE PROCESS OF SECURITIZATION................7
Figure 1
Illustration of the Securitization Process...........................................................................10
V. RMBS CREDIT RATINGS AND CREDIT ENHANCEMENT .......................................11
Table 2
Credit Ratings ....................................................................................................................11
VI. THE CREDIT UNIONS’ PURCHASES............................................................................13
Table 3
Credit Ratings for the Credit Unions’ RMBS Purchases...................................................14
VII. THE ORIGINATORS SYSTEMATICALLY DISREGARDED THE

UNDERWRITING GUIDELINES STATED IN THE OFFERING
DOCUMENTS...................................................................................................................16
A. The Surge in Mortgage Delinquency and Defaults Shortly

After the Offerings and the High OTD Practices of the
Originators Demonstrate Systematic Disregard of Underwriting
Standards................................................................................................................17
Table 4
Delinquency and Default Rates for the Credit Unions’ RMBS
Purchases...........................................................................................................................18
Table 5
Originator “Originate-to-Distribute” Percentages ..........................................................25
B. The Surge in Actual Versus Expected Cumulative Gross

Losses is Evidence of the Originators’ Systematic Disregard of
Underwriting Standards .........................................................................................26
i
Figure 2
Illustration of Expected Gross Losses v. Actual Gross Losses for
The Credit Unions’ RMBS Purchases................................................................................28
C. The Collapse of the Certificates’ Credit Ratings is Evidence of

Systematic Disregard of Underwriting Guidelines ................................................40
D. Revelations Subsequent to the Offerings Show That the

Originators Systematically Disregarded Underwriting
Standards................................................................................................................40
1. The Systematic Disregard of Underwriting Standards

Was Pervasive as Revealed After the Collapse .........................................40
2. American Home’s Systematic Disregard of

Underwriting Standards .............................................................................45
3. Bear Stearns Residential Mortgage Corporation’s

Systematic Disregard of Underwriting Standards......................................49
4. The Chase Originators’ Systematic Disregard of

Underwriting Standards ............................................................................56
5. Countrywide’s Systematic Disregard of Underwriting

Standards....................................................................................................58
6. EMC Mortgage’s Systematic Disregard of

Underwriting Guidelines............................................................................66
7. Fremont Investment and Loan’s Systematic Disregard

of Underwriting Standards.........................................................................75
8. GMAC’s Systematic Disregard of Underwriting

Standards....................................................................................................78
9. GreenPoint Mortgage Funding Inc.’s Systematic

Disregard of Underwriting Standards .......................................................81
10. Impac’s Systematic Disregard of Underwriting

Standards....................................................................................................87
11. Opteum Financial Service’s and Southstar Funding,

LLC’s Systematic Disregard of Underwriting Standards ..........................95
12. People’s Choice Home Loan Inc.’s Systematic

Disregard of Underwriting Standards ........................................................96
ii
E. Loans That Did Not Comply with the Underwriting Guidelines
Were Routinely Collateral for J.P. Morgan/Bear Stearns-
Underwritten RMBS ..............................................................................................99
F. Additional Evidence Confirms That Defective Loans Were

Routinely Packaged into Bear Stearns and J.P. Morgan’s
RMBS. .................................................................................................................101
VIII. THE OFFERING DOCUMENTS CONTAINED UNTRUE STATEMENTS

OF MATERIAL FACT....................................................................................................102
Table 6
Originators Supplying Loans for Each RMBS at Issue ...................................................103
A. Untrue Statements Concerning Adherence to Underwriting

Guidelines ............................................................................................................105
B. Untrue Statements Concerning Adherence to Reduced

Documentation Program Underwriting Guidelines .............................................122
C. Untrue Statements Concerning Loan-to-Value Ratios, Owner-

Occupancy Rates, and DTI Ratios .......................................................................132
IX. THE CLAIMS ARE TIMELY..........................................................................................137
Table 7
Purchases Subject to Tolling Under American Pipe .......................................................139
X. CLAIMS FOR RELIEF ....................................................................................................140
COUNT ONE
Violation of the Texas Securities Act
Tex. Rev. Civ. Stat. Ann. art. 581, § 33
(Bear Stearns Second Lien Trust 2007-1,
Bear Stearns Second Lien Trust 2007-1, Groups II and III,
Impac CMB Trust Series 2005-6,
People’s Choice Home Loan Securities Trust Series 2005-4,
SG Mortgage Securities Trust 2006-FRE2,
SACO I Trust 2006-2, SACO I Trust 2006-7, SACO I Trust
2006-8).................................................................................................................140
iii
COUNT TWO
Violation of the Illinois Securities Law of 1953
815 Ill. Comp. Stat. Ann. 5/12
(Bear Stearns ALT-A Trust 2005-9, Bear Stearns Second Lien
Trust 2007-1, GMACM Home Equity Loan Trust 2006-HE5,
Impac CMB Trust Series 2005-2, SACO I Trust 2006-2,
SACO I Trust 2006-12, Structured Asset Mortgage
Investments II Trust 2006-AR2)..........................................................................142
COUNT THREE
Section 11 of the Securities Act of 1933
(J.P. Morgan Alternative Loan Trust 2006-A2)...................................................143
COUNT FOUR
(ChaseFlex Trust Series 2007-2, GMACM Home Equity Loan
Trust 2006-HE1, J.P. Morgan Alternative Loan Trust 2006-A2,
J.P. Morgan Alternative Loan Trust 2007-S1, J.P. Morgan
Alternative Loan Trust 2007-A1,
J.P. Morgan Alternative Loan Trust 2007-A2)....................................................145
COUNT FIVE
(ChaseFlex Trust Series 2007-3, ChaseFlex Trust Series 2007-
M1, GMACM Home Equity Loan Trust 2006-HE1, J.P.
Morgan Alternative Loan Trust 2007-S1, J.P. Morgan
Alternative Loan Trust 2007-A1) ........................................................................146
iv
Plaintiff, the National Credit Union Administration Board (“NCUA Board”), brings this
action in its capacity as Liquidating Agent of Southwest Corporate Federal Credit Union
(“Southwest”) and Members United Corporate Federal Credit Union (“Members United”)
(collectively “the Credit Unions”) against Bear, Stearns & Co., Inc. n/k/a J.P. Morgan Securities,
LLC (“Bear Stearns”) and J.P. Morgan Securities, LLC (“J.P. Morgan”) (collectively, the
“Underwriter Defendants”) as underwriters and sellers, and against J.P. Morgan Acceptance
Corp. I (“the Issuer”), as issuer, of certain residential mortgage-backed securities (“RMBS”)
purchased by the Credit Unions, and alleges as follows:
I. NATURE OF THE ACTION
1. This action arises out of the sale of RMBS to the Credit Unions where the
Underwriter Defendants acted as underwriters and/or sellers of the RMBS.
2. Virtually all of the RMBS sold to the Credit Unions were rated as triple-A (the
same rating as U.S. Treasury bonds) at the time of issuance.
3. The Issuer issued and the Underwriter Defendants underwrote and sold the RMBS
pursuant to registration statements, prospectuses, prospectus supplements, free writing
prospectuses, and other written materials (collectively, the “Offering Documents”). These
Offering Documents contained untrue statements of material fact or omitted to state material
facts in violation of Section 11 of the Securities Act of 1933 (“Securities Act”), 15 U.S.C. §§ 77k
(“Section 11”), the Texas Securities Act, Tex. Rev. Civ. Stat. Ann. art 581, § 33 (“Texas Blue
Sky law”), and the Illinois Securities Law of 1953, 815 Ill. Comp. Stat. Ann. 5/12 & 13 (“Illinois
Blue Sky law”).
4. The Offering Documents described, among other things, the mortgage
underwriting standards of the originators who made the mortgages that were pooled and served
1
as the collateral for the RMBS purchased by the Credit Unions (“the Originators”).
5. The Offering Documents represented that the Originators adhered to the
underwriting guidelines set out in the Offering Documents for the mortgages in the pools
collateralizing the RMBS.
6. In fact, the Originators had systematically abandoned the stated underwriting
guidelines in the Offering Documents. Because the mortgages in the pools collateralizing the
RMBS were largely underwritten without adherence to the underwriting standards in the
Offering Documents, the RMBS were significantly riskier than represented.
7. These untrue statements and omissions were material because the value of RMBS
is largely a function of the cash flow from the principal and interest payments on the mortgage
loans collateralizing the RMBS. Thus, the performance of the RMBS is tied to the borrower’s
ability to repay the loan.
8. The Credit Unions purchased certain RMBS issued by the Issuers and
underwritten and/or sold by the Underwriter Defendants as indicated in Table 1 (infra).
Defendants are therefore liable for material untrue statements and omissions of fact in the
Offering Documents for these RMBS under Section 11 and/or the Texas Blue Sky Law and
Illinois Blue Sky Law as indicated in Table 1 (infra).
Table 1
Underwriter CUSIP1 Issuing Entity Depositor Purchaser Trade Date Price Paid Claims
Structured Asset
Bear Stearns ALT-A Members
07386HXN6 Mortgage 3/7/2007 $16,677,202 Illinois Blue Sky
Trust 2005-9 United
Investments II, Inc.
Bear Stearns
Bear Stearns Asset
Bear Stearns Second
07401WAA7 Backed Securities I Southwest 4/16/2007 $7,500,000 Texas Blue Sky
Lien Trust 2007-1
LLC
1
“CUSIP” stands for “Committee on Uniform Securities Identification Procedures.” A CUSIP
number is used to identify most securities, including certificates of RMBS. See CUSIP Number,
http://www.sec.gov/answers/cusip.htm.
2
Bear Stearns Asset
Bear Stearns Second Members
07401WAA7 Backed Securities I 4/15/2007 $14,000,000 Illinois Blue Sky
Lien Trust 2007-1 United
LLC
Bear Stearns Second Bear Stearns Asset

07401WAP4 Lien Trust 2007-1, Backed Securities I Southwest 4/27/2007 $20,000,000 Texas Blue Sky
Groups II and III LLC
GMACM Home Residential Asset

Members
38012EAC9 Equity Loan Trust Mortgage Products, 11/21/2006 $30,000,000 Illinois Blue Sky
United
2006-HE5 Inc.
Impac CMB Trust Members
45254NNB9 IMH Assets Corp. 11/2/2005 $12,260,087 Illinois Blue Sky
Series 2005-2 United
Impac CMB Trust
45254NQG5 IMH Assets Corp. Southwest 4/3/2007 $17,299,536 Texas Blue Sky
Series 2005-6
People’s Choice
People’s Choice
Home Loan
71085PDD2 Home Loan Southwest 12/21/2005 $8,284,000 Texas Blue Sky
Securities Trust
Securities Corp.
Series 2005-4
Bear Stearns Asset
785778PF2 SACO I Trust 2006-2 Backed Securities I Southwest 1/4/2007 $15,082,907 Texas Blue Sky
LLC
Bear Stearns Asset

Members
785778PG0 SACO I Trust 2006-2 Backed Securities I 1/20/2006 $30,000,000 Illinois Blue Sky
United
LLC
Bear Stearns Asset

78577PAA1 SACO I Trust 2006-7 Backed Securities I Southwest 6/19/2006 $15,000,000 Texas Blue Sky
LLC
Bear Stearns Asset

785813AA4 SACO I Trust 2006-8 Backed Securities I Southwest 9/7/2006 $15,000,000 Texas Blue Sky
LLC
Bear Stearns Asset

SACO I Trust 2006- Members
78577NAG3 Backed Securities I 12/18/2006 $30,004,575 Illinois Blue Sky
12 United
LLC
SG Mortgage
SG Mortgage
784208AD2 Securities Trust Southwest 7/7/2006 $8,000,000 Texas Blue Sky
Securities, LLC
2006-FRE2
Structured Asset
Bear Stearns Asset
Mortgage Members
86359LSM2 Backed Securities I 1/26/2006 $20,000,000 Illinois Blue Sky
Investments II Trust United
LLC
2006-AR2
ChaseFlex Trust Chase Mortgage
16165WAA4 Southwest 7/12/2007 $9,828,237 Texas Blue Sky
Series 2007-2 Finance Corp.
ChaseFlex Trust Chase Mortgage
16165WAB2 Southwest 4/20/2007 $28,380,000 Texas Blue Sky
Series 2007-2 Finance Corp.
ChaseFlex Trust Chase Mortgage Members
16165AAE4 6/26/2007 $10,000,000 Illinois Blue Sky
Series 2007-3 Finance Corp. United
J.P. Morgan 16165AAD6 6/26/2007 $10,000,000 Illinois Blue Sky
Series 2007-3 Finance Corp. United
16165YAB8 7/25/2007 $35,000,000 Illinois Blue Sky
Series 2007-M1 Finance Corp. United

361856ER4 Equity Loan Trust Mortgage Products, Southwest 3/28/2006 $40,000,000 Texas Blue Sky
2006-HE1 Inc.
3

Members
361856ER4 Equity Loan Trust Mortgage Products, 3/27/2006 $75,000,000 Illinois Blue Sky
United
2006-HE1 Inc.
J.P. Morgan
J.P. Morgan § 11 and Texas
46628GAE9 Alternative Loan Southwest 5/4/2007 $9,627,508
Acceptance, Corp. I Blue Sky
Trust 2006-A2
J.P. Morgan
J.P. Morgan
466287AA7 Alternative Loan Southwest 2/15/2007 $30,000,000 Texas Blue Sky
Acceptance, Corp. I
Trust 2007-A1
J.P. Morgan
J.P. Morgan Members
466287AE9 Alternative Loan 2/14/2007 $18,044,000 Illinois Blue Sky
Acceptance, Corp. I United
Trust 2007-A1
J.P. Morgan
J.P. Morgan
466278AE8 Alternative Loan Southwest 5/29/2007 $20,228,000 Texas Blue Sky
Acceptance, Corp. I
Trust 2007-A2
J.P. Morgan
J.P. Morgan
466275AA2 Alternative Loan Southwest 5/15/2007 $30,025,000 Texas Blue Sky
Acceptance, Corp. I
Trust 2007-S1
J.P. Morgan
J.P. Morgan Members
466275AA2 Alternative Loan 5/15/2007 $50,040,000 Illinois Blue Sky
Acceptance, Corp. I United
Trust 2007-S1
9. The RMBS the Credit Unions purchased suffered a significant drop in market
value. The Credit Unions have suffered significant losses from those RMBS purchased despite
the NCUA Board’s mitigation efforts.
II. PARTIES AND RELEVANT NON-PARTIES
10. The National Credit Union Administration (“NCUA”) is an independent agency
of the Executive Branch of the United States Government that, among other things, charters and
regulates federal credit unions, and operates and manages the National Credit Union Share
Insurance Fund (“NCUSIF”) and the Temporary Corporate Credit Union Stabilization Fund
(“TCCUSF”). The TCCUSF was created in 2009 to allow the NCUA to borrow funds from the
United States Department of the Treasury (“Treasury Department”) for the purposes of
stabilizing corporate credit unions under conservatorship or liquidation, or corporate credit
unions threatened with conservatorship or liquidation. The NCUA must repay all monies
borrowed from the Treasury Department for the purposes of the TCCUSF by 2021 through
assessments against all federally insured credit unions in the country. The NCUSIF insures the
4
deposits of account holders in all federal credit unions and the majority of state-chartered credit
unions. The NCUA has regulatory authority over state-chartered credit unions that have their
deposits insured by the NCUSIF. The NCUA is under the management of the NCUA Board.
See Federal Credit Union Act, 12 U.S.C. §§ 1751, 1752a(a) (“FCU Act”).
11. Southwest was a federally chartered corporate credit union with its offices and
principal place of business in Plano, Texas. As a corporate credit union, Southwest provided
investment and financial services to other credit unions.
12. Members United was a federally chartered corporate credit union with its offices
and principal place of business in Warrenville, Illinois. Members United was created in mid-
2006 by the merger of Empire and Mid-States Corporate Federal Credit Unions. As a corporate
credit union, Members United provided investment and financial services to other credit unions.
13. On September 24, 2010, the NCUA Board placed the Credit Unions into
conservatorship pursuant to the FCUA, 12 U.S.C. § 1751, et seq. On October 31, 2010, the
NCUA Board placed the Credit Unions into involuntary liquidation, appointing itself Liquidating
Agent.
14. Pursuant to 12 U.S.C. § 1787(b)(2)(A), the NCUA Board as Liquidating Agent
has succeeded to all rights, titles, powers, and privileges of the Credit Unions and of any
member, account holder, officer or director of the Credit Unions, with respect to the Credit
Unions and their assets, including the right to bring the claims asserted in this action. As
Liquidating Agent, the NCUA Board has all the powers of the members, directors, officers, and
committees of the Credit Unions, and succeeds to all rights, titles, powers, and privileges of the
Credit Unions. See 12 U.S.C. §1787(b)(2)(A). The NCUA Board may also sue on the Credit
Unions’ behalf. See 12 U.S.C. §§ 1766(b)(3)(A), 1787(b)(2), 1789(a)(2).
5
15. Prior to being placed into conservatorship and involuntary liquidation, the Credit
Unions were two of the largest corporate credit unions in the United States.
16. Any recoveries from this legal action will reduce the total losses resulting from
the failure of the Credit Unions. Losses from the Credit Unions’ failures must be paid from the
NCUSIF or the TCCUSF. Expenditures from these funds must be repaid through assessments
against all federally insured credit unions. Because of the expenditures resulting from the Credit
Unions’ failures, federally insured credit unions will experience larger assessments, thereby
reducing federally insured credit unions’ net worth. Reductions in net worth can adversely affect
the dividends that individual members of credit unions receive for the savings on deposit at their
credit union. Reductions in net worth can also make loans for home mortgages and automobile
purchases more expensive and difficult to obtain. Any recoveries from this action will help to
reduce the amount of any future assessments on credit unions throughout the system, reducing
the negative impact on federally insured credit unions’ net worth. Recoveries from this action
will benefit credit unions and their individual members by increasing net worth resulting in more
efficient and lower-cost lending practices.
17. Bear Stearns was an SEC registered broker-dealer. Bear Stearns acted as an
underwriter of certain RMBS that are the subject of this Complaint as indicated in Table 1
(supra). Bear Stearns was a subsidiary of The Bear Stearns Companies, Inc. (“Bear Parent”). In
October 2008, following a merger between Bear Parent and a wholly owned subsidiary of
JPMorgan Chase & Co., Defendant Bear Stearns merged with and into an existing JPMorgan
Chase & Co. subsidiary named J.P. Morgan Securities, Inc. In September 2010, J.P. Morgan
Securities, Inc. was converted to a limited liability company called J.P. Morgan Securities, LLC.
Accordingly, J.P. Morgan Securities, LLC is Defendant Bear Stearns’s legal successor, and all
6
allegations against Bear Stearns are made against J.P. Morgan Securities, LLC as such.
18. J.P. Morgan is an SEC registered broker-dealer. J.P. Morgan acted as an
underwriter of certain of the RMBS that are the subject of this Complaint as indicated in Table 1
(supra). J.P. Morgan is a Delaware corporation with its principal place of business in New York.
19. J.P. Morgan Acceptance Corp. I is the depositor and the issuer of certain RMBS
that are the subject of this Complaint as indicated in Table 1 (supra). J.P. Morgan Acceptance
Corporation I is a Delaware corporation with its principal place of business in New York.
III. JURISDICTION AND VENUE
20. This Court has subject matter jurisdiction pursuant to: (a) 12 U.S.C. § 1789(a)(2),
which provides that “[a]ll suits of a civil nature at common law or in equity to which the [NCUA
Board] shall be a party shall be deemed to arise under the laws of the United States, and the
United States district courts shall have original jurisdiction thereof, without regard to the amount
in controversy”; and (b) 28 U.S.C. § 1345, which provides that “the district courts shall have
original jurisdiction of all civil actions, suits or proceedings commenced by the United States, or
by any agency or officer thereof expressly authorized to sue by Act of Congress.”
21. Venue is proper in this District under Section 22 of the Securities Act, 15 U.S.C.
§ 77v(a) and/or 28 U.S.C. §1391(b)(1), because each Defendant is a resident of/conducts
business in this District. This Court has personal jurisdiction over each Defendant they are
residents of/conduct business in this District.
IV. MORTGAGE ORIGINATION AND THE PROCESS OF SECURITIZATION
22. RMBS are asset-backed securities. A pool or pools of residential mortgages are
the assets that back or collateralize the RMBS certificates purchased by investors.
23. Because residential mortgages are the assets collateralizing RMBS, the
7
origination of mortgages commences the process that leads to the creation of RMBS.
Originators decide whether to loan potential borrowers money to purchase residential real estate
through a process called mortgage underwriting. The originator applies its underwriting
standards or guidelines to determine whether a particular borrower is qualified to receive a
mortgage for a particular property. The underwriting guidelines consist of a variety of metrics,
including: the borrower’s debt, income, savings, credit history and credit score; whether the
property will be owner-occupied; and the LTV ratio, among other things. Loan underwriting
guidelines are designed to ensure that: (1) the borrower has the means to repay the loan, (2) the
borrower will likely repay the loan, and (3) the loan is secured by sufficient collateral in the
event of default.
24. Historically, originators made mortgage loans to borrowers and held the loans on
their own books for the duration of the loan. Originators profited as they collected monthly
principal and interest payments directly from the borrower. Originators also retained the risk
that the borrower would default on the loan.
25. This changed in the 1970s when the Government National Mortgage Association
(“Ginnie Mae”), the Federal National Mortgage Association (“Fannie Mae”), and the Federal
Home Loan Mortgage Corporation (“Freddie Mac”) (collectively government sponsored
enterprises or “GSEs”) began purchasing “conforming” or “prime” loans —so-called because
they conformed to guidelines set by the GSEs. The GSEs either sponsored the RMBS issuance
(Ginnie Mae) or issued the RMBS themselves after purchasing the conforming loans (Fannie
Mae and Freddie Mac). The GSEs securitized the mortgage loans by grouping mortgages into
“loan pools,” then repackaging the loan pools into RMBS where investors received the cash flow
from the mortgage payments. The GSEs guarantee the monthly cash flow to investors on the
8
agency RMBS.
26. More recently, originators, usually working with investment banks, began
securitizing “non-conforming loans”—loans originated (in theory) according to private
underwriting guidelines adopted by the originators. Non-conforming loans are also known as
“nonprime loans” or “private label” and include “Alt-A” and “subprime” loans. Despite the non-
conforming nature of the underlying mortgages, the securitizers of such RMBS were able to
obtain triple-A credit ratings by using “credit enhancement” (explained infra) when they
securitized the non-conforming loans.
27. All of the loans collateralizing the RMBS at issue in this Complaint are non-
conforming mortgage loans.
28. The issuance of RMBS collateralized by non-conforming loans peaked in 2006.
The securitization process shifted the originators’ focus from ensuring the ability of borrowers to
repay their mortgages, to ensuring that the originator could process (and obtain fees from) an
ever-larger loan volume for distribution as RMBS. This practice is known as “originate-to-
distribute” (“OTD”).
29. Securitization begins with a “sponsor” who purchases loans in bulk from one or
more originators. The sponsor transfers title of the loans to an entity called the “depositor.”
30. The depositor transfers the loans to a trust called the “issuing entity.”
31. The issuing entity issues “notes” and/or “certificates,” representing an ownership
interest in the cash flow from the mortgage pool underlying the securities (i.e., the principal and
interest generated as borrowers make monthly payments on the mortgages in the pool).
32. The depositor files required documents (such as registration statements and
prospectuses) with the SEC so that the certificates can be offered to the public.
9
33. One or more “underwriters” then sell the notes or certificates to investors.
34. A loan “servicer” collects payments from borrowers on individual mortgages as
part of a pool of mortgages, and the issuing entity allocates and distributes the income stream
generated from the mortgage loan payments to the RMBS investors.
35. Figure 1 (infra) depicts a typical securitization process.
Figure 1
Illustration of the Securitization Process
Borrower Borrower Borrower Borrower Borrower Borrower
Originator (e.g., Countrywide

Home Loans)
Loan Servicer (collects monthly

Originator makes loans to payments from Borrowers)
Borrowers
Sponsor purchases loans from
Originator
Sponsor
Borrowers make
monthly
mortgage
payments Sponsor transfers loans to Depositor
Depositor
Mortgage payments flow to Depositor creates Issuing Entity
Issuing Entity and transfers mortgages to
Issuing Entity. Depositor files
registration statement and
Issuing Entity (e.g., Bear Stearns prospectus with SEC
Second Lien Trust 2007-1)
Issuing Entity pays to
investors in order of
seniority class of Issuing Trust issues mortgage
Certificates pass-through certificates
Underwriter sells certificates to the

Investors
Investors
Owners of senior tranches paid first
Owners of junior tranches paid after more senior tranches are paid
36. Because securitization, as a practical matter, shifts the risk of default on the
mortgage loans from the originator of the loan to the RMBS investor, the originator’s adherence
10
to mortgage underwriting guidelines as represented in the offering documents with respect to the
underlying mortgage loans is critical to the investors’ ability to evaluate the expected
performance of the RMBS.
V. RMBS CREDIT RATINGS AND CREDIT ENHANCEMENT
37. RMBS offerings are generally divided into slices or “tranches,” each of which
represents a different level of risk. RMBS certificates denote the particular tranches of the
security purchased by the investor.
38. The credit rating for an RMBS reflects an assessment of the creditworthiness of
that RMBS and indicates the level of risk associated with that RMBS. Standard & Poor’s
(“S&P”) and Moody’s Investors Service, Inc. (“Moody’s”) are the credit rating agencies that
assigned credit ratings to the RMBS in this case.
39. The credit rating agencies use letter-grade rating systems as shown in Table 2
(infra).
Table 2
Credit Ratings
Moody’s S&P Definitions Grade Type
Aaa AAA Prime (Maximum Safety)
Aa1 AA+ High Grade, High Quality
Aa2 AA
Aa3 AA-
INVESTMENT
A1 A+
GRADE
A2 A Upper Medium Grade
A3 A-
Baa1 BBB+
Baa2 BBB Medium Grade
Baa3 BBB-
Ba2 BB Non-Investment Grade, or
Ba3 BB- Speculative
B1 B+
Highly Speculative, or
B2 B
Substantial Risk SPECULATIVE
B3 B-
GRADE
Caa2
CCC+ In Poor Standing
Caa3
CCC
Ca Extremely Speculative
CCC-
11
Moody’s S&P Definitions Grade Type
C - May be in Default
- D Default
40. Moody’s purportedly awards the coveted “Aaa” rating to structured finance
products that are “of the highest quality, with minimal credit risk.” Moody’s Investors Services,
Inc., Moody’s Rating Symbols & Definitions at 6 (August 2003), available at
http://www.rbcpa.com/Moody's_ratings_and_definitions.pdf. Likewise, S&P rates a product
“AAA” when the “obligor’s capacity to meet its financial commitment on the obligation is
extremely strong.” Standard & Poor’s, Ratings Definitions, available at
https://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1019442&SctArtId
=147045&from=CM&nsl_code=LIME.
41. In fact, RMBS could not be sold unless they received one of the highest
“investment grade” ratings on most tranches from one or more credit rating agencies, because the
primary market for RMBS is institutional investors, such as the Credit Unions, which are
generally limited to buying only securities with the highest credit ratings. See, e.g., NCUA
Credit Risk Management Rule, 12 C.F.R. § 704.6(d)(2) (2010) (prohibiting corporate credit
unions from investing in securities rated below AA-); but see, e.g., Alternatives to the Use of
Credit Ratings, 77 Fed. Reg. 74,103 (Dec. 13, 2012) (to be codified at 12 C.F.R. pts. 703, 704,
709, and 742).
42. While the pool of mortgages underlying the RMBS may not have been sufficient
to warrant a triple-A credit rating, various forms of “credit enhancement” were used to obtain a
triple-A credit rating on the higher tranches of RMBS.
43. One form of credit enhancement is “structural subordination.” The tranches, and
their risk characteristics relative to each other, are often analogized to a waterfall. Investors in
12
the higher or “senior” tranches are the first to be paid as income is generated when borrowers
make their monthly payments. After investors in the most senior tranche are paid, investors in
the next subordinate or “junior” tranche are paid, and so on down to the most subordinate or
lowest tranche.
44. In the event mortgages in the pool default, the resulting loss is absorbed by the
subordinated tranches first.
45. Accordingly, senior tranches are deemed less risky than subordinate tranches and
therefore receive higher credit ratings.
46. Another form of credit enhancement is overcollateralization. Overcollateraliza-
tion is the inclusion of a higher dollar amount of mortgages in the pool than the par value of the
security. The spread between the value of the pool and the par value of the security acts as a
cushion in the event of a shortfall in expected cash flow.
47. Other forms of credit enhancement include “excess spread,” monoline insurance,
obtaining a letter of credit, and “cross-collateralization.” “Excess spread” is the spread between
the interest rate paid to the purchasers of the RMBS relative to the higher interest rate received
on the cash flow from the underlying mortgages. Monoline insurance, also known as
“wrapping” the deal, involves purchasing insurance to cover losses from any defaults. Finally,
some RMBS are “cross-collateralized,” i.e., when a loan group in an RMBS experiences rapid
prepayments or disproportionately high realized losses, principal and interest collected from
another tranche is applied to pay principal or interest, or both, to the senior certificates in the
loan group experiencing rapid prepayment or disproportionate losses.
VI. THE CREDIT UNIONS’ PURCHASES
48. The Credit Unions purchased only the highest-rated tranches of RMBS. All but
13
one were rated triple-A at the time of issuance. These securities have since been downgraded
below investment grade just a few years after they were sold (see infra Table 3).
Table 3
Credit Ratings for the Credit Unions’ RMBS Purchases
First
First
Downgrade
Original Original Downgrade Recent Recent
ISSUING Below
CUSIP PURCHASER Rating Rating Below Rating Rating
ENTITY Investment
S&P Moody's Investment S&P Moody's
Grade
Grade S&P
Moody's
Bear Stearns
Members B- Caa3 CCC Caa3
07386HXN6 ALT-A Trust AAA Aaa
United 9/2/2009 12/17/2010 2/16/2010 12/17/2010
2005-9
Bear Stearns Southwest/
CCC Ba3 NR C
07401WAA7 Second Lien Members AAA Aaa
8/4/2009 4/13/2009 12/10/2012 11/10/2010
Trust 2007-1 United
Bear Stearns
Second Lien
CCC Ca NR C
07401WAP4 Trust 2007-1, Southwest AAA Aaa
4/24/2008 7/28/2008 12/10/2012 11/10/2010
Groups II and
III
ChaseFlex
CCC B3 CCC Caa2
Trust Series Southwest AAA Aaa
16165WAA4 7/24/2009 1/29/2009 7/24/2009 10/20/2010
2007-2
ChaseFlex
CCC Ca CCC C
16165WAB2 Trust Series Southwest AAA Aaa
7/24/2009 1/29/2009 7/24/2009 10/20/2010
2007-2
ChaseFlex
Members CCC Ca CC C
16165AAE4 Trust Series AAA Aaa
United 7/24/2009 1/29/2009 2/16/2010 10/20/2010
2007-3
ChaseFlex
Members BB- Caa1 CCC Caa3
16165AAD6 Trust Series AAA Aaa
United 7/24/2009 1/29/2009 2/16/2010 10/20/2010
2007-3
ChaseFlex
Members B Caa2 D Ca
16165YAB8 Trust Series AAA Aaa
United 10/27/2008 1/29/2009 12/27/2011 10/20/2010
2007-M1
GMACM
Southwest/
Home Equity BB B1 NR Caa2
361856ER4 Members AAA Aaa
Loan Trust 5/13/2008 8/6/2008 12/10/2012 5/21/2010
United
2006-HE1
GMACM
Home Equity Members BB B1 BB*- Caa1
38012EAC9 AAA Aaa
Loan Trust United 3/19/2010 10/29/2008 3/29/2013 5/21/2010
2006-HE5
Impac CMB
Members CCC Ba1 CCC Caa2
45254NNB9 Trust Series AA+ Aa1
United 8/19/2009 2/20/2009 11/9/2012 1/10/2013
2005-2
Impac CMB
CCC Ba3 CC Caa2
45254NQG5 Trust Series Southwest AAA Aaa
8/4/2009 4/13/2009 4/21/2010 5/11/2010
2005-6
J.P. Morgan
Alternative CCC Caa2 D C
46628GAE9 Southwest AAA Aaa
Loan Trust 7/24/2009 1/29/2009 9/25/2012 9/17/2010
2006-A2
14
First
First
Downgrade
Original Original Downgrade Recent Recent
ISSUING Below
CUSIP PURCHASER Rating Rating Below Rating Rating
ENTITY Investment
S&P Moody's Investment S&P Moody's
Grade
Grade S&P
Moody's
J.P. Morgan
Alternative CCC Caa2 NR Ca
466287AA7 Southwest AAA Aaa
Loan Trust 7/24/2009 1/29/2009 12/10/2012 9/17/2010
2007-A1
J.P. Morgan
Alternative Members B Ba3 NR C
466287AE9 AAA Aaa
Loan Trust United 10/6/2008 7/17/2008 12/10/2012 9/17/2010
2007-A1
J.P. Morgan
Alternative B Caa2 CCC Caa1
466278AE8 Southwest AAA Aaa
Loan Trust 9/1/2009 1/29/2009 3/10/2010 7/26/2013
2007-A2
J.P. Morgan
Southwest/
Alternative CCC B3 CCC Caa3
466275AA2 Members AAA Aaa
Loan Trust 8/11/2011 1/29/2009 8/11/2011 9/17/2010
United
2007-S1
People’s
Choice Home
B- Caa2 D Caa2
71085PDD2 Loan Securities Southwest AAA Aaa
9/17/2009 7/21/2010 6/25/2013 7/21/2010
Trust Series
2005-4
SACO I Trust CCC Ba3 NR C
785778PF2 Southwest AAA Aaa
2006-2 8/4/2009 4/13/2009 12/10/2012 9/2/2010
SACO I Trust Members CCC Ba3 NR C

785778PG0 AAA Aaa
2006-2 United 8/4/2009 4/13/2009 12/10/2012 9/2/2010
SACO I Trust B B2*- NR C

78577PAA1 Southwest AAA Aaa
2006-7 12/20/2007 4/4/2008 12/10/2012 9/2/2010
SACO I Trust CC Ba3 NR Ca

785813AA4 Southwest AAA Aaa
2006-8 8/4/2009 4/13/2009 12/10/2012 9/2/2010
SACO I Trust Members B B3* CC Ca

78577NAG3 AAA Aaa
2006-12 United 8/26/2008 12/4/2008 6/22/2009 9/2/2010
SG Mortgage
B Caa1 CCC Ca
784208AD2 Securities Trust Southwest AAA Aaa
3/27/2008 10/17/2008 8/4/2009 5/5/2010
2006-FRE2
Structured
Asset Mortgage
Members B- Ba1 CCC Caa3
86359LSM2 Investments II AAA Aaa
United 10/12/2009 2/23/2009 2/16/2010 12/14/2010
Trust 2006-
AR2
49. At the time of purchase, the Credit Unions were not aware of the untrue
statements or omissions of material facts in the Offering Documents of the RMBS. If the Credit
Unions had known about the Originators’ pervasive disregard of underwriting standards—
contrary to the representations in the Offering Documents—they would not have purchased the
certificates.
15
50. The securities’ substantial loss of market value has injured the Credit Unions and
the NCUA Board.
VII. THE ORIGINATORS SYSTEMATICALLY DISREGARDED THE

UNDERWRITING GUIDELINES STATED IN THE OFFERING DOCUMENTS
51. The performance and value of RMBS are largely contingent upon borrowers
repaying their mortgages. The loan underwriting guidelines ensure that the borrower has the
means to repay the mortgage and that the RMBS is secured by sufficient collateral in the event of
reasonably anticipated defaults on the underlying mortgage loans.
52. With respect to RMBS collateralized by loans written by originators who
systematically disregarded their stated underwriting standards, the following pattern is present:
a. a surge in borrower delinquencies and defaults on the mortgages in the pools
(see infra Section VII.A and Table 4);
b. actual gross losses to the underlying mortgage pools within the first 12 months
after the offerings exceeded expected gross losses (see infra Section VII.B and
Figure 2);
c. a high percentage of the underlying mortgage loans were originated for
distribution, as explained below (see infra Table 5 and accompanying
allegations); and
d. downgrades of the RMBS by credit rating agencies from high, investment-
grade ratings when purchased to much lower ratings, including numerous
“junk” ratings (see infra Section VII.C and supra Table 3).
53. These factors support a finding that the Originators failed to originate the
mortgages in accordance with the underwriting standards stated in the Offering Documents.
54. This conclusion is further corroborated by reports that the Originators who
16
contributed mortgage loans to the RMBS at issue in this Complaint abandoned the underwriting
standards described in the Offering Documents (see infra Section VII.D).
55. This conclusion is further corroborated by evidence from Bear Stearns’s and J. P.
Morgan’s due diligence processes showing that RMBS underwritten by Bear Stearns and J.P.
Morgan were collateralized by a substantial number of loans that were originated contrary to the
applicable underwriting guidelines (see infra Section VII.E-F).
A. The Surge in Mortgage Delinquency and Defaults Shortly After the Offerings
and the High OTD Practices of the Originators Demonstrate Systematic
Disregard of Underwriting Standards
56. Residential mortgages are generally considered delinquent if no payment has been
received for more than 30 days after payment is due. Residential mortgages where no payment
has been received for more than 90 days (or three payment cycles) are generally considered to be
in default.
57. The surge of delinquencies and defaults following the Offerings evidences the
systematic flaws in the Originators’ underwriting process (see infra Table 4).
58. The Offering Documents reported zero or near zero delinquencies and defaults at
the time of the Offerings (see infra Table 4).
59. The pools of mortgages collateralizing the RMBS experienced delinquency and
default rates up to 8.69% within the first three months, up to 18.58% at six months, and up to
33.96% at one year (see infra Table 4).
60. As of June 2013, 28.4% of the mortgage collateral across all the RMBS that the
Credit Unions purchased was in delinquency, bankruptcy, foreclosure, or real estate owned
(“REO”), which means that a bank or lending institution owns the property after a failed sale at a
foreclosure auction (see infra Table 4).
17
61. Table 4 (infra) reflects the delinquency, foreclosure, bankruptcy, and REO rates
on the RMBS as to which claims are asserted in this Complaint. The data presented in the last
five columns are from the trustee reports (dates and page references are indicated in the
parentheticals). The shadowed rows reflect the group of mortgages in the pool underlying the
specific tranches purchased by the Credit Unions; however, some trustee reports include only the
aggregate data. For RMBS with multiple groups, aggregate information on all the groups is
included because the tranches are cross-collateralized.
Table 4
Delinquency and Default Rates for the Credit Unions’ RMBS Purchases
RATE AT CUT-
ISSUING
CUSIP OFF DATE FOR 1 MO. 3 MOS. 6 MOS. 12 MOS. RECENT
ENTITY
OFFERING
Bear Stearns
ALT-A Trust
4.42%
2005-9: 3.25% 6.07% 3.85% (Sep., 28.31% (June
Zero. (7) (Mar.,
Aggregate (P.S. (Oct., p.7) (Dec., p.12) p.11) 2013, p.11)
p.11)
dated Sep. 28,
2005)
Bear Stearns
ALT-A Trust 6.47%
07386HXN6 5.62% 8.63% 7.94% (Sep., 32.69% (June
2005-9: Group I Zero. (7) (Mar.,
(Oct., p.8) (Dec., p.13) p.12) 2013, p.12)
*Class I-1A-1 in p.12)
Group 1 (S-2)
Bear Stearns
4.72%
ALT-A Trust 2.06% 2.94% 2.98% (Sep.,
Zero. (7) (Mar.,
2005-9: Group (Oct., p.8) (Dec., p.13) p.12)
p.12)
II-1
Bear Stearns
2.96%
ALT-A Trust 3.08% 7.97% 2.05% (Sep.,
Zero. (7) (Mar.,
2005-9: Group (Oct., p.9) (Dec., p.14) p.13)
p.13)
II-2
Bear Stearns
3.92%
ALT-A Trust 5.63% 4.96% 5.15% (Sep., 27.3% (June
Zero. (7) (Mar.,
2005-9: Group (Oct., p.9) (Dec., p.14) p.13) 2013, p.12)
p.13)
II-3
Bear Stearns
1.61% 5.41%
ALT-A Trust 8.63% 3.27% (Sep.,
Zero. (7) (Oct., (Mar.,
2005-9: Group (Dec., p.15) p.14)
p.10) p.14)
II-4
Bear Stearns
0.98% 3.35%
ALT-A Trust 1.51% 0.67% (Sep.,
2005-9: Group (Dec., p.15) p.14)
p.10) p.14)
II-5
Bear Stearns
0.61% 2.54%
ALT-A Trust 2.4% (Dec., 1.4% (Sep.,
2005-9: Group p.16) p.15)
p.11) p.15)
II-6
18
RATE AT CUT-
ISSUING
ENTITY
OFFERING
Bear Stearns
Second Lien
5.07% 13.94%
07401WAA7 Trust 2007-1: 8.62% 18.80% 8.76% (June
Zero. (S-26) (May, (Oct.,
Group 1 *Class (July, p.30) (Apr., p.28) 2013, p.14)
p.26) p.28)
I-A in Group 1
(S-6)
Bear Stearns
Second Lien
Trust 2007-1, 1.60% 12.11%
4.62% 21.05% 16.81% (June
07401WAP4 Groups II and III: Zero. (S-36) (May, (Oct.,
(July, p.31) (Apr.,p.29) 2013, p.15)
Group 2 *Class p.27) p.29)
II-A in Group 2
(S-8)
Bear Stearns
Second Lien 2.30% 11.89%
6.06% 20.43% 9.03% (June
Trust 2007-1, Zero. (S-36) (May, (Oct.,
(July, p.32) (Apr., p.30) 2013, p.15)
Groups II and III: p.28) p.30)
Group 3
ChaseFlex Trust
16165WAA4 Series 2007-2: .04% 6.36%
3.28% 10.33% 30.96% (June
16165WAB2 Aggregate (P.S. Zero. (S-25) (May, (Oct.,
(July, p.S7) (Apr., p.S7) 2013, p.S10)
dated Apr. 25, p.S7) p.S7)
2007)
ChaseFlex Trust
Series 2007-3: 8.80%
0% (July, 4.09% 15.77% 30.68% (June
Aggregate (P.S. (Dec.,
p.S7) (Sep., p.S7) (June, p.S17) 2013, p.S11)
dated June 27, p.S7)
2007)
ChaseFlex Trust 4.11%

0% (July, 2.26% Not 22.02% (June
Series 2007- Zero. (S-32) (Dec.,
p.S8) (Sep., p.S9) Available 2013, p.S13)
3: Group 1 p.S9)
ChaseFlex Trust
Series 2007-3:
16165AAE4 12.88%
Group 2 0% (July, 5.59% Not 39.24% (June
16165AAD6 Zero. (S-32) (Dec.,
*Classes II-A1 p.S8) (Sep., p.S9) Available 2013, p.S14)
p.S9)
and II-A2 in
Group 2 (S-6)
ChaseFlex Trust
Series 2007-M1: 13.44%
0% (Aug., 8.97% 22.79% 34.44% (June
Aggregate (P.S. (Jan.,
p.S7) (Oct., p.S7) (July, p.S11) 2013, p.S11)
dated July 25, p.S7)
2007)
ChaseFlex Trust
Series 2007- 15.25%
16165YAB8 0% (Aug., 10.17% 27.86% 34.78% (June
M1:Group 1 Zero. (S-32) (Jan.,
*Class 1-A2 in p.S9)
Group 1 (S-5)
ChaseFlex Trust 11.66%

0% (Aug., 7.81% 17.85% 34.17% (June
Series 2007-M1: Zero. (S-32) (Jan.,
Group 2 p.S9)
GMACM Home
361856ER4 Equity Loan Zero. (S-34) Trustee Reports Unavailable
Trust 2006-HE1
GMACM Home
38012EAC9 Equity Loan Zero (S-32-33) Trustee Reports Unavailable
Trust 2006-HE5
19
RATE AT CUT-
ISSUING
ENTITY
OFFERING
Impac CMB
Trust Series
0.16% 2.01%
2005-2: 1.51% 3.85% (Mar., 18.64% (June
Zero. (S-22) (Apr., (Sep,
Aggregate (P.S. (June, p.7) p.10) 2013, p.11)
p.10) p.10)
dated Mar. 2,
2005)
Impac CMB
Trust Series 0.18% 2.24%
45254NNB9 1.67% 4.11% (Mar., 21.05% (June
2005-2: Group 1 Zero. (S-22) (Apr., (Sep,
(June, p.8) p.11) 2013, p.12)
*Class 1-M-1 in p.11) p.11)
Group 1 (S-7)
Impac CMB
0% (Apr., 0% (June, 0% (Sep, 1.9% (Mar., 0% (June 2013,
Trust Series Zero. (S-22)
p.11) p.8) p.11) p.11) p.12)
2005-2: Group 2
Impac CMB
Trust Series
4.25%
2005-6: Zero. (The 3.28% 1.70% 5.48% (Aug., 18.65% (June
(Feb.,
Aggregate (P.S. Mortgage Pool) (Sep., p.7) (Oct., p.7) p.10) 2013, p.10)
p.10)
dated Sep. 8,
2005)
Impac CMB
Trust Series
5.27%
2005-6: Group 1 Zero. (The 3.42% 2.15% 7.08% (Aug. 29.5% (June
45254NQG5 (Feb.,
*Class 1-A-1 in Mortgage Pool) (Sep., p.8) (Oct., p.8) p.11) 2013, p.11)
p.11)
Group 1 (The
Bonds)
Impac CMB
2.87%
Trust Series Zero. (The 1.63% 0.77% 2.88% (Aug., 16.56% (June
45254NQG5 (Feb.,
2005-6: Group Mortgage Pool) (Sep., p.8) (Oct., p.8) p.11) 2013, p.11)
p.11)
1B
Impac CMB
0.00%
(Feb.,
2005-6: Group Mortgage Pool) (Sep., p.9) (Oct., p.9) p.12) 2013, p.12)
p.12)
2A
Impac CMB
0.00%
(Feb.,
2005-6: Group Mortgage Pool) (Sep., p.9) (Oct., p.9) p.12) 2013, p.12
p.12)
2B
J.P. Morgan
Alternative Loan
1.53% 4.21%
Trust 2006-A2: 3.0% (July, 7.73% 34.08% (June
Aggregate (P.S. p.13) (Apr., p.12) 2013, p.12)
p.13) p.13)
dated Apr. 27,
2006)
J.P. Morgan
Alternative Loan
2.15% 6.02%
46628GAE9 Trust 2006-A2: 3.93% 10.68% 37.1% (June
Group 1 *Class (July, p.14) (Apr., p.13) 2013, p.13)
p.14) p.14)
1-A-5 in Group 1
(S-1)
J.P. Morgan
1.19% 2.54%
Alternative Loan 2.16% 5.01% 26.66% (June
Trust 2006-A2: (July, p.14) (Apr., p.13) 2013, p.13)
p.14) p.14)
Group 2
J.P. Morgan
Alternative Loan 0% (May, 2.02% 0% (Oct., 2.81% 24.69% (June
Zero. (S-22)
Trust 2006-A2: p.15) (July, p.15) p.15) (Apr., p.14) 2013, p.14)
Group 3
20
RATE AT CUT-
ISSUING
ENTITY
OFFERING
J.P. Morgan
0.95% 5.4%
Trust 2006-A2: (July, p.15) (Apr., p.14) 2013, p.14)
p.15) p.15)
Group 4
J.P. Morgan
1.28% 2.31%
Alternative Loan 1.8% (July, 5.44% 45.5% (June
Trust 2006-A2: p.16) (Apr., p.15) 2013, p.15)
p.16) p.16)
Group 5
J.P. Morgan
Alternative Loan
5.13% 8.05%
Trust 2007-A1: 5.11% 21.02% 35.94% (June
(Mar., (Aug.,
Aggregate (P.S. (May, p.16) (Feb., p.17) 2013, p.15)
p.16) p.17)
dated Feb. 26,
2007)
J.P. Morgan
Alternative Loan
466287AA7 Trust 2007-A1: 5.64% 10.91%
6.56% 25.94% 43.10% (June
466287AE9 Group 1A Zero. (S-25) (Mar., (Aug.,
(May, p.16) (Feb., p.17) 2013, p.15)
*Classes 1-A-5 p.16) p.17)
and 1-A-1A in
Group 1 (S-1)
J.P. Morgan
Alternative Loan
Trust 2007-A1: 5.62% 5.95%
466287AA7 4.24% 19.75% 22.78% (June
Group 1B Zero. (S-25) (Mar., (Aug.,
466287AE9 (May, p.17) (Feb., p.18) 2013, p.16)
*Classes 1-A-5 p.17) p.18)
and 1-A-1A in
Group 1 (S-1)
J.P. Morgan
4.71% 3.29%
Zero. (S-26) (Mar., (Aug.,
Trust 2007-A1: (May, p.17) (Feb., p.18) 2013, p.16)
p.17) p.18)
Group 2
J.P. Morgan
2.63% 3.62%
Zero. (S-26) (Mar., (Aug.,
Trust 2007-A1: (May, p.18) (Feb., p.19) 2013, p.17)
p.18) p.19)
Group 3
J.P. Morgan
Alternative Loan
3.15% 7.90% 13.89%
Trust 2007-A2: 25.61% 39.12% (June
(June, (Aug., (Nov.,
Aggregate (P.S. (May, p.16) 2013, p.16)
p.16) p.16) p.16)
dated May 31,
200)
J.P. Morgan
Alternative Loan
3.61% 7.19% 12.47%
466278AE8 Trust 2007-A2: 24.69% 36.55% (June
Zero. (S-28) (June, (Aug., (Nov.,
Group 1 *Class (May, p.17) 2013, p.17)
p.17) p.17) p.17)
1-2-A3 in Group
1 (S-1)
J.P. Morgan
3.27% 9.64% 17.03%
Alternative Loan 31.45% 46.89% (June
Trust 2007-A2: (May, p.17) 2013, p.17)
p.17) p.17) p.17)
Group 2
J.P. Morgan
2.97% 4.08% 5.20%
Alternative Loan 10.40% 23.73% (June
Trust 2007-A2: (May, p.18) 2013, p.18)
p.18) p.18) p.18)
Group 3
J.P. Morgan
2.51% 4.95% 7.40%
Alternative Loan 8.58% (May, 20.62% (June
Trust 2007-A2: p.18) 2013, p.18)
p.18) p.18) p.18)
Group 4
21
RATE AT CUT-
ISSUING
ENTITY
OFFERING
J.P. Morgan
0.00% 0.68% 4.77%
Alternative Loan 1.85% (May, 26.03% (June
(June, (Aug., (Nov.,
Trust 2007-A2: p.19) 2013, p.19)
p.19) p.19) p.19)
Group 5
J.P. Morgan
Alternative Loan Zero. (Description 7.53%
466275AA2 1.18% 3.51% 13.77% 34.09% (June
Trust 2007-S1 of the Mortgage (Nov.,
(June, p.9) (Aug., p.9) (May, p.9) 2013, p.9)
(P.S. dated May Pool) p.9)
30, 2007)
People’s Choice
Home Loan
Securities Trust 0.05%
2.33% 4.92% 9.62% (Oct., 32.58% (June
Series 2005-4: Zero. (S-22) (Nov.,
(Jan., p.9) (Apr., p.9) p.10) 2013, p.11)
Aggregate (P.S. p.7)
dated Oct. 24,
2005)
People’s Choice
Home Loan
Securities Trust 0.00% 4.51%
1.82% 7.36% (Oct., 33.63% (June
71085PDD2 Series 2005-4: Zero. (S-22) (Nov., (Apr.,
(Jan., p. 10) p.11) 2013, p.12)
Group 1 FIXED p.8) p.10)
*Class 1A2 in
Group 1 (S-61)
People’s Choice
Home Loan
Securities Trust 0.12% 6.80%
3.49% 13.36% 34.84% (June
71085PDD2 Series 2005-4: Zero. (S-22) (Nov., (Apr.,
(Jan., p.10) (Oct., p.11) 2013, p.12)
Group 1 ARM p.8) p.10)
*Class 1A2 in
Group 1 (S-61)
People’s Choice
Home Loan 0.00% 1.26%
0.12% 3.21% (Oct., 22.09% (June
Securities Trust Zero. (S-22) (Nov., (Apr.,
(Jan., p.11) p.12) 2013, p.13)
Series 2005-4: p.9) p.11)
Group 2 FIXED
People’s Choice
Home Loan 0.00% 3.82%
1.71% 7.39% (Oct., 37.31% (June
Securities Trust Zero. (S-22) (Nov., (Apr.,
(Jan., p.11) p.12) 2013, p.13)
Series 2005-4: p.9) p.11)
Group 2 ARM
SACO I Trust
2006-2: 1.09% 4.8%
2.69% 10.84% 11.24% (June
Aggregate (P.S. Zero. (S-29) (Feb., (July,
(Apr., p.14) (Jan., p.14) 2013, p.13)
dated Jan. 26, p.14) p.14)
2006)
SACO I Trust
1.54% 5.24%
2006-2: Group 1 2.92% 10.98% 13.09% (June
Zero. (S-29) (Feb., (July,
785778PF2 *Class I-A in (Apr., p.14) (Jan., p.14) 2013, p.13)
p.14) p.14)
Group 1 (S-6)
SACO I Trust
.55% 4.27%
2006-2: Group 2 2.42% 10.68% 9.29% (June
785778PG0 Zero. (S-29) (Feb., (July,
*Class II-A in (Apr., p.15) (Jan., p.15) 2013, p14)
p.15) p.15)
Group 2 (S-7)
SACO I Trust
.41% 7.66%
2006-7 (P.S. 3.27% 14.24% 8.48% (June
78577PAA1 Zero. (S-28) (July, (Dec.,
dated June 28, (Sep., p.10) (June, p.10) 2013, p.12)
p.10) p.10)
2006)
SACO I Trust
2.16% 3.17% 5.53%
2006-8 (P.S. 9.92% (Aug., 10.83% (June
785813AA4 Zero. (S-23) (Sep., (Nov., (Feb.,
dated Sep.14, p.12) 2013, p.16)
p.11) p.11) p.11)
2006)
22
RATE AT CUT-
ISSUING
ENTITY
OFFERING
SACO I Trust
2006-12: 1.07% 6.14%
3.45% 14.02% 11.15% (June
Aggregate (P.S. (Dec., (May,
(Feb., p.17) (Nov., p.18) 2013, p.18)
dated Dec.19, p.17) p.17)
2006)
SACO I Trust 0.35% 6.10%
4.52% 11.7% (Nov., 10.20% (June
2006-12: Group Zero. (S-29) (Dec., (May,
(Feb., p.18) ps.18-19) 2013, p.19)
1 p.18) p.18)
SACO I Trust
1.37% 6.16%
2006-12: Group 3.01% 14.93% 11.71% (June
78577NAG3 Zero. (S-30) (Dec., (May,
2 *Class II-A in (Feb., p.19) (Nov., p.19) 2013, p.20)
p.19) p.19)
Group 2 (S-7)
SG Mortgage
No Mortgage
Securities Trust
Loan included in 2.29%
2006-FRE2: 7.69% 17.09% 30.11% 58.98% (June
the Trust will be (Aug.,
Aggregate (P.S. (Oct., p.10) (Jan., p.9) (July, p.9) 2013, p.9)
more than 59 days p.10)
dated July 7,
delinquent (S-31)
2006)
No Mortgage
SG Mortgage
Loan included in 1.9% 17.67%
Securities Trust 7.7% (Oct., 30.62% 61.64% (June
the Trust will be (Aug., (Jan.,
2006-FRE2: p.11) (July, p.10) 2013, p.10)
more than 59 days p.11) p.10)
Group I
delinquent (S-31)
No Mortgage
SG Mortgage
Securities Trust 3.16% 12.47% 42.32% (June
the Trust will be (Aug., (Jan.,
2006-FRE2: (Oct., p.11) (July, p.10) 2013, p.10)
Group I
delinquent (S-31)
SG Mortgage
No Mortgage
Securities Trust
2006-FRE2: 8.69% 33.96% 62.61% (June
784208AD2 the Trust will be (Aug., (Jan.,
Group II *Class (Oct., p.12) (July, p.11) 2013, p.11)
A-2C in Group 2
delinquent (S-31)
(S-11)
SG Mortgage
No Mortgage
Securities Trust
2006-FRE2: 4.64% 15.83% 41.63% (June
784208AD2 the Trust will be (Aug., (Jan.,
Group II *Class (Oct., p.12) (July, p.11) 2013, p.11)
A-2C in Group 2
delinquent (S-31)
(S-11)
Structured Asset
Mortgage
1.82% 2.83%
86359LSM2 Investments II 1.8% (May, 5.93% (Feb., 56.62% (June
(Mar., (Aug.,
Trust 2006-AR2 p.10) p.10) 2013, p.10)
p.10) p.10)
(P.S. dated Feb.
27, 2006)
62. This early spike in delinquencies and defaults, which occurred almost
immediately after these RMBS were purchased by the Credit Unions, was later discovered to be
indicative of the Originators’ systematic disregard of their stated underwriting guidelines.
63. The phenomenon of borrower default shortly after origination of the loans is
known as “Early Payment Default.” Early Payment Default evidences borrower
misrepresentations and other misinformation in the origination process, resulting from the
23
systematic failure of the Originators to apply the underwriting guidelines described in the
Offering Documents.
64. In January 2011, the Financial Stability Oversight Council (“FSOC”), chaired by
United States Treasury Secretary Timothy Geithner, issued a report analyzing the effects of risk
retention requirements in mortgage lending on the broader economy. See FIN. STABILITY
OVERSIGHT COUNCIL, MACROECONOMIC EFFECTS OF RISK RETENTION REQUIREMENTS (2011)
(“FSOC Risk Retention Report”). The FSOC Risk Retention Report focused on stabilizing the
mortgage lending industry through larger risk retention requirements in the industry that can
“incent better lending decisions” and “help to mitigate some of the pro-cyclical effects
securitization may have on the economy.” Id. at 2.
65. The FSOC Risk Retention Report observed that the securitization process often
incentivizes poor underwriting by shifting the risk of default from the originators to the
investors, while obscuring critical information concerning the actual nature of the risk. The
FSOC Risk Retention Report stated:
The securitization process involves multiple parties with varying incentives and
information, thereby breaking down the traditional direct relationship between
borrower and lender. The party setting underwriting standards and making
lending decisions (the originator) and the party making structuring decisions (the
securitizer) are often exposed to minimal or no credit risk. By contrast, the party
that is most exposed to credit risk (the investor) often has less influence over
underwriting standards and may have less information about the borrower. As a
result, originators and securitizers that do not retain risk can, at least in the short
run, maximize their own returns by lowering underwriting standards in ways that
investors may have difficulty detecting. The originate-to-distribute model, as it
was conducted, exacerbated this weakness by compensating originators and
securitizers based on volume, rather than on quality.
Id. at 3.
66. Indeed, originators that wrote a high percentage of their loans for distribution
were more likely to disregard underwriting standards, resulting in poorly performing mortgages,
24
in contrast to originators that originated and then held most of their loans.
67. High OTD originators profited from mortgage origination fees without bearing
the risks of borrower default or insufficient collateral in the event of default. Divorced from
these risks, high OTD originators were incentivized to push loan quantity over quality.
68. Table 5 (infra) shows the percentage of loans originated for distribution relative to
all the loans made by the Originators for the years 2005, 2006 and 2007, for those Originators in
this Complaint with high OTD percentages. The data was obtained from the Home Mortgage
Disclosure Act database.
Table 5
Originator “Originate-to-Distribute” Percentages
Originator Name OTD % 2005 OTD% 2006 OTD % 2007
American Home Mortgage Corp. 91.9 62.4
American Home Mortgage Investment

100 100 100
Corp.
Bear Stearns Residential Mortgage 0 87.7
Countrywide Home Loans, Inc. 98.5 96.5 98.4
Fremont Investment & Loan 91.2 85.2 94
GMAC Bank 81 85
GMAC Mortgage, LLC f/k/a GMAC

89.4 85.1 91.8
Mortgage Corp.
GreenPoint Mortgage Funding Inc. 89 87.1 95.6
Impac Mortgage Holdings, Inc. 96.3 23.7 93.4
JPMorgan Chase Bank, N.A. 83 77.9 85.4
M&T Mortgage Corp. 73.1 70.7
Metrocities Mortgage, LLC 99.9 100 100
25
Originator Name OTD % 2005 OTD% 2006 OTD % 2007
Opteum Financial Services, LLC 92.9 86.2 98.3
People’s Choice Home Loan, Inc. 83.4 87.8
PHH Mortgage Corp. 96.3 92.9 85.6
PMC Bancorp. 97.9 92.4 73.5
SouthStar Funding, LLC 100 100
SunTrust Mortgage, Inc. 62.6 71.1 74.4
B. The Surge in Actual Versus Expected Cumulative Gross Losses is Evidence

of the Originators’ Systematic Disregard of Underwriting Standards
69. The actual defaults in the mortgage pools underlying the RMBS the Credit Unions
purchased exceeded expected defaults so quickly and by so wide a margin that a significant
portion of the mortgages could not have been underwritten as represented in the Offering
Documents.
70. Every month, the RMBS trustee reports the number and outstanding balance of all
loans in the mortgage pools that have defaulted. The running total of this cumulative default
balance is referred to as the “gross loss.”
71. When defaulted loans are foreclosed upon, the proceeds from the foreclosures are
distributed to the investors and any shortfall on the defaulted loan balances is realized as a loss.
The running total of this cumulative realized loss (defaulted loan balance minus recovery in
foreclosure) is referred to as the “net loss.”
72. “Actual loss” is the economic loss the mortgage pool experiences in fact. So
“actual gross loss” is the actual cumulative sum of the balance of the loans in default for a
particular security. Likewise, “actual net loss” is the actual cumulative realized loss on defaulted
26
loans after foreclosure.
73. At the time a security is rated, the rating agency calculates an amount of
“expected loss” using a model based on historical performance of similar securities. So
“expected gross loss” is the expected cumulative sum of the balance of the loans in default for a
particular security. Likewise, “expected net loss” is the expected cumulative realized loss on
defaulted loans after foreclosure. The amount of expected net loss drives the credit ratings
assigned to the various tranches of RMBS.
74. Each credit rating has a “rating factor,” which can be expressed in multiples of the
amount of credit enhancement over expected net loss (in equation form: CE/ENL = RF). Thus,
the rating factor expresses how many times the expected net loss is covered by credit
enhancement. A “triple-A” rated security would have a rating factor of “5,” so would require
credit enhancement of five times the amount of the expected net loss. A “double-A rating”
would have a rating factor of “4,” and thus would require credit enhancement equaling four times
the expected net loss. A “single-A” rating would have a rating factor of “3” and would require
credit enhancement of three times expected net loss. A “Baa” rating would require credit
enhancement of 2—1.5 times expected net loss, and a “Ba” rating or lower requires some
amount of credit enhancement less than 1.5 times expected net loss.
75. Accordingly, by working backwards from this equation, one can infer expected
net loss in an already-issued offering. For example, assume there is a $100 million offering
backed by $100 million of assets, with a triple-A rated senior tranche with a principal balance of
$75 million. This means the non-senior tranches, in aggregate, have a principal balance of $25
million. The $25 million amount of the non-senior tranches in this hypothetical offering serves
as the credit enhancement for the senior tranche. Therefore, on our hypothetical $100 million
27
offering, the expected net loss would be $5 million, which is the amount of the credit
enhancement on the triple-A rated senior tranche—$25 million—divided by the rating factor for
triple-A rated securities—5. The following equation illustrates: $25,000,000/5 = $5,000,000.
76. Expected gross loss can be then mathematically derived by applying an “expected
recovery rate” to the expected net loss (EGL = ENL/(1 – ERR)).
77. A comparison of actual gross losses to expected gross losses for a particular
security can be made graphically by plotting the actual versus expected loss data on a line graph.
Figure 2 (infra) is a series of such line graphs. Figure 2 illustrates the actual gross loss (again,
actual defaults) the pools backing the RMBS purchased by the Credit Unions experienced in the
first twelve months after issuance compared to the expected gross loss (again, expected defaults)
for those pools during the same time period.
78. The actual gross loss data in Figure 2 (infra) was obtained from ABSNET, a
resource for asset-backed securities related data. The expected gross losses were calculated by
“grossing up” the rating-implied expected net losses using an expected recovery rate of 85%.
79. As the graphs show, the actual gross losses (the solid lines) far exceeded the
expected gross losses (the dotted lines) for the period analyzed. That means that the actual
balance of defaulted loans in the first twelve months following issuance far exceeded the
expected balance of defaulted loans based on historical performance.
Figure 2
Illustration of Expected Gross Losses v. Actual Gross Losses for
The Credit Unions’ RMBS Purchases
28
Issuing Entity ABSNet Deal Id Month Actual Gross Losses Expected Gross Losses
Bear Stearns Alt-A Trust 2005-9 35206 1 $ 1,402,578 $ 1,138,743
25000000
20000000
15000000
Actual Gross Losses
10000000 Expected Gross Losses
5000000
0
0 2 4 6 8 10 12 14
Bear Stearns Second Lien Trust 2007-1 42792 1 $ 257,152 $ 3,841,957
Bear Stearns Second Lien Trust 2007-1 42792 2 $ 881,158 $ 4,196,378
Bear Stearns Second Lien Trust 2007-1 42792 3 $ 2,477,106 $ 4,582,751
180000000
160000000
140000000
120000000
100000000
Actual Gross Losses
80000000
Expected Gross Losses
60000000
40000000
20000000
0
0 2 4 6 8 10 12 14
29
Impac CMB Trust Series 2005-2 33663 1 $ - $ 2,088,023
Impac CMB Trust Series 2005-2 33663 4 $ 713,124 $ 2,719,467
Impac CMB Trust Series 2005-2 33663 5 $ 3,335,531 $ 2,968,759
18000000
16000000
14000000
12000000
10000000
Actual Gross Losses
8000000
6000000
4000000
2000000
0
0 2 4 6 8 10 12 14
-2000000
45000000
40000000
35000000
30000000
25000000
Actual Gross Losses
20000000
15000000
10000000
5000000
0
0 2 4 6 8 10 12 14
30
Peoples Choice Home Loan Securities Trust Series 2005-4 35428 1 $ - $ 998,879
Peoples Choice Home Loan Securities Trust Series 2005-4 35428 2 $ - $ 1,091,026
Peoples Choice Home Loan Securities Trust Series 2005-4 35428 3 $ 6,211,709 $ 1,191,480
50000000
40000000
30000000
Actual Gross Losses

20000000
10000000
0
0 2 4 6 8 10 12 14
-10000000
SACO I Trust 2006-2 38095 1 $ 149,318 $ 719,458
SACO I Trust 2006-2 38095 2 $ 172,385 $ 785,828
SACO I Trust 2006-2 38095 3 $ 362,939 $ 858,182
SACO I Trust 2006-2 38095 4 $ 455,987 $ 937,031
SACO I Trust 2006-2 38095 5 $ 851,843 $ 1,022,929
SACO I Trust 2006-2 38095 6 $ 1,664,416 $ 1,116,466
SACO I Trust 2006-2 38095 7 $ 3,897,380 $ 1,218,277
SACO I Trust 2006-2 38095 8 $ 5,124,371 $ 1,329,043
SACO I Trust 2006-2 38095 9 $ 5,937,272 $ 1,449,488
SACO I Trust 2006-2 38095 10 $ 7,487,438 $ 1,580,383
SACO I Trust 2006-2 38095 11 $ 12,755,580 $ 1,722,549
SACO I Trust 2006-2 38095 12 $ 17,364,776 $ 1,876,852
20000000
18000000
16000000
14000000
12000000
10000000 Actual Gross Losses
6000000
4000000
2000000
0
0 2 4 6 8 10 12 14
31
SACO I Trust 2006-7 38591 1 $ 50,341 $ 759,829
SACO I Trust 2006-7 38591 2 $ 50,319 $ 829,923
SACO I Trust 2006-7 38591 3 $ 52,579 $ 906,336
SACO I Trust 2006-7 38591 4 $ 489,527 $ 989,610
SACO I Trust 2006-7 38591 5 $ 643,456 $ 1,080,327
SACO I Trust 2006-7 38591 6 $ 2,218,253 $ 1,179,113
SACO I Trust 2006-7 38591 7 $ 3,683,120 $ 1,286,638
SACO I Trust 2006-7 38591 8 $ 5,362,291 $ 1,403,619
SACO I Trust 2006-7 38591 9 $ 6,057,943 $ 1,530,822
SACO I Trust 2006-7 38591 10 $ 11,479,483 $ 1,669,062
SACO I Trust 2006-7 38591 11 $ 15,890,736 $ 1,819,205
SACO I Trust 2006-7 38591 12 $ 23,313,097 $ 1,982,167
25000000
20000000
15000000
Actual Gross Losses
5000000
0
0 2 4 6 8 10 12 14
SACO I Trust 2006-8 38978 1 $ - $ 6,747
SACO I Trust 2006-8 38978 2 $ 36,000 $ 7,369
SACO I Trust 2006-8 38978 3 $ 50,303 $ 8,048
SACO I Trust 2006-8 38978 4 $ 837,225 $ 8,787
SACO I Trust 2006-8 38978 5 $ 996,615 $ 9,593
SACO I Trust 2006-8 38978 6 $ 1,436,601 $ 10,470
SACO I Trust 2006-8 38978 7 $ 2,500,578 $ 11,425
SACO I Trust 2006-8 38978 8 $ 2,783,065 $ 12,463
SACO I Trust 2006-8 38978 9 $ 6,074,869 $ 13,593
SACO I Trust 2006-8 38978 10 $ 7,298,019 $ 14,820
SACO I Trust 2006-8 38978 11 $ 9,234,414 $ 16,154
SACO I Trust 2006-8 38978 12 $ 11,635,618 $ 17,601
14000000
12000000
10000000
8000000
Actual Gross Losses
6000000
4000000
2000000
0
0 2 4 6 8 10 12 14
-2000000
32
SACO I Trust 2006-12 39910 1 $ - $ 615,409
SACO I Trust 2006-12 39910 2 $ - $ 672,181
SACO I Trust 2006-12 39910 3 $ - $ 734,070
SACO I Trust 2006-12 39910 4 $ 646,093 $ 801,517
SACO I Trust 2006-12 39910 5 $ 757,429 $ 874,991
SACO I Trust 2006-12 39910 6 $ 1,045,220 $ 955,001
SACO I Trust 2006-12 39910 7 $ 1,461,301 $ 1,042,089
SACO I Trust 2006-12 39910 8 $ 1,719,742 $ 1,136,835
SACO I Trust 2006-12 39910 9 $ 6,567,407 $ 1,239,861
SACO I Trust 2006-12 39910 10 $ 11,122,690 $ 1,351,826
SACO I Trust 2006-12 39910 11 $ 15,992,107 $ 1,473,432
SACO I Trust 2006-12 39910 12 $ 19,480,585 $ 1,605,420
25000000
20000000
15000000
Actual Gross Losses

10000000
5000000
0
0 2 4 6 8 10 12 14
-5000000
SG Mortgage Securities Trust 2006-FRE2 38559 1 $ - $ 1,613,134
SG Mortgage Securities Trust 2006-FRE2 38559 4 $ 1,081,162 $ 2,100,967
300000000
250000000
200000000

100000000
50000000
0
0 2 4 6 8 10 12 14
-50000000
33
Structured Asset Mortgage Investments II Trust 2006-AR2 36924 1 $ - $ 350,050
Structured Asset Mortgage Investments II Trust 2006-AR2 36924 6 $ 936,721 $ 543,213
Structured Asset Mortgage Investments II Trust 2006-AR2 36924 7 $ 3,307,214 $ 592,750
10000000
9000000
8000000
7000000
6000000
3000000
2000000
1000000
0
-1000000 0 2 4 6 8 10 12 14
34
ChaseFlex Trust Series 2007-2 41494 1 $ 245,835 $ 136,513
ChaseFlex Trust Series 2007-2 41494 4 $ 2,079,957 $ 177,796
20000000
18000000
16000000
14000000
12000000
6000000
4000000
2000000
0
0 2 4 6 8 10 12 14
ChaseFlex Trust Series 2007-3 41871 1 $ - $ 86,561
60000000
50000000
40000000
30000000
Actual Gross Losses
10000000
0
0 2 4 6 8 10 12 14
-10000000
35
ChaseFlex Trust Series 2007-M1 42137 1 $ - $ 261,924
ChaseFlex Trust Series 2007-M1 42137 9 $ 344,000 $ 527,697
ChaseFlex Trust Series 2007-M1 42137 10 $ 84,511,548 $ 575,350
100000000
80000000
60000000
Actual Gross Losses

40000000
20000000
0
0 2 4 6 8 10 12 14
-20000000
GMACM Home Equity Loan Trust 2006-HE1 37896 1 $ 19,787 $ 1,063,441
GMACM Home Equity Loan Trust 2006-HE1 37896 6 $ 1,194,984 $ 1,650,263
10000000
9000000
8000000
7000000
6000000
3000000
2000000
1000000
0
0 2 4 6 8 10 12 14
36
J.P. Morgan Alternative Loan Trust 2006-A2 37939 1 $ - $ 1,837,349
J.P. Morgan Alternative Loan Trust 2006-A2 37939 2 $ 176,100 $ 2,006,844
J.P. Morgan Alternative Loan Trust 2006-A2 37939 3 $ 176,100 $ 2,191,620
J.P. Morgan Alternative Loan Trust 2006-A2 37939 4 $ 1,882,009 $ 2,392,986
$16,000,000
$14,000,000
$12,000,000
$10,000,000
$8,000,000 Actual Gross Losses

$6,000,000
$4,000,000
$2,000,000
$-
0 2 4 6 8 10 12 14
J.P. Morgan Alternative Loan Trust 2007-A1 40928 1 $ - $ 410,953
J.P. Morgan Alternative Loan Trust 2007-A1 40928 4 $ 624,000 $ 535,231
J.P. Morgan Alternative Loan Trust 2007-A1 40928 5 $ 10,080,662 $ 584,295
60000000
50000000
40000000
10000000
0
0 2 4 6 8 10 12 14
-10000000
37
J.P. Morgan Alternative Loan Trust 2007-A2 41347 2 $ 877,350 $ 307,539
250000000
200000000
150000000
Actual Gross Losses
50000000
0
0 2 4 6 8 10 12 14
38
J.P. Morgan Alternative Loan Trust 2007-S1 41376 1 $ 102,646 $ 788,280
J.P. Morgan Alternative Loan Trust 2007-S1 41376 4 $ 2,534,448 $ 1,026,666
40000000
35000000
30000000
25000000
10000000
5000000
0
0 2 4 6 8 10 12 14
-5000000
80. As clearly shown in Figure 2 (supra), actual gross losses spiked almost
immediately after issuance of the RMBS. Borrowers defaulted on the underlying mortgages
soon after loan origination, rapidly eliminating the RMBS’s credit enhancement. For example,
in the SG Mortgage Securities Trust 2006-FRE2 offering, actual gross losses at month 12
exceeded $263 million, or more than 62 times the expected gross losses of approximately $4.2
million. (See supra Figure 2).
81. This immediate increase in actual losses—at a rate far greater than expected
losses—is strong evidence that the Originators systematically disregarded the underwriting
standards in the Offering Documents.
82. Because credit enhancement is designed to ensure triple-A performance of triple-
39
A rated RMBS, the evidence that credit enhancement has failed (i.e., actual losses swiftly surged
past expected losses shortly after the offering) substantiates that a critical number of mortgages
in the pool were not written in accordance with the underwriting guidelines stated in the Offering
Documents.
C. The Collapse of the Certificates’ Credit Ratings is Evidence of Systematic

Disregard of Underwriting Guidelines
83. Virtually all of the RMBS certificates the Credit Unions purchased were rated
triple-A at issuance.
84. Moody’s and S&P have since downgraded the RMBS certificates the Credit
Unions purchased to well below investment grade (see supra Table 3).
85. Triple-A rated product “should be able to withstand an extreme level of stress and
still meet its financial obligations. A historical example of such a scenario is the Great
Depression in the U.S.” Understanding Standard & Poor’s Rating Definitions, June 3, 2009, at
14.
86. A rating downgrade is material. The total collapse in the credit ratings of the
RMBS certificates the Credit Unions purchased, typically from triple-A to non-investment
speculative grade, is evidence of the Originators’ systematic disregard of underwriting
guidelines, amplifying that these RMBS were impaired from the outset.
D. Revelations Subsequent to the Offerings Show That the Originators

Systematically Disregarded Underwriting Standards
87. Public disclosures subsequent to the issuance of the RMBS reinforce the
allegation that the Originators systematically abandoned their stated underwriting guidelines.
1. The Systematic Disregard of Underwriting Standards Was Pervasive

as Revealed After the Collapse
88. Mortgage originators experienced unprecedented success during the mortgage
40
boom. Yet, their success was illusory. As the loans they originated began to significantly
underperform, the demand for their products subsided. It became evident that originators had
systematically disregarded their underwriting standards.
89. The Office of the Comptroller of the Currency (the “OCC”), an office within the
Treasury Department, published a report in November 2008 listing the “Worst Ten” metropolitan
areas with the highest rates of foreclosures and the “Worst Ten” originators with the largest
numbers of foreclosures in those areas (“2008 ‘Worst Ten in the Worst Ten’ Report”). In this
report the OCC emphasized the importance of adherence to underwriting standards in mortgage
loan origination:
The quality of the underwriting process—that is, determining through analysis of

the borrower and market conditions that a borrower is highly likely to be able to
repay the loan as promised—is a major determinant of subsequent loan
performance. The quality of underwriting varies across lenders, a factor that is
evident through comparisons of rates of delinquency, foreclosure, or other loan
performance measures across loan originators.
90. Government reports and investigations and newspaper reports have uncovered the
extent of pervasive abandonment of underwriting standards. The Permanent Subcommittee on
Investigations in the United States Senate (“PSI”) recently released its report detailing the causes
of the financial crisis. Using Washington Mutual Bank as a case study, the PSI concluded
through its investigation:
Washington Mutual was far from the only lender that sold poor quality mortgages
and mortgage backed securities that undermined U.S. financial markets. The
Subcommittee investigation indicates that Washington Mutual was emblematic of
a host of financial institutions that knowingly originated, sold, and securitized
billions of dollars in high risk, poor quality home loans. These lenders were not
the victims of the financial crisis; the high risk loans they issued became the fuel
that ignited the financial crisis.
STAFF OF S. PERMANENT SUBCOMM. ON INVESTIGATIONS, 112TH CONG., WALL STREET AND THE
FINANCIAL CRISIS: ANATOMY OF A FINANCIAL COLLAPSE 50 (Subcomm. Print 2011).

41
91. Indeed, the Financial Crisis Inquiry Commission (“FCIC”) issued its final report
in January 2011 that detailed, among other things, the collapse of mortgage underwriting
standards and subsequent collapse of the mortgage market and wider economy. See FIN. CRISIS
INQUIRY COMM’N, FINAL REPORT OF THE NATIONAL COMMISSION ON THE CAUSES OF THE
FINANCIAL AND ECONOMIC CRISIS IN THE UNITED STATES (2011) (“FCIC Report”).
92. The FCIC Report concluded that there was a “systemic breakdown in
accountability and ethics.” “Unfortunately—as has been the case in past speculative booms and
busts—we witnessed an erosion of standards of responsibility and ethics that exacerbated the
financial crisis.” Id. at xxii. The FCIC found:
[I]t was the collapse of the housing bubble—fueled by low interest rates, easy and
available credit, scant regulation, and toxic mortgages—that was the spark that
ignited a string of events, which led to a full-blown crises in the fall of 2008.
Trillions of dollars in risky mortgages had become embedded throughout the
financial system, as mortgage-related securities were packaged, repackaged, and
sold to investors around the world.
Id. at xvi.
93. During the housing boom, mortgage lenders focused on quantity rather than
quality, originating loans for borrowers who had no realistic capacity to repay the loan. The
FCIC Report found “that the percentage of borrowers who defaulted on their mortgages within
just a matter of months after taking a loan nearly doubled from the summer of 2006 to late
2007.” Id. at xxii. Early Payment Default is a significant indicator of pervasive disregard for
underwriting standards. The FCIC Report noted that mortgage fraud “flourished in an
environment of collapsing lending standards….” Id.
94. In this lax lending environment, mortgage lenders went unchecked, originating
mortgages for borrowers in spite of underwriting standards:
42
Lenders made loans that they knew borrowers could not afford and that could
cause massive losses to investors in mortgage securities. As early as September
2004, Countrywide executives recognized that many of the loans they were
originating could result in “catastrophic consequences.” Less than a year later,
they noted that certain high-risk loans they were making could result not only in
foreclosures but also in “financial and reputational catastrophe” for the firm. But
they did not stop.
Id.
95. Lenders and borrowers took advantage of this climate, with borrowers willing to
take on loans and lenders anxious to get those borrowers into the loans, ignoring even loosened
underwriting standards. The FCIC Report observed: “Many mortgage lenders set the bar so low
that lenders simply took eager borrowers’ qualifications on faith, often with a willful disregard
for a borrower’s ability to pay.” Id. at xxiii.
96. In an interview with the FCIC, Alphonso Jackson, the Secretary of the
Department of Housing and Urban Affairs (“HUD”) from 2004 to 2008, related that HUD had
heard about mortgage lenders “running wild, taking applications over the Internet, not verifying
people’s income or their ability to have a job.” Id. at 12-13 (internal quotation marks omitted).
97. Chairman of the Federal Reserve Board, Benjamin Bernanke, spoke to the decline
of underwriting standards in his speech before the World Affairs Council of Greater Richmond
on April 10, 2008:
First, at the point of origination, underwriting standards became increasingly

compromised. The best-known and most serious case is that of subprime
mortgages, mortgages extended to borrowers with weaker credit histories. To a
degree that increased over time, these mortgages were often poorly documented
and extended with insufficient attention to the borrower’s ability to repay. In
retrospect, the breakdown in underwriting can be linked to the incentives that the
originate-to-distribute model, as implemented in this case, created for the
originators. Notably, the incentive structures often tied originator revenue to loan
volume, rather than to the quality of the loans being passed up the chain. Investors
normally have the right to put loans that default quickly back to the originator,
which should tend to apply some discipline to the underwriting process. However,
43
in the recent episode, some originators had little capital at stake, reducing their
exposure to the risk that the loans would perform poorly.
Benjamin Bernanke, Chairman, Federal Reserve Board, Speech to the World Affairs Council of
Greater Richmond, Addressing Weaknesses in the Global Financial Markets: The Report of the
President’s Working Group on Financial Markets, Apr. 10, 2008.
98. Investment banks securitized loans that were not originated in accordance with
underwriting guidelines and failed to disclose this fact in RMBS offering documents. As the
FCIC Report noted:
The Commission concludes that firms securitizing mortgages failed to perform

adequate due diligence on the mortgages they purchased and at times knowingly
waived compliance with underwriting standards. Potential investors were not
fully informed or were misled about the poor quality of the mortgages contained
in some mortgage-related securities. These problems appear to have been
significant.
FCIC Report at 187.
99. Because investors had limited or no access to information concerning the actual
quality of loans underlying the RMBS, the OTD model created a situation where the origination
of low quality mortgages through poor underwriting thrived. The FSOC found:
In the originate-to-distribute model, originators receive significant compensation

upfront without retaining a material ongoing economic interest in the performance
of the loan. This reduces the economic incentive of originators and securitizers to
evaluate the credit quality of the underlying loans carefully. Some research
indicates that securitization was associated with lower quality loans in the
financial crisis. For instance, one study found that subprime borrowers with credit
scores just above a threshold commonly used by securitizers to determine which
loans to purchase defaulted at significantly higher rates than those with credit
scores below the threshold. By lower underwriting standards, securitization may
have increased the amount of credit extended, resulting in riskier and
unsustainable loans that otherwise may not have been originated.
FSOC Risk Retention Report at 11 (footnote omitted).
100. The FSOC reported that as the OTD model became more pervasive in the
44
mortgage industry, underwriting practices weakened across the industry. The FSOC Risk
Retention Report found “[t]his deterioration was particularly prevalent with respect to the
verification of the borrower’s income, assets, and employment for residential real estate loans…
.” Id.
101. In sum, the disregard of underwriting standards was pervasive across originators.
The failure to adhere to underwriting standards directly contributed to the sharp decline in the
quality of mortgages that became part of mortgage pools collateralizing RMBS. The lack of
adherence to underwriting standards for the loans underlying RMBS was not disclosed to
investors in the offering materials. The nature of the securitization process, with the investor
several steps removed from the origination of the mortgages underlying the RMBS, made it
difficult for investors to ascertain how the RMBS would perform.
102. As discussed below, facts have recently come to light that show many of the
Originators who contributed to the loan pools underlying the RMBS at issue in this Complaint
engaged in these underwriting practices.
2. American Home’s Systematic Disregard of Underwriting Standards
103. American Home Mortgage Investment Corp. was a real estate investment trust
that invested in RMBS consisting of loans originated and serviced by its subsidiaries. It was the
parent of American Home Mortgage Holdings, Inc., which in turn was the parent of American
Home Mortgage Corp., a retail lender of mortgage loans. Collectively, these entities are referred
to herein as “American Home.”
104. American Home originated or contributed a critical number of loans to the
mortgage pools underlying the J.P. Morgan Alternative Loan Trust 2007-A2, J.P. Morgan
Alternative Loan Trust 2007-S1, SACO I Trust 2006-2 and the SACO I Trust 2006-8 offerings.
45
See infra Table 6.
105. Edmund Andrews, an economics reporter for the New York Times, recounted his
own experience using American Home as a lender. According to Andrews, he was looking to
purchase a home in 2004, and his real estate agent referred him to a loan officer at American
Home. The American Home loan officer began the ordeal by asking Andrews how large of a
loan he needed. Andrews, who had a monthly take home pay of $2,777, advised the loan officer
that he had hefty child support and alimony payments to an ex-wife. Andrews would be relying
on his then-unemployed fiancée to earn enough money to meet his monthly obligations—
including the mortgage. Andrews reported:
As I quickly found out, American Home Mortgage had become one of the fastest-
growing mortgage lenders in the country. One of its specialties was serving
people just like me: borrowers with good credit scores who wanted to stretch
their finances far beyond what our incomes could justify. In industry jargon, we
were “Alt-A” customers, and we usually paid slightly higher rates for the
privilege of concealing our financial weaknesses.
I thought I knew a lot about go-go mortgages. I had already written several
articles about the explosive growth of liar’s loans, no-money-down loans, interest-
only loans and other even more exotic mortgages. I had interviewed people with
very modest incomes who had taken out big loans. Yet for all that, I was stunned
at how much money people were willing to throw at me.
[The American Home loan officer] called back the next morning. “Your credit
scores are almost perfect,” he said happily. “Based on your income, you can
qualify for a mortgage of about $500,000.”
What about my alimony and child-support obligations? No need to mention

them. What would happen when they saw the automatic withholdings in my
paycheck? No need to show them. If I wanted to buy a house, [the American
Home loan officer] figured, it was my job to decide whether I could afford it. His
job was to make it happen.
“I am here to enable dreams,” he explained to me long afterward. [The American

Home loan officer]’s view was that if I’d been unemployed for seven years and
didn’t have a dime to my name but I wanted a house, he wouldn’t question my
prudence. “Who am I to tell you that you shouldn’t do what you want to do? I
46
am here to sell money and to help you do what you want to do. At the end of the
day, it’s your signature on the mortgage—not mine.”
Edmund L. Andrews, My Personal Credit Crisis, N.Y. TIMES, May 17, 2009, at MM46.
106. The American Home loan officer steered Andrews to a stated-income loan so that
he would not have to produce paychecks or tax returns that would reveal his alimony and child
support obligations. The loan officer wanted to limit disclosure of Andrews’s alimony and child
support payments when an existing mortgage showed up under Andrews’s name. Although his
ex-wife was solely responsible for that mortgage under the terms of the couple’s separation
agreement, the only way Andrews could explain that fact would be to produce the agreement,
which would also reveal his alimony and child support obligations. According to Andrews:
[The American Home loan officer] didn’t get flustered. If Plan A didn’t work, he
would simply move down another step on the ladder of credibility. Instead of
“stating” my income without documenting it, I would take out a “no ratio”
mortgage and not state my income at all. For the price of a slightly higher interest
rate, American Home would verify my assets, but that was it. Because I wasn’t
stating my income, I couldn’t have a debt-to-income ratio, and therefore, I
couldn’t have too much debt. I could have had four other mortgages, and it
wouldn’t have mattered. American Home was practically begging me to take the
money.
Id.
107. American Home ultimately approved Andrews’s application. Not surprisingly,
Andrews was unable to afford his monthly mortgage payments.
108. American Home’s lack of adherence to underwriting guidelines was set forth in
detail in a 165-page amended class action complaint filed June 4, 2008, in In re American Home
Mortgage Sec Litig., No. 07-md-1898 (TCP) (E.D.N.Y.). Investors in American Home
common/preferred stock alleged that the company misrepresented itself as a conservative lender,
when, based on statements from more than 33 confidential witnesses and internal company
documents, American Home in reality was a high risk lender, promoting quantity of loans over
47
quality by targeting borrowers with poor credit, violating company underwriting guidelines, and
providing incentives for employees to sell risky loans, regardless of the borrowers’
creditworthiness. See Am. Class Action Compl., In re American Home Mortgage Sec. Litig., No.
07-md-1898 (E.D.N.Y. filed June 4, 2008) (“American Home ACC”).
109. According to the American Home ACC, former American Home employees
recounted that underwriters were consistently bullied by sales staff when underwriters
challenged questionable loans, while exceptions to American Home’s underwriting guidelines
were routinely applied. See id. ¶¶ 120-121.
110. The American Home ACC cited to witnesses who were former American Home
employees. These witnesses reported that American Home management told underwriters not to
decline a loan, regardless of whether the loan application included fraud. See id.
111. Another former American Home employee stated that American Home routinely
made exceptions to its underwriting guidelines to be able to close loans. When American Home
mortgage underwriters raised concerns to the sales department about the pervasive use of
exceptions to American Home’s mortgage underwriting practices, the sales department contacted
American Home headquarters to get approval for the use of exceptions. Indeed, it was
commonplace to overrule mortgage underwriters’ objections to approving a loan to facilitate loan
approval. See id. ¶ 123.
112. A former American Home auditor confirmed this account that American Home
mortgage underwriters were regularly overruled when they objected to loan originations. See id.
¶ 124.
113. The parties settled the litigation on January 14, 2010, for $37.25 million.
114. American Home’s lending practices landed it in the 2008 “Worst Ten in the
48
Worst Ten” Report. American Home came in 8th in Las Vegas, Nevada, and 9th in both Detroit,
Michigan, and Miami, Florida. See 2008 “Worst Ten in the Worst Ten” Report. When the OCC
issued the 2009 “Worst Ten in the Worst Ten” Report, American Home again featured
prominently, appearing in the top ten in six of the ten worst metropolitan areas (4th in both Fort
Pierce-Port St. Lucie, Florida, and Fort Myers-Cape Coral, Florida; 7th in Vallejo-Fairfield-
Napa, California; 8th in Las Vegas, Nevada; 9th in Stockton-Lodi, California; and 10th in
Bakersfield, California). See 2009 “Worst Ten in the Worst Ten” Report.
3. Bear Stearns Residential Mortgage Corporation’s Systematic

Disregard of Underwriting Standards
115. Bear Stearns Residential Mortgage Corp. (“BSRMC”) was formerly known as
EMC Residential Mortgage Corporation. The company was founded in 1994 and is based in
Scottsdale, Arizona. BSMRC operated as a subsidiary of The Bear Stearns Companies, LLC. It
is now a subsidiary of J.P. Morgan.
116. BSRMC originates mortgage-backed securities. It also offered solutions for
financing home mortgage loans to mortgage brokers. The company also provided
BearDirect.net, a Web interface, enabling brokers to receive feedback on mortgage loan product
and pricing scenarios.
117. BSRMC originated or contributed a material portion of the loans in the mortgage
pool underlying the Bear Stearns Second Lien Trust 2007-1, Groups II and III offering (see infra
Table 6).
118. BSRMC originated defective mortgages that even other risky subprime lenders
would not. According to data from the Federal Reserve, BSRMC originated 19,715 mortgages
in excess of $4.37 billion in its first full year of operation. Further, the data revealed that
BSRMC rejected only 13% of applications, compared with the significantly higher national
49
denial rate of 29%. See Michael Corkery, Fraud Seen as Driver in Wave of Foreclosures-
Atlanta Ring Scams Bear Stearns, Getting $6.8 Million in Loans, Wall St. J. A1 (Dec. 21, 2007),
available at http://online.wsj.com/article/SB119820566870044163.html.
119. The Federal Housing Finance Agency (“FHFA”) acting as conservator for Fannie
Mae and Freddie Mac has sued Bear Stearns for making material misstatements and omissions in
RMBS Offering Documents. See Am. Compl., FHFA v. JP Morgan, No. 11-6188 (S.D.N.Y.
filed June 13, 2012).
120. Confidential witnesses in the FHFA’s complaint described BSRMC’s disregard of
its underwriting guidelines. According to one confidential witness, who was a former senior
underwriter for BSRMC during the relevant time period, supervisors pressured the confidential
witness to push the loans through. If the confidential witness declined to approve a loan,
supervisors insisted that the confidential witness was not following guidelines. The confidential
witness stated that many of the loans should have been declined because they had unreasonable
stated incomes or the income was not verified, but the confidential witness was forced to approve
the loans regardless. If an underwriter questioned the income statements, supervisors would
question the underwriter’s adherence to the guidelines and threaten to fire them. Id. ¶ 222.
121. According to another confidential witness, who was an underwriter for BSRMC
during the relevant time period, underwriters were not permitted to investigate or question an
applicant’s ability to pay back the loan. The underwriters in the confidential witness’s office
were told to approve the loans and not to perform any due diligence as this would upset the loan
brokers. These instructions came from senior management. If the confidential witness refused
to approve a loan, the loan would be elevated to someone more senior who would approve the
loan. Further, the confidential witness believed that many of the loan applications contained
50
fraudulent documents. The confidential witness believed that these fraudulent documents were
coming from the broker level, but the underwriters were only permitted to perform a limited
amount of due diligence. The underwriters in confidential witness’s office complained that there
wasn’t a loan that BSRMC didn’t like. Id. ¶ 223.
122. The FHFA also conducted a forensic review of loans for an RMBS that contained
significant amounts of loans from BSRMC. This review consisted of an analysis of the loan
origination file for each loan, including the documents submitted by the individual borrowers in
support of their loan applications, as well as an analysis of information extrinsic to each loan file,
such as the borrower’s motor vehicle registration documentation with pertinent information
indicating a borrower’s assets or residence, and other information that was available at the time
of the loan application, as well as the borrower’s filings in bankruptcy proceedings and other
sources of information. Id. ¶ 362.
123. The FHFA reviewed 535 loan files for the Group II-2 pool in the BSMF 2007-
AR3 offering. BSRMC originated 16.49% of the loans in the Group II-2 pool. The FHFA’s
review revealed that 98% of the loans (523 out of 535) were not underwritten in accordance with
the underwriting guidelines or otherwise breached the representations contained in the
transaction documents. Of the 523 loans that did not comply with the underwriting guidelines,
none had sufficient compensating factors to warrant an exception. Id. ¶¶ 359, 367.
124. The FHFA noted several specific examples of how BSRMC disregarded its
underwriting guidelines.
125. In two of FHFA’s examples, BSRMC ignored its underwriting guidelines’s
requirement that “[i]ncome must be reasonable for employment stated”:
A loan that closed in February 2007 with a principal amount of $142,400 was
originated pursuant to BSRM’s Low Documentation Program and included in the
51
BSMF 2007-AR3 Securitization. This loan was a rate-term refinance. The loan
application stated that the borrower was employed as a school cook earning
$6,500 per month. The Bureau of Labor Statistics reported that the average salary
at the 90th percentile for a cook in the same geographic region in 2006 was
$2,669 per month. The borrower’s stated income exceeded the Bureau of Labor
Statistics’ 90th percentile by over 2 times, which should have put a reasonably
prudent underwriter on notice for potential misrepresentation. The loan file
contains no evidence that the loan underwriter assessed the reasonableness of the
borrower’s stated income. Moreover, in a Statement of Financial Affairs filed by
the borrower as part of a May 2010 Chapter 7 bankruptcy proceeding, the
borrower reported an income in 2008, the year following the subject loan’s
closing in 2007, of only $1,680 per month. It is unlikely the borrower’s income
would have decreased considering, per Schedule I of the bankruptcy petition, the
borrower was still employed by the same employer. A recalculation of DTI based
on the borrower’s verified next year income and additional undisclosed debt
yields a DTI of 252.53 percent, which exceeds the guideline maximum allowable
DTI of 50 percent. The borrower defaulted and the loan was subsequently
foreclosed on with a remaining balance of $151,206.91, or 106.18 percent of the
original loan balance.
BSMF 2007-AR3 Securitization. The loan application stated that the borrower
was employed as a training specialist earning $18,583 per month. The Bureau of
Labor Statistics reported that the average salary at the 90th percentile for a
training specialist in the same geographic region in 2007 was $7,568 per month.
The borrower’s stated income exceeded the Bureau of Labor Statistics’ 90th
percentile by over 2 times, which should have put a reasonably prudent
underwriter on notice for potential misrepresentation. Moreover, the initial loan
application indicated the borrower earned $10,250 per month and the co-borrower
earned $8,333 per month; however, the final 1003 application reflects the
borrower’s stated income as $18,583 and the co-borrower’s stated income as $0,
which also should have put a reasonably prudent underwriter on notice for
potential misrepresentation. Despite these red flags, the loan file contains no
evidence that the loan underwriter assessed the reasonableness of the borrower’s
stated income. The borrower provided a pay stub for the pay period ending
August 2009 in connection with a post-closing review. The pay stub revealed the
borrower’s actual income was $7,056 per month. It is unlikely the borrower’s
income would have decreased considering the borrower was still employed by the
same employer and in the same position. A recalculation of DTI based on the
borrower’s verified income yields a DTI of 120.63 percent, which exceeds the
guideline maximum allowable DTI of 50 percent. The borrower defaulted and the
loan was subsequently foreclosed on with a remaining balance of $76,184.38, or
112.20 percent of the original loan balance.
Id. ¶¶ 378-379.
52
126. In another of the FHFA’s examples, BSRMC underwriters ignored obvious red
flags of misrepresentations on the loan application:
A loan that closed in January 2007 with a principal amount of $170,000 was
BSMF 2007-AR3 Securitization. The loan closed as an owner-occupied cash-out
refinance. The underwriting guidelines for this loan required that at least one of
the borrowers occupy the subject property and the loan was represented as owner
occupied. The final loan application indicated that the borrower was occupying
the subject property as a primary residence. However, a review of the loan file
revealed that the borrower was in the process of purchasing a primary residence,
not the subject property and out of state, at the time of loan application.
Furthermore, the loan file contained a hardship letter obtained in connection with
a post-closing request for a loan modification, which revealed that the borrower
moved from the subject property in January 2007, the same month as the subject
loan closing, to occupy the out of state residence purchased in February 2007.
Moreover, the hardship letter also revealed that the borrower retained the subject
property as an investment property. No evidence in the file indicates that the
underwriting process addressed these inconsistencies, and the loan was
underwritten as if the property was owner occupied. The borrower defaulted and
the loan was subsequently foreclosed on with a remaining balance of
$184,968.78, or 108.81 percent of the original loan balance.
Id. ¶ 381.
127. The FHFA provided two more examples where BSRMC underwriters ignored red
flags that the borrower had undisclosed debt obligations:
BSMF 2007-AR3 Securitization. The applicable guidelines required a qualified
credit report to be present in the loan file. A qualified credit report includes credit
inquiries for the previous 90 days. The origination underwriter should have
determined whether any recent credit inquiries listed on the report resulted in
additional debt undisclosed on the loan application. Despite this requirement, the
underwriter failed to investigate the borrower’s credit history. There was no
evidence in the file that the underwriter requested or obtained an explanation from
the borrower for the 9 inquiries, dated from November 5, 2006 through January
30, 2007, listed on the origination credit report dated January 30, 2007. A
recalculation of DTI based on the borrower’s undisclosed debt yields a DTI of
120.63 percent, which exceeds the guideline maximum allowable DTI of 50
percent. The borrower defaulted and the loan was subsequently foreclosed on
with a remaining balance of $76,184.38, or 112.20 percent of the original loan
balance.
53
BSMF 2007-AR3 Securitization. The applicable guidelines required a qualified
credit report to be present in the loan file. A qualified credit report includes credit
inquiries for the previous 90 days and, further, lender’s guidelines required the
lender to investigate the borrower’s credit. The origination underwriter should
have determined whether any recent credit inquiries listed on the report resulted in
additional debt undisclosed on the loan application. Despite this requirement, the
underwriter failed to investigate the borrower’s credit history. There was no
evidence in the file that the underwriter requested or obtained an explanation from
the borrower for the 6 inquiries, dated from September 12, 2006 through
November 29, 2006, listed on the origination credit report dated November 29,
2006. A recalculation of DTI based on the borrower’s verified income and
undisclosed debt yields a DTI of 252.53 percent which exceeds the guideline
maximum allowable DTI of 50 percent. The borrower defaulted and the loan was
subsequently foreclosed on with a remaining balance of $151,206.91, or 106.18
percent of the original loan balance.
Id. ¶ 383.
128. And finally, the FHFA highlighted an instance in which BSRMC failed to
evaluate a borrower’s ability to repay in light of all of the liabilities that the underwriting
guidelines required it to consider:
BSMF 2007-AR3 Securitization. The lender failed to properly calculate the
borrower’s debts. A review of the audit credit report revealed that the borrower
opened an installment loan in December 2006 in the amount of $9,036 with a
monthly payment of $201 and failed to disclose this debt on the loan application.
The origination credit report dated January 18, 2007 revealed 6 inquiries, one of
which lead to the undisclosed installment loan. A recalculation of DTI based on
the borrower’s undisclosed debt yields a DTI of 118.27 percent, which exceeds
the guideline maximum allowable DTI of 50 percent. The borrower defaulted and
the loan was subsequently liquidated for a loss of $138,989.71, or 60.96 percent
of the original loan balance.
borrower’s debts. A review of the audit credit report and Mortgage Electronic
Registration Systems revealed 6 undisclosed mortgages opened within 30 days of
the subject loan’s closing. The following mortgages were undisclosed on the loan
application: A mortgage in the amount of $80,100 and a monthly payment of
54
$546 opened January 2007, a mortgage in the amount of $88,200 and a monthly
payment of $602 opened January 2007, a mortgage in the amount of $94,500 and
a monthly payment of $645 opened January 2007, a mortgage in the amount of
$27,000 and a monthly payment of $170 opened February 2007, a mortgage in the
amount of $88,900 and a monthly payment of $606 opened February 2007, and a
mortgage in the amount of $114,300 and a monthly payment of $780 opened
February 2007. Moreover, the origination credit report dated January 30, 2007
revealed 9 inquiries dated from November 5, 2006 through January 30, 2007, and
the loan file contained a lease agreement for a rental property not disclosed on the
loan application, both of which should have put a reasonably prudent underwriter
on notice for potential misrepresentation. A recalculation of DTI based on the
borrower’s undisclosed debt yields a DTI of 120.63 percent, which exceeds the
loan was subsequently foreclosed on with a remaining balance of $76,184.38, or
112.20 percent of the original loan balance.
Id. ¶ 385.
129. In fact, the FHFA determined that 89 of the 535 loans (25.2%) it reviewed from
the BSMF 2007-AR3 offering incorrectly calculated the borrower’s debts which, if corrected,
would have caused the debt-to-income ratio to exceed the applicable underwriting guidelines.
Id. ¶ 386.
130. In FHFA’s suit, the district court denied Bear Stearns’s motion to dismiss, holding
that the FHFA’s allegations “amply support FHFA’s assertion that the Offering Documents for
the Securitizations contained false statements regarding originators’ compliance with
underwriting standards.” FHFA v. JPMorgan Chase & Co., No. 11-6188, 2012 WL 5395646, at
*8 (S.D.N.Y Nov. 5, 2012).
131. Bear Stearns shareholders brought a class action complaint against Bear Stearns
regarding its mortgage-backed securities business. The complaint contained allegations by
confidential witnesses. One confidential witness was an Area Sales Manager who began work
for Encore Credit Corporation, which was purchased by Bear Stearns in early 2007. The
confidential witness continued to work at BSRMC until February 2008. The confidential
55
witness’s office was under great pressure to “dig deeper” and originate riskier loans that “cut
corners” with respect to credit scores or LTV ratios. Compl., In re Bear Stearns Cos., Sec.,
Derivative, & ERISA Litig., No. 08-2793, ¶ 54 (S.D.N.Y filed Feb. 27, 2009).
4. The Chase Originators’ Systematic Disregard of Underwriting

Standards
132. Chase Home Finance, LLC and J.P. Morgan Chase Bank, N.A. (the “Chase
Originators”) compose the mortgage-lending arm of JPMorgan Chase & Co. The Chase
Originators originated or contributed a critical portion of loans in the mortgage pool underlying
the ChaseFlex Trust Series 2007-2, ChaseFlex Trust Series 2007-3, ChaseFlex Trust Series
2007-M1, J.P. Morgan Alternative Loan Trust 2006-A2, J.P. Morgan Alternative Loan Trust
2007-A1, J.P. Morgan Alternative Loan Trust 2007-A2 and J.P. Morgan Alternative Loan Trust
2007-S1 offerings. See Table 6 (infra).
133. Chase employees circulated a memo instructing mortgage associates how to
tweak data they entered into the automated underwriting program (“ZiPPY”) to get loans
approved by the automated underwriting program. See Memorandum from Chase on ZiPPY
Cheats & Tricks (on file with Plaintiff) (Chase ZiPPY Memo”) (reported in Mark Friesen, Chase
mortgage memo pushes ‘Cheats & Tricks’, OREGONIAN, March 28, 2008, available at
http://www.oregonlive.com/business/index.ssf/2008/03/chase_mortgage_memo_pushes_che.htm
l).
134. The Chase ZiPPY Memo listed a few steps that mortgage associates could use to
manipulate the data entered into the ZiPPY automated underwriting program to recommend
using the “Stated Income/Stated Asset” underwriting guidelines for borrowers. See Chase
ZiPPY Memo.
135. Strikingly, “Step 3” stated: “If you do not get Stated/Stated, try resubmitting with
56
slightly higher income. Inch it up $500 to see if you can get the findings you want. Do the same
for assets.” Id.
136. In other words, the Chase ZiPPY Memo instructed mortgage associates to inflate
borrower income to “trick” ZiPPY into recommending the use of Stated Income/Stated Asset
underwriting guidelines.
137. In addition, the Chase ZiPPY Memo told mortgage associates not to report gift
funds, but to include gift funds in the borrower’s bank account.
138. The Oregonian characterized the memo in the following excerpt from a March 28,
2008 article:. In particular, the Oregonian article highlighted the “tricks” employed to get
mortgage loans approved under the automated underwriting program:
A newly surfaced memo from banking giant JPMorgan Chase provides a rare
glimpse into the mentality that fueled the mortgage crisis.
The memo’s title says it all: “Zippy Cheats & Tricks.”
It is a primer on how to get risky mortgage loans approved by Zippy, Chase’s in-
house automated loan underwriting system. The secret to approval? Inflate the
borrowers’ income or otherwise falsify their loan application.
The document, a copy of which was obtained by The Oregonian, bears a Chase
corporate logo. But it’s unclear how widely it was circulated or used within
Chase.
...
Chase, the nation’s second-largest bank, originates mortgage loans itself but also
operates a wholesale arm that underwrites and funds loans brought to them by a
network of mortgage brokers. The “Cheats & Tricks” memo was instructing
those brokers how to get difficult loans approved by Zippy.
“Never fear,” the memo states. “Zippy can be adjusted (just ever so slightly.)”
The Chase memo deals specifically with so-called stated-income asset loans, one
of the most dangerous of the mortgage industry’s innovations of recent years.
Known as “liar loans” in some circles because lenders made little effort to verify
information in the borrowers’ loan application, they have defaulted in large
number since the housing bust began in 2007.
57
Mark Friesen, Chase mortgage memo pushes ‘Cheats & Tricks’, OREGONIAN, Mar. 28, 2008,
available at http://www.oregonlive.com/business/index.ssf/2008/03/
chase_mortgage_memo_pushes_che.html.
5. Countrywide’s Systematic Disregard of Underwriting Standards
139. Countrywide Home Loans, Inc. (“Countrywide”) was one of the largest
originators of residential mortgages in the United States during the time period at issue in this
Complaint. Countrywide originated or contributed a material portion of the loans in the
mortgage pool underlying the Bear Stearns Alt-A Trust 2005-9, J.P. Morgan Alternative Loan
Trust 2006-A2, J.P. Morgan Alternative Loan Trust 2007-A1 and the Structured Asset Mortgage
Investments II Trust 2006-AR2 offerings. See infra Table 6.
140. In October 2009, the House Committee on Oversight and Government Reform
launched an investigation into the entire subprime mortgage industry, including Countrywide,
focusing on “whether mortgage companies employed deceptive and predatory lending practices,
or improper tactics to thwart regulation, and the impact of those activities on the current crisis.”
Press Release, Comm. on Oversight & Government Reform, Statement of Chairman Towns on
Committee Investigation Into Mortgage Crisis at 1 (Oct. 23, 2009) (internal quotation marks
omitted).
141. On May 9, 2008, the New York Times noted that minimal documentation and
stated income loans—Countrywide’s No Income/No Assets Program and Stated Income/Stated
Assets Program—have “bec[o]me known [within the mortgage industry] as ‘liars’ loans’ because
many [of the] borrowers falsified their income.” Floyd Norris, A Little Pity, Please, for Lenders,
N.Y. Times, May 9, 2008, at C1.
142. In a television special titled, “If You Had a Pulse, We Gave You a Loan,” Dateline
58
NBC reported on March 27, 2009:
To highlight just how simple it could be to borrow money, Countrywide marketed

one of its stated-income products as the “Fast and Easy loan.”
As manager of Countrywide’s office in Alaska, Kourosh Partow pushed Fast and

Easy loans and became one of the company’s top producers.
He said the loans were “an invitation to lie” because there was so little scrutiny of
lenders. “We told them the income that you are giving us will not be verified.
The asset that you are stating will not be verified.”
He said they joked about it: “If you had a pulse, we gave you a loan. If you fog
the mirror, give you a loan.”
But it turned out to be no laughing matter for Partow. Countrywide fired him for
processing so-called “liar loans” and federal prosecutors charged him with crimes.
On April 20, 2007, he pleaded guilty to two counts of wire fraud involving loans
to a real estate speculator; he spent 18 months in prison.
In an interview shortly after he completed his sentence, Partow said that the
practice of pushing through loans with false information was common and was
known by top company officials. “It’s impossible they didn’t know.”
…
During the criminal proceedings in federal court, Countrywide executives

portrayed Partow as a rogue who violated company standards.
But former senior account executive Bob Feinberg, who was with the company
for 12 years, said the problem was not isolated. “I don’t buy the rogue. I think it
was infested.”
He lamented the decline of what he saw as a great place to work, suggesting a

push to be number one in the business led Countrywide astray. He blamed
Angelo Mozilo, a man he long admired, for taking the company down the wrong
path. It was not just the matter of stated income loans, said Feinberg.
Countrywide also became a purveyor of loans that many consumer experts
contend were a bad deal for borrowers, with low introductory interest rates that
later could skyrocket.
In many instances, Feinberg said, that meant borrowers were getting loans that
were “guaranteed to fail.”
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Chris Hansen, ‘If You Had a Pulse, We Gave You a Loan,’ NBC Dateline (Mar. 22, 2009)
http://www.msnbc.msn.com/id/29827248/ns/dateline_nbc-the_hansen_files_with_chris_hansen.
143. On June 4, 2009, the SEC sued Angelo Mozilo and other Countrywide executives,
alleging securities fraud. Specifically, the SEC alleged that Mozilo and the others misled
investors about the credit risks that Countrywide created with its mortgage origination business,
telling investors that Countrywide was primarily involved in prime mortgage lending, when it
was actually heavily involved in risky sub-prime loans with expanded underwriting guidelines.
See Compl. for Violations of the Federal Securities Laws, SEC v. Mozilo, No. CV 09-3994-JFW
(C.D. Cal. filed June 4, 2009). Mozilo and the other executives settled the charges with the SEC
for $73 million on October 15, 2010. See Walter Hamilton & E. Scott Reckard, Angelo Mozilo,
Other Former Countrywide Execs Settle Fraud Charges, L.A. Times, Oct. 16, 2010, at A1.
144. Internal Countrywide e-mails the SEC released in connection with its lawsuit
show the extent to which Countrywide systematically deviated from its underwriting guidelines.
For instance, in an April 13, 2006 e-mail from Mozilo to other top Countrywide executives,
Mozilo stated that Countrywide was originating home mortgage loans with “serious disregard for
process, compliance with guidelines and irresponsible behavior relative to meeting timelines.”
E-mail from Angelo Mozilo to Eric Sieracki and other Countrywide Executives (Apr. 13, 2006
7:42 PM PDT). Mozilo also wrote that he had “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].” Id. (internal quotation marks
omitted).
145. Indeed, in September 2004, Mozilo had voiced his concern over the “clear
deterioration in the credit quality of loans being originated,” observing that “the trend is getting
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worse” because of competition in the non-conforming loans market. With this in mind, Mozilo
argued that Countrywide should “seriously consider securitizing and selling ([Net Interest
Margin Securities]) a substantial portion of [Countrywide’s] current and future sub prime [sic]
residuals.” E-mail from Angelo Mozilo to Stan Kurland & Keith McLaughlin, Managing
Directors, Countrywide (Sept. 1, 2004 8:17 PM PDT).
146. To protect themselves against poorly underwritten loans, parties that purchase
loans from an originator frequently require the originator to repurchase any loans that suffer
Early Payment Default.
147. In the first quarter of 2006, HSBC Holdings plc (“HSBC”), a purchaser of
Countrywide’s 80/20 subprime loans, began to force Countrywide to repurchase certain loans
that HSBC contended were defective under the parties’ contract. In an e-mail sent on April 17,
2006, Mozilo asked, “[w]here were the breakdowns in our system that caused the HSBC debacle
including the creation of the contract all the way through the massive disregard for guidelines set
forth by both the contract and corporate.” E-mail from Angelo Mozilo to Dave Sambol, former
Executive Managing Director and Chief of Mortgage Banking and Capital Markets at
Countrywide Financial (Apr. 17, 2006 5:55 PM PST). Mozilo continued:
In all my years in the business I have never seen a more toxic prduct. [sic] It’s
not only subordinated to the first, but the first is subprime. In addition, the
[FICOs] are below 600, below 500 and some below 400 . . . . With real estate
values coming down . . . the product will become increasingly worse. There has
[sic] to be major changes in this program, including substantial increases in the
minimum [FICO].
Id.
148. Countrywide sold a product called the “Pay Option ARM.” This loan was a 30-
year adjustable rate mortgage that allowed the borrower to choose between various monthly
payment options, including a set minimum payment. In a June 1, 2006 e-mail, Mozilo noted that
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most of Countrywide’s Pay Option ARMs were based on stated income and admitted that
“[t]here is also some evidence that the information that the borrower is providing us relative to
their income does not match up with IRS records.” E-mail from Angelo Mozilo to Carlos
Garcia, former CFO of Countrywide Financial and Jim Furash, former President of Countrywide
Bank (June 1, 2006 10:38 PM PST).
149. An internal quality control report e-mailed on June 2, 2006, showed that for stated
income loans, 50.3% of loans indicated a variance of 10% or more from the stated income in the
loan application. See E-mail from Clifford Rossi, Chief Risk Officer, Countrywide, to Jim
Furash, Executive, CEO, Countrywide Bank, N.A., among others (June 2, 2006 12:28 PM PDT).
150. Countrywide, apparently, was “flying blind” on how one of its popular loan
products, the Pay Option ARM loan, would perform, and admittedly, had “no way, with any
reasonable certainty, to assess the real risk of holding these loans on [its] balance sheet.” E-mail
from Angelo Mozilo to Dave Sambol, Managing Director Countrywide (Sept. 26, 2006 10:15
AM PDT). Yet such loans were securitized and passed on to unsuspecting investors such as the
Credit Unions.
151. With growing concern over the performance of Pay Option ARM loans in the
waning months of 2007, Mozilo advised that he “d[id]n’t want any more Pay Options originated
for the Bank.” E-mail from Angelo Mozilo Countrywide to Carlos Garcia, former Managing
Director, Countrywide (Nov. 3, 2007 5:33 PM PST). In other words, if Countrywide was to
continue to originate Pay Option ARM loans, it was not to hold onto the loans. Mozilo’s
concerns about Pay Option ARM loans were rooted in “[Countrywide’s] inability to underwrite
[Pay Option ARM loans] combined with the fact that these loans [we]re inherently unsound
unless they are full doc, no more than 75% LTV and no piggys.” Id.
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152. In a March 27, 2006 e-mail, Mozilo reaffirmed the need to “oversee all of the
corrective processes that will be put into effect to permanently avoid the errors of both
judgement [sic] and protocol that have led to the issues that we face today” and that “the people
responsible for the origination process understand the necessity for adhering to the guidelines for
100% LTV sub-prime product. This is the most dangerous product in existence and there can be
nothing more toxic and therefore requires that no deviation from guidelines be permitted
irrespective of the circumstances.” E-mail from Angelo Mozilo to the former Countrywide
Managing Directors (Mar. 27, 2006 8:53 PM PST).
153. Yet Countrywide routinely found exceptions to its underwriting guidelines
without sufficient compensating factors. In an April 14, 2005 e-mail, Frank Aguilera, a
Countrywide managing director, explained that the “spirit” of Countrywide’s exception policy
was not being followed. He noted a “significant concentration of similar exceptions” that
“denote[d] a divisional or branch exception policy that is out side [sic] the spirit of the policy.”
E-mail from Frank Aguilera, Managing Director, Countrywide, to John McMurray, Managing
Director, Countrywide (Apr. 14, 2005 12:14 PM PDT). Aguilera continued: “The continued
concentration in these same categories indicates either a) inadequate controls in place to mange
[sic] rogue production units or b) general disregard for corporate program policies and
guidelines.” Id. Aguilera observed that pervasive use of the exceptions policy was an industry-
wide practice:
It appears that [Countrywide Home Loans]’ loan exception policy is more loosely
interpreted at [Specialty Lending Group] than at the other divisions. I understand
that [Correspondent Lending Division] has decided to proceed with a similar
strategy to appease their complaint customers. . . . [Specialty Lending Group] has
clearly made a market in this unauthorized product by employing a strategy that
Blackwell has suggested is prevalent in the industry. . . .
Id.
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154. Internal reports months after an initial push to rein in the excessive use of
exceptions with a “zero tolerance” policy showed the use of exceptions remained excessive.
E-mail from Frank Aguilera, Managing Director, Countrywide, to Brian Kuelbs, Managing
Director, Countrywide, among others (June 12, 2006 10:13 AM PDT).
155. In February 2007, nearly a year after pressing for a reduction in the overuse of
exceptions and as Countrywide claimed to be tightening lending standards, Countrywide
executives found that exceptions continued to be used at an unacceptably high rate. Frank
Aguilera stated that any “[g]uideline tightening should be considered purely optics with little
change in overall execution unless these exceptions can be contained.” E-mail from Frank
Aguilera, Managing Director, Countrywide, to Mark Elbuam, Managing Director, Countrywide,
among others (Feb. 21, 2007 4:58 PM PST).
156. John McMurray, a former Countrywide managing director, expressed his opinion
in a September 2007 e-mail that “the exception process has never worked properly.” E-mail
from John McMurray, Managing Director, to Jess Lederman, Managing Director, Countrywide
(Sept. 7, 2007 10:12 AM PDT).
157. Countrywide conceded that the poor performance of loans it originated was, in
many cases, due to poor underwriting. In April 2007, Countrywide noticed that its high CLTV
ratio stated income loans were performing worse than those of its competitors. After reviewing
many of the loans that went bad, a Countrywide executive stated that “in most cases [poor
performance was] due to poor underwriting related to reserves and verification of assets to
support reasonable income.” E-mail from Russ Smith, Countrywide to Andrew Gissinger,
Managing Director, Countrywide (Apr. 11, 2007 7:58 AM PDT).
158. On October 6, 2008, 39 states announced that Countrywide agreed to pay up to $8
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billion in relief to homeowners nationwide to settle lawsuits and investigations regarding
Countrywide’s deceptive lending practices.
159. On July 1, 2008, NBC Nightly News aired the story of a former Countrywide
regional Vice President, Mark Zachary, who sued Countrywide after he was fired for questioning
his supervisors about Countrywide’s poor underwriting practices.
160. According to Zachary, Countrywide pressured employees to approve unqualified
borrowers. Countrywide’s mentality, he said, was “what do we do to get one more deal done. It
doesn’t matter how you get there [i.e., how the employee closes the deal] . . . .” NBC Nightly
News, Countrywide Whistleblower Reports “Liar Loans” (July 1, 2008) (“July 1, 2008 NBC
Nightly News”). Zachary also stated that the practices were not the work of a few bad apples,
but rather: “It comes down, I think from the very top that you get a loan done at any cost.” Id.
161. Zachary also told of a pattern of: 1) inflating home appraisals so buyers could
borrow enough to cover closing costs, but leaving the borrower owing more than the house was
truly worth; 2) employees steering borrowers who did not qualify for a conventional loan into
riskier mortgages requiring little or no documentation, knowing they could not afford it; and
3) employees coaching borrowers to overstate their income in order to qualify for loans.
162. NBC News interviewed six other former Countrywide employees from different
parts of the country, who confirmed Zachary’s description of Countrywide’s corrupt culture and
practices. Some said that Countrywide employees falsified documents intended to verify
borrowers’ debt and income to clear loans. NBC News quoted a former loan officer: “‘I’ve seen
supervisors stand over employees’ shoulders and watch them . . . change incomes and things like
that to make the loan work.’” July 1, 2008 NBC Nightly News.
163. Not surprisingly, Countrywide’s default rates reflected its approach to
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underwriting. See 2008 “Worst Ten in the Worst Ten” Report. Countrywide appeared on the top
ten list in six of the ten markets: 4th in Las Vegas, Nevada; 8th in Sacramento, California; 9th in
Stockton, California and Riverside, California; and 10th in Bakersfield, California and Miami,
Florida. When the OCC issued its updated 2009 “Worst Ten in the Worst Ten” Report,
Countrywide appeared on the top ten list in every market, holding 1st place in Las Vegas,
Nevada; 2nd in Reno, Nevada; 3rd in Merced, California; 6th in Fort Myers-Cape Coral, Florida,
Modesto, California, and Stockton-Lodi, California; 7th in Riverside-San Bernardino, California
and Fort Pierce-Port St. Lucie, Florida; 8th in Vallejo-Fairfield-Napa, California; and 9th in
Bakersfield, California. See 2009 “Worst Ten in the Worst Ten” Report.
6. EMC Mortgage’s Systematic Disregard of Underwriting Guidelines
164. EMC Mortgage Company (“EMC”) was an originator, aggregator and servicer
that purchased and securitized a high volume of mortgage loans. Presently, EMC, now known as
EMC Mortgage LLC, is a subsidiary of J.P. Morgan Chase & Co.
165. EMC originated or contributed a material portion of the loans in the mortgage
pools underlying the Bear Stearns Alt-A Trust 2005-9 and the SACO I Trust 2006-7 offerings.
See infra Table 6.
166. In 2008, EMC and Bear Stearns settled charges with the Federal Trade
Commission (“FTC”) over allegations that the EMC engaged in unlawful loan servicing
practices that had their genesis in the lack of integrity in EMC’s documentation of borrower’s
loan applications. This September 9, 2008 press release from the FTC reports:
The Bear Stearns Companies, LLC and its subsidiary, EMC Mortgage
Corporation, have agreed to pay $28 million to settle Federal Trade Commission
charges that they engaged in unlawful practices in servicing consumers’ home
mortgage loans. The companies allegedly misrepresented the amounts borrowers
owed, charged unauthorized fees, such as late fees, property inspection fees, and
loan modification fees, and engaged in unlawful and abusive collection practices.
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Under the proposed settlement they will stop the alleged illegal practices and
institute a data integrity program to ensure the accuracy and completeness of
consumers’ loan information.
“Like other companies that send a bill, mortgage servicers must make sure that
the amount they say is due really is the amount due,” said Lydia B. Parnes,
Director of the FTC’s Bureau of Consumer Protection. “Consumers have the
right to expect accuracy from the company that collects their mortgage payments.
As stated in the FTC’s complaint, Bear Stearns and EMC have played a
prominent role in the secondary market for residential mortgage loans. During the
explosive growth of the mortgage industry in recent years, they acquired and
securitized loans at a rapid pace, but they allegedly paid inadequate attention to
the integrity of consumers’ loan information and to sound servicing practices. As
a result, in servicing consumers’ loans, they neglected to obtain timely and
accurate information on consumers’ loans, made inaccurate claims to consumers,
and engaged in unlawful collection and servicing practices. These practices
occurred prior to JP Morgan Chase & Co.’s acquisition of Bear Stearns, which
became effective on May 30, 2008.
The proposed settlement requires Bear Stearns and EMC to pay $28 million to
redress consumers who have been injured by the illegal practices alleged in the
complaint. In addition, the settlement bars the defendants from future law
violations and imposes new restrictions and requirements on their business
practices.
Press Release, Bear Stearns and EMC Mortgage to Pay $28 Million to Settle FTC Charges of
Unlawful Mortgage Servicing and Debt Collection Practices, Federal Trade Comm’n (Sept. 9,
2008), available at http://www.ftc.gov/opa/2008/09/emc.shtm.
167. The New York Attorney General’s office opened an investigation into possible
criminal activity at EMC in “supplying bad information to ratings agencies about the quality of
the mortgages they signed off on.” This May 14, 2010 article in The Atlantic reported:
Made up FICO scores? Twenty-minute speed ratings to AAA? If government

prosecutors like New York Attorney General Andrew Cuomo want answers to
why the mortgage-backed securities market was so screwed up, they should talk
to Matt Van Leeuwen from Bear Stearn’s servicing arm EMC.
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Reports indicated on Thursday that Cuomo is pursuing a criminal investigation
surrounding banks supplying bad information to rating agencies about the quality
of the mortgages they signed off on….
Employed during the go-go years of 2004-2006, and speaking in an interview

taped by BlueChip Films for a documentary in final production called Confidence
Game, Van Leeuwen sheds some light onto the shenanigans going on during the
mortgage boom that might surprise even Cuomo. As a former mortgage analyst at
Dallas-based EMC mortgage, which was wholly owned by Bear Stearns, he had
first-hand experience working with Bear’s mortgage-backed securitization
factory. EMC was the “third-party” firm Bear was using to vet the quality of
loans that would purchase from banks like Countrywide and Wells Fargo.
Van Leeuwen says Bear traders pushed EMC analysts to get loan analysis done in
only one to three days. That way, Bear could sell them off fast to eager investors
and didn’t have to carry the cost of holding these loans on their books.
According to two EMC analysts, they were encouraged to just make up data like
FICO scores if the lenders they purchased loans in bulk from wouldn’t get back to
them promptly. Every mortgage security Bear Stearns sold emanated out of
EMC. The EMC analysts had the nitty-gritty loan-level data and knew better than
anyone that the quality of loans began falling off a cliff in 2006. But as the cracks
in lending standards were coming more evident the Bear traders in New York
were pushing them to just get the data ready for the raters by any means
necessary.
In another case, as more exotic loans were being created by lenders, the EMC
analyst didn’t even know how to classify the documentation associated with the
loan. This was a data point really important to the bonds ratings. When Bear
would buy individual loans from lenders the EMC analyst said they couldn’t tell
if it should be labeled a no-doc or full doc loan. Van Leeuwen explains, “I wasn’t
allowed to make the decision for how to classify the documentation level of the
loans. We’d call analysts in Bear’s New York office to get guidance.” Time was
of the essence here. “So, a snap decision would be made up there (in NY) to code
a documentation type without in-depth research of the lender’s documentation
standards,” says Van Leeuwen.
Two EMC analysts said instead of spending time to go back to the lender and
demand clarification, like if verification of income actually backed these loans,
the executives at Bear would just make the loan type fit. Why? One EMC
analyst explains, “from Bear’s perspective, we didn’t want to overpay for the
loans, but we don’t want to waste the resources on deep investigation: that’s not
how the company makes money. That’s not our competitive advantage – it eats
into profits.”
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Teri Buhl, More Corruption: Bear Stearns Falsified Information as Raters Shrugged, The
Atlantic, May 14, 2010, available at http://www.theatlantic.com/business/archive/2010/05/more-
corruption-bear-stearns-falsified-information-as-raters-shrugged/56753/.
168. The FHFA as conservator for Fannie Mae and Freddie Mac has also sued Bear
Stearns for making material misstatements and omissions in RMBS Offering Documents. See
Am. Compl., FHFA v. JP Morgan, No. 11-6188 (S.D.N.Y. filed June 13, 2012).
169. The FHFA conducted a forensic review of loans for an RMBS that contained
significant amounts of loans from EMC. This review consisted of an analysis of the loan
170. The FHFA reviewed 535 loan files for Group II-2 pool for the BSMF 2007-AR3.
EMC originated 41.49% of the loans in the Group II-2 pool. The FHFA’s review revealed that
98% of the loans (523 out of 535) were not underwritten in accordance with the underwriting
guidelines or otherwise breached the representations contained in the transaction documents. Of
the 523 loans that did not comply with the underwriting guidelines, none had sufficient
compensating factors to warrant an exception. Id. ¶¶ 359, 367.
171. The FHFA noted several specific examples of how EMC disregarded its
underwriting guidelines:
172. In one of FHFA’s examples, EMC ignored its underwriting guidelines’s
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requirement that “[i]ncome must be reasonable for employment stated”:
originated pursuant to EMC’s Low Documentation Program and included in the
BSMF 2007-AR3 Securitization. The loan application stated that the borrower
was employed as an inspector/foreman of a fire systems company earning
$13,500 per month. The Bureau of Labor Statistics reported that the average
salary at the 90th percentile for an inspector in the same geographic region in
2006 was $7,675 per month. The borrower’s stated income exceeded the Bureau
of Labor Statistics’ 90th percentile by over 1.5 times, which should have put a
reasonably prudent underwriter on notice for potential misrepresentation. The
loan file contains no evidence that the loan underwriter assessed the
reasonableness of the borrower’s stated income. Moreover, the loan file
contained the borrower’s 2006 and 2007 tax returns provided for modification
purposes, which revealed an income for 2006 of only $6,835 per month and
indicated the same line of work for both 2006 and 2007. Furthermore, in a
Statement of Financial Affairs filed by the borrower as part of a May 2008
Chapter 13 bankruptcy proceeding, the borrower also reported an income in 2006
of only $6,835 per month. A recalculation of DTI based on the borrower’s
verified same year income yields a DTI of 88.37 percent, which exceeds the
loan was subsequently liquidated for a loss of $248,583.81, or 67.55 percent of
the original loan balance.
Id. ¶¶ 378-379.
173. In two of the FHFA’s examples, EMC underwriters ignored obvious red flags of
misrepresentations on the loan application:
A loan that closed in December 2006 with a principal amount of $266,000 was
BSMF 2007-AR3 Securitization. The loan closed as an owner-occupied limited
cash out refinance. The underwriting guidelines for this loan required that at least
one of the borrowers occupy the subject property and the loan was represented as
owner-occupied. The loss mitigation portion of the loan file includes a copy of
the borrower’s 2006 tax return that reflects the subject property was a rental
residence since December 2005. The loan file also contains copies of the
borrower’s bank statements and HUD-1, which reflect the borrower’s current
address as the previous address listed on the loan application. No evidence in the
file indicates that the underwriting process addressed these inconsistencies, and
the loan was underwritten as if the property was owner-occupied. The borrower
defaulted and the loan was subsequently liquidated for a loss of $184,115.84, or
69.22 percent of the original loan balance, and
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BSMF 2007-AR3 Securitization. The loan closed as an owner-occupied rate-term
refinance. The applicable guidelines for this loan required that the borrower on
the mortgage note occupy the subject property and the loan was represented as
owner-occupied. Public records revealed an address for a utility bill from 2004 to
2010 at the subject property address for a person other than the borrower. Public
records also revealed a utility bill for the Borrower at an address other than the
subject from August 1997 to July 2011. No evidence in the file indicates that the
underwriting process addressed these inconsistencies, and the loan was
underwritten as if the property was owner-occupied. The borrower defaulted and
the loan was subsequently liquidated for a loss of $194,761.55, or 83.95 percent
of the original loan balance.
Id. ¶ 381.
174. And finally, the FHFA highlighted an instance in which EMC had failed to
evaluate a borrower’s ability to repay by not considering all of the liabilities that the
underwriting guidelines required it to consider:
borrower’s debts. The audit credit report revealed an undisclosed installment loan
for $23,424 opened in October 2006, 3 months prior to the loan application, with
a payment of $406 per month. The loan was not yet reporting on the origination
credit report and the borrower failed to disclose the debt on the loan application.
There was no evidence in the loan file that the underwriter requested or obtained
an explanation from the borrower for the 4 inquiries, dated from October 28, 2006
through November 20, 2006, listed on the origination credit report. A
recalculation of DTI based on the borrower’s undisclosed debt and verified
income yields a DTI of 137.37 percent, which exceeds the guideline maximum
allowable DTI of 55 percent. The borrower defaulted and the loan was
subsequently liquidated for a loss of $184,875.88, or 77.03 percent of the original
loan balance.
Id. ¶ 385.
175. In fact, the FHFA determined that 89 of the 535 loans (25.2%) it reviewed from
the BSMF 2007-AR3 offering incorrectly calculated the borrower’s debts which, if corrected,
would have caused the debt-to-income ratio to exceed the applicable underwriting guidelines.
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Id. ¶ 386.
176. The FHFA also alleged that, in an effort to securitize even more loans, EMC told
third-party due diligence firms to reduce the scrutiny given to loan files. In an e-mail dated April
5, 2007, an EMC Assistant Manager for Quality Control Underwriting and Vendor Management
ordered Adfitech, Inc. (“Adfitech”) not to take efforts to verify information in a loan file,
directing:
 “Effective immediately, in addition to not ordering occupancy

inspections and review appraisals, DO NOT PERFORM
REVERIFICATIONS OR RETRIEVE CREDIT REPORTS ON
THE SECURITIZATION BREACH AUDITS,”
 Do not “make phone calls on employment,” and
 “Occupancy misrep is not a securitization breach.
Id. ¶ 479.
177. According to the FHFA, former EMC mortgage analyst Matthew Van Leeuwen—
the same individual interviewed in the aforementioned Atlantic article—confirmed in a March
30, 2009 e-mail that “the pressure was pretty great for everybody to just churn the mortgages on
through the system,” so that if there were “outstanding data issues” analysts should just “fill in
the holes.” According to Van Leeuwen, “missing credit score would magically become a 680 in
Bear’s system, things like that.” For example, EMC’s Senior Vice President of Conduit
Operations, Jo-Karen Whitlock, told her staff to do “whatever is necessary” to meet Bear
Stearns’ objectives for desired loan production. Her April 14, 2006 e-mail further stated:
I refuse to receive any more emails … questioning why we’re not funding more
loans each day. I’m holding each of you responsible for making sure we fund at
least 500 each and every day…. [I]f we have 500+ loans in this office we MUST
find a way to … buy them…. I expect to see 500+ each day…. I’ll do whatever
is necessary to make sure you’re successful in meeting this objective.
Id. ¶¶ 482, 489.
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178. In FHFA’s suit, the district court denied Bear Stearns’s motion to dismiss, holding
that the FHFA’s allegations “amply support FHFA’s assertion that the Offering Documents for
the Securitizations contained false statements regarding originators’ compliance with
underwriting standards.” FHFA v. JPMorgan Chase & Co., No. 11-6188, 2012 WL 5395646, at
*8 (S.D.N.Y Nov. 5, 2012).
179. Bear Stearns shareholders brought a class action complaint against Bear Stearns
regarding its mortgage-backed securities business. The complaint contained allegations by
several confidential witnesses. One confidential witness was a Quality Control and Reporting
Analyst at EMC from April 2006 through August 2007, and reviewed and examined loan
origination and loan portfolio statistics on subprime loans purchased by EMC, and also created
reports for upper management at EMC. That confidential witness confirmed that EMC would
buy almost everything, including extremely risky loans where the borrower’s income and ability
to pay could not be verified. Compl., In re Bear Stearns Cos., Sec., Derivative, & ERISA Litig.
No. 08-2793, ¶ 58 (S.D.N.Y filed Feb. 27, 2009).
180. Another confidential witness, who was a Collateral Analyst with Bear Stearns in
the first half of 2007, revealed that Bear Stearns understood that the loans it was purchasing
through EMC were unusually risky. That confidential witness reported that during the latter part
of 2006 and the beginning of 2007 EMC was “buying everything” without regard for the
riskiness of the loan. The confidential witness explained that because of the potential for profits
from securitizing these loans Bear Stearns managers looked the other way and did not enforce
basic underwriting standards. Id. ¶ 59.
181. The complaint also alleged that Bear Stearns, through EMC, aggressively
purchased exceptionally risky mortgages that were already in default in the hopes of bringing the
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borrower back into compliance and securitizing the loan along with other acquired and
originated mortgages (so called “scratch and dent” loans). A special desk at Bear Stearns was
designated to securitize the “scratch and dent” loans and sell them to investors. Id. ¶ 62.
182. The Bear Stearns’ shareholder suit settled for $275 million. See Chris Dolmetsch,
Bear Stearns Settlement Gets U.S. Judge’s Approval, Bloomberg (Nov. 9, 2012), available at
http://www.bloomberg.com/news/2012-11-09/bear-stearns-settlement-gets-u-s-judge-s-
approval.html.
183. Bear Stearns has also been sued by Ambac Assurance Corp. (“Ambac”). Ambac
provided monoline insurance for several Bear Stearns-underwritten RMBS that contained loans
from EMC. After suffering staggering losses, Ambac conducted a loan-level review of 6,309 of
the loans. It found that 5,724 (90%) breached one or more of EMC’s representations and
warranties, including:
 rampant fraud, primarily involving misrepresentation of the

borrower’s income, assets, employment, or intent to occupy the
property as the borrower’s residence (rather than as an investment),
and subsequent failure to so occupy the property;
 failure by the borrower to accurately disclose his or her liabilities,

including multiple other mortgage loans taken out to purchase
additional investment property;
 inflated and fraudulent appraisals; and,
 pervasive violations of the loan originators’ own underwriting

guidelines and prudent mortgage-lending practices, including loans
made to borrowers (i) who made unreasonable claims as to their
income, (ii) with multiple, unverified social security numbers, (iii)
with debt-to-income and loan-to-value ratios above the allowed
maximums, or (v) with relationships to the applicable originator or
other non-arm’s-length relationships.
First Am. Compl., Ambac Assurance Corp. v. EMC Mortg. LLC, No. 650421/2011, ¶ 280 (N.Y.
Sup. Ct. filed July 18, 2011).
74
184. On October 1, 2012, the People of the State of New York took action against J.P.
Morgan Securities. The Complaint highlights EMC’s extensive disregard of underwriting
standards, alleging that:
The review of loans that Defendants purchased through the flow channel was
equally superficial and focused on quantity at the expense of quality. EMC
underwriters were typically required to underwrite fifteen to twenty loan files per
day, and the pressure to review this high volume of loans often came in second
half of the month if the volume of funded loans was not on track to meet the
monthly target.
To drive home the point, that same manager stressed to her staff that EMC “hit
the target number,” which was a funding volume of $2 billion for that month. In
other words, EMC had to underwrite and purchase $2 billion worth of mortgage
loans in a single month. Multiple confidential witnesses, former employees of
EMC, have confirmed Defendants’ “whatever is necessary” approach to achieve
aggressive volume goals.
As the volume of loans acquired by EMC through its flow channel increased
dramatically, Defendants took measures to expedite their loan review, which had
the effect of reducing the amount of due diligence for originators in certain
designated “tiers.” For example, EMC divided its flow channel sellers into five
tiers based on the volume and the estimated quality of the loans supplied to EMC,
and performed “streamline,” or abridged, reviews for loans from certain of these
sellers. Moreover, as mentioned above, the review process itself – which gave
underwriters and Team Leads discretion to approve but not to reject loans – was
set up so as to make approval of a loan the path of least resistance.
Compl., New York v. J.P. Morgan Sec., No. 451556-2012, ¶¶ 55, 57-58 (N.Y. Sup. filed Oct. 1,
2012).
7. Fremont Investment and Loan’s Systematic Disregard of Underwriting

Standards
185. Fremont Investment and Loan, Inc. (“Fremont”) contributed loans to the SG
Mortgage Securities Trust 2006-FRE2 offering. See infra Table 6.
186. Senator Carl Levin, at a hearing before the Senate PSI, singled out Fremont as a
lender “‘known for poor quality loans.’” Opening Statement of Sen. Carl Levin, Chairman,
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Permanent S. Comm. on Investigations, Hearing on Wall Street and the Financial Crisis: The
Role of Credit Rating Agencies (Apr. 23, 2010). Senator Levin recounted how an analyst with
S&P raised concerns about the quality of Fremont-originated loans in a Goldman Sachs RMBS
offering:
In January 2007, S&P was asked to rate an RMBS being assembled by Goldman
Sachs using subprime loans from Fremont Investment and Loan, a subprime
lender known for loans with high rates of delinquency. On January 24, 2007, an
analyst wrote seeking advice from two senior analysts: “I have a Goldman deal
with subprime Fremont collateral. Since Fremont collateral has been performing
not so good, is there anything special I should be aware of?” One analyst
responded: “No, we don’t treat their collateral any differently.” The other asked:
“are the FICO scores current?” “Yup,” came the reply. Then “You are good to
go.” In other words, the analyst didn’t have to factor in any greater credit risk for
an issuer known for poor quality loans, even though three weeks earlier S&P
analysts had circulated an article about how Fremont had severed ties with 8,000
brokers due to loans with some of the highest delinquency rates in the industry.
In the spring of 2007, Moody’s and S&P provided AAA ratings for 5 tranches of
RMBS securities backed by Fremont mortgages. By October, both companies
began downgrading the CDO. Today all five AAA tranches have been
downgraded to junk status.
Id. (emphasis added).
187. Fremont currently faces a lawsuit filed by Cambridge Place Investment, Inc.,
which is mentioned in this August 15, 2010 article in the Myrtle Beach Sun-News:
Cambridge hinges much of its case on 63 confidential witnesses who testified in

court documents about the reckless lending practices that dominated the subprime
market during the real estate boom.
Fremont, for example, regularly approved loans with unrealistic stated incomes –
such as pizza delivery workers making $6,000 a month, according to the lawsuit.
Other Fremont witnesses said in court documents that loan officers spotted and
ignored fraudulent information, such as falsified pay stubs, every day.
David Wren, Myrtle Beach Area Loans Lumped Into Spiraling Mortgage-Backed Securities,
MYRTLE BEACH SUN-NEWS, Jan. 13, 2011, at A. On September 28, 2012, the court denied in
principal part Defendants’ Joint Motion to Dismiss For Failure to State a Claim. See Cambridge
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Place Inv. Mgmt. Inc. v. Morgan Stanley & Co., Inc., et al., Case No. 10-2741 (Mass. Super).
188. On December 21, 2011, the Federal Housing Finance Agency (“FHFA”) filed an
amended complaint against UBS Americas, Inc., alleging securities laws violations concerning
RMBS purchases made by Freddie Mac and Fannie Mae. In the complaint, the FHFA alleged:
A confidential witness who previously worked at Fremont in its system operations

and underwriting sections stated that Fremont consistently cut corners and
sacrificed underwriting standards in order to issue loans. He noted that “Fremont
was all about volume and profit,” and that when he attempted to decline a loan, he
was regularly told “you have signed worse loans than this.” The same witness
also said that employees at Fremont would create documents that were not
provided by the borrowers, including check stubs and tax documents, in order to
get loans approved. The confidential witness stated that Fremont regularly hired
underwriters with no experience, who regularly missed substantial numbers of
answers on internal underwriting exams. He explained that like many Fremont
employees, he quit because he was uncomfortable with the company’s practices.
See Federal Housing Fin. Agency v. UBS Americas, Inc., Case No. 11 Civ. 05201 (S.D.N.Y.)
(Second Amended Complaint, filed Dec. 21, 2011). The court denied a motion to dismiss the
complaint in May 2012. See Federal Housing Fin. Agency v. UBS Americas, Inc., 858 F. Supp.
2d 306 (S.D.N.Y. 2012). On July 25, 2013, the FHFA announced that it had reached an
agreement to settle the case for $885 million.
189. Fremont was also included in the 2008 “Worst Ten in the Worst Ten” Report,
ranking 1st in Miami, Florida; 3rd in Riverside, California; 4th in Denver, Colorado and
Sacramento, California; 5th in Stockton, California; 6th in Detroit, Michigan and Las Vegas,
Nevada; 7th in Bakersfield, California; and 10th in Memphis, Tennessee. See 2008 “Worst Ten
in the Worst Ten” Report. In the 2009 “Worst Ten of the Worst Ten” Report, Fremont holds the
following positions: 2nd in Fort Myers-Cape Coral, Florida and Fort Pierce-Port St. Lucie,
Florida; 4th in Riverside-San Bernardino, California; 5th in Stockton-Lodi, California and
Vallejo-Fairfield-Napa, California; 7th in Las Vegas, Nevada and Modesto, California; and 8th
77
in Bakersfield, California and Merced, California. See 2009 “Worst Ten in the Worst Ten”
Report.
8. GMAC’s Systematic Disregard of Underwriting Standards
190. GMAC Bank n/k/a Ally Bank and GMAC Mortgage originated or contributed a
material portion of the loans in the mortgage pool underlying the GMACM Home Equity Loan
Trust 2006-HE1 and the GMACM Home Equity Loan Trust 2006-HE5 offerings. See infra
Table 6.
191. GMAC’s abandonment of its underwriting guidelines is at issue in suits filed by
MBIA, Inc. MBIA was a monoline insurer for loans in RMBS. See Compl., MBIA Ins. Corp. v.
Ally Fin., Inc., No. 12-18889 (MN Ct., Hennepin Cnty. filed Sept. 17, 2012) (“MBIA v. Ally
Compl.”); Compl., MBIA Ins. Corp. v. GMAC Mortg., LLC, No. 600837/2010 (N.Y. Sup. Ct.
filed Apr. 1, 2010) (“MBIA v. GMAC Compl.”).
192. MBIA’s suits concern loans underlying the GMACM 2004-HE4, GMACM 2006-
HE4, and GMACM 2007-HE1. Ally Bank f/k/a GMAC Bank and GMAC Mortgage were the
principal originators for the loans in these offerings. MBIA v. Ally Compl. ¶¶ 7, 45; MBIA v.
GMAC Compl. ¶¶ 2, 44.
193. After sustaining large losses, MBIA conducted forensic analyses of loans
underlying these offerings. MBIA found material breaches of representations and warranties in
more than 89% of the loans from GMAC Mortgage. These breaches included:
 GMAC Mortgage egregiously and routinely breached its

representation and warranty that the mortgage loans were
underwritten generally in compliance with GMAC Mortgage’s
underwriting standards.
 A significant number of mortgage loans were made on the basis of

“stated incomes” that were grossly unreasonable or were approved
despite DTI or CLTV ratios in excess of the cut-offs stated in
78
GMAC Mortgage’s Underwriting Guidelines or the Purchase
Agreements or Prospectus Supplements.
 Moreover, contrary to its Underwriting Guidelines, GMAC

Mortgage failed in many cases to verify the borrower’s
employment when required to do so or to verify prior rental or
mortgage payment history, approved mortgage loans with
ineligible collateral, approved mortgage loans to borrowers with
ineligible credit scores, and approved loans without verifying that
the borrower had sufficient funds or reserves.
 GMAC Mortgage used its proprietary automated electronic loan

underwriting program, known as “Assetwise,” to approve loans
that did not comply with its Underwriting Guidelines. Assetwise
assisted in the underwriting of mortgage loans by automating the
process of determining whether a loan met prespecified
underwriting criteria set up in the program. GMAC Mortgage used
the program itself and also made the program available to its
affiliates. Assetwise, however, failed to analyze proposed
mortgage loans using the criteria set forth in GMAC Mortgage’s
Underwriting Guidelines. As a result, GMAC Mortgage routinely
contributed loans to the Transactions that failed to comply with its
own underwriting standards.
MBIA v. GMAC Compl. ¶ 76; see MBIA v. Ally Compl. ¶¶ 76-83; MBIA v. GMAC Compl. ¶¶ 70-
79.
194. Representative examples of the breaches encountered by the MBIA include:
 On January 25, 2006, a loan in the amount of $210,000 was made

to a borrower in Vacaville, California on a property with an
original appraisal value of $460,000 and a senior loan balance of
$368,150. The borrower was employed as a correctional officer by
the State of California. The loan was approved based on a DTI
that was calculated using the borrower’s highest reported monthly
income, rather than his average income over a 33-month period, as
is required by the Underwriting Guidelines. As a result, the true
DTI on the loan was 65.56%, which exceeded the maximum ratio
of 50% permitted under the applicable loan program. The CLTV
ratio of 125.68% also exceeded the maximum CLTV ratio of 100%
permitted under the Guidelines. The loan has been charged-off
(Loan # 8601487693 — 2004 Transaction.)
 On April 20, 2007, a loan in the amount of $40,000 was made to

co-borrowers in Vernon, New Jersey on a property with an original
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appraisal value of $305,000 and a senior loan balance of $244,000.
The loan file is incomplete and lacks, among other documents,
verbal verification of either borrower’s employment, evidence of
sufficient closing funds and reserves, an appraisal, a copy of the
note from the senior lien, and the borrowers’ credit reports.
Further, the loan was approved even though the income stated by
each borrower was unreasonable. One claimed to earn $4,583 per
month as a counter manager at a discount tire store though, for
example, salary.com, a website which maintains a national salary
database based on job title and zip code, reports that the income at
the 90th percentile for such a position is only $2,801 per month.
The second borrower claimed to earn $59,592 annually as a sales
associate at a home improvement store, but an income verification
database showed that the borrower earned only $28,092 in 2006
and $32,977 in 2007. The loan has been charged-off (Loan #
1000117685 — 2006 Transaction.)
 On December 15, 2006, a loan in the amount of $22,000 was made

to a borrower in Medford, Oregon on a property with an original
appraisal value of $220,000 and a senior loan balance of $176,000.
The loan file is missing many documents that bear upon the
borrower's ability to repay and are required to be included in the
file, including: verification of down payment funds, a CPA letter,
an appraisal, a twelve-month housing history, a copy of the first
mortgage, a preliminary title commitment, a credit report, and the
final loan application. Moreover, although the borrower, an
operator at a drywall company, had declared bankruptcy prior to
applying for the loan, the loan file lacks documentation that the
bankruptcy had been discharged for at least three years, as required
by the Guidelines. The loan has been charged off. (Loan #
8254682837 – 2007 Transaction.)
 On January 23, 2007, a loan with a principal balance of $100,000

was made to a borrower in Yuma, Arizona on a property with an
original appraisal value of $298,000 and a senior loan balance of
$129,035. The borrowers claimed on their loan application that
their combined income was $113,520 per year. However, on May
12, 2009, the borrowers jointly filed for bankruptcy under Chapter
7, and their court filings indicated that they earned only $13,085 in
2007 and $17,650 in 2008. Moreover, no record of the borrower’s
claimed employer can be located on websites commonly used to
verify the existence of a business: manta.com or yellowpages.com.
The loan has been charged-off. (Loan # 8254730412 – 2007
Transaction.)
MBIA v. GMAC Compl. ¶ 78.
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195. Both suits are still pending. The Court in MBIA v. GMAC denied a motion to
dismiss; there have been no rulings in MBIA v. Ally. See MBIA v. GMAC, 914 N.Y.S.2d 604
(N.Y. Sup. Ct. 2010); MBIA v. RFC, Order, No. 603552/08 (N.Y. Sup. Ct. Dec. 22, 2009).
196. GMAC’s disregard of its underwriting guidelines has led to the repurchase of
loans it had sold to Fannie Mae. As of September 10, 2010, Fannie Mae had required GMAC to
repurchase 2,887 loans because of violations of representations and warranties regarding those
loans. They had a total unpaid principal balance of $544 million. See Letter to Gary Cohen,
FCIC (Sept. 21, 2010), Attach. “Total Aggregate Recovery, Data as of 8/31/2010,” at 1,
available at http://fcic-static.law.stanford.edu/cdn_media/fcic-docs/2010-09-
21%20Fannie%20Mae%20Counsel%20letter%20to%20the%20FCIC.pdf.
9. GreenPoint Mortgage Funding Inc.’s Systematic Disregard of

Underwriting Standards
197. GreenPoint Mortgage Funding Inc. (“GreenPoint”) contributed a material portion
of the loans in the mortgage pool underlying the Bear Stearns Second Lien Trust 2007-1, J.P.
Morgan Alternative Loan Trust 2006-A2, J.P. Morgan Alternative Loan Trust 2007-A1, J.P.
Morgan Alternative Loan Trust 2007-A2 and the SACO I Trust 2006-12 offering. See infra
Table 6.
198. GreenPoint, based in Novato, California, was the wholesale mortgage banking
unit of Capital One Financial Corp. (“Capital One”). Capital One acquired GreenPoint when it
purchased GreenPoint’s holding company, North Fork Bancorp, in December 2006. Capital One
shut down GreenPoint’s operations less than one year later on August 21, 2007.
199. According to a press release issued by Capital One on August 20, 2007,
GreenPoint had an “originate and sell” (i.e., OTD) business model with a focus on “prime non-
81
conforming and near-prime markets, especially the Alt-A mortgage sector.” Capital One
eventually liquidated GreenPoint in December 2008, taking an $850 million write-down due to
mortgage-related losses associated with GreenPoint’s origination business.
200. When originating stated income loans, GreenPoint often inflated the borrowers’
income by more than 50%. A September 12, 2008, article on Bloomberg reports on
GreenPoint’s underwriting practices:
Many Alt-A loans go to borrowers with credit scores higher than subprime and lower
than prime, and carried lower interest rates than subprime mortgages.
So-called no-doc or stated-income loans, for which borrowers didn’t have to furnish pay
stubs or tax returns to document their earnings, were offered by lenders such as
GreenPoint Mortgage and Citigroup Inc. to small business owners who might have found
it difficult to verify their salaries.
...
“To grow, the market had to embrace more borrowers, and the obvious way to do that
was to move down the credit scale,” said Guy Cecala, publisher of Inside Mortgage
Finance. “Once the door was opened, it was abused.”
...
Almost all stated-income loans exaggerated the borrower’s actual income by 5 percent or
more, and more than half increased the amount by more than 50 percent, according to a
study cited by Mortgage Asset Research Institute in its 2006 report to the Washington-
based Mortgage Bankers Association.
Dan Levy & Bob Ivry, Alt-A Mortgages Next Risk for Housing Market as Defaults Surge,
BLOOMBERG, Sept. 12, 2008, available at http://www.bloomberg.com/apps/news?
pid=newsarchive&sid=arb3xM3SHBVk.
201. U.S. Bank, the indenture trustee of GreenPoint Mortgage Funding Trust 2006-
HE1, sued GreenPoint in order to force GreenPoint to repurchase the loans that GreenPoint had
contributed to the RMBS. U.S. Bank alleged that GreenPoint “pervasive[ly] fail[ed] to follow its
underwriting guidelines during the origination of the Loans.” U.S. Bank Nat’l Assoc. v.
GreenPoint Mortg. Funding, Inc., No. 600352/09, 2010 WL 841367, at *7 (N.Y. Sup. Ct. Mar.
82
3, 2010); see also Compl., U.S. Bank Nat’l Assoc. v. GreenPoint Mortg. Funding, Inc., 2009 WL
6084150, ¶ 35 (N.Y. Sup. Ct. Feb. 5, 2009) (alleging pervasive misrepresentations of borrowers’
income, assets, employment, intent to occupy the property, inflated appraisal values, and
violations of GreenPoint’s underwriting guidelines regarding credit scores, debt-to-income
ratios, and loan-to-value ratios).
202. U.S. Bank based its allegations on its forensic analysis of GreenPoint-originated
loans. Of 1,030 randomly sampled loans, U.S. Bank found that 93% were in violation of
GreenPoint’s underwriting guidelines. See id. at *7 n.4. Its complaint survived a motion to
dismiss. See id. at *8.
203. Syncora Guarantee, a monoline insurer, sued EMC in connection with an RMBS
sponsored by EMC, underwritten by Bear Stearns and exclusively collateralized by GreenPoint-
originated loans. After sustaining large losses due to the poor performance of GreenPoint loans,
Syncora hired an independent consultant to “reunderwrite” hundreds of the GreenPoint loans,
400 of which were randomly selected without regard to payment status. Over 85% of the
randomly selected 400 loans contained misrepresentations. The misrepresentations uncovered
include:
 Rampant fraud, primarily involving misrepresentation of the

borrower’s income, assets, employment, or intent to occupy the
property as the borrower’s residence (rather than as an investment),
and subsequent failure to so occupy the property;
 Failure by the borrower to accurately disclose his or her liabilities,

including multiple other mortgage loans taken out to purchase
additional investment property;
 Inflated and fraudulent appraisals; and,
 Pervasive violations of GreenPoint’s own underwriting guidelines

and prudent mortgage lending practices, including loans made to
borrowers (i) who made unreasonable claims as to their income,
83
(ii) with multiple, unverified social-security numbers, (iii) with
credit scores below the required minimum; (iv) with debt-to-
income and loan-to-value ratios above the allowed maximums, or
(v) with relationships to GreenPoint or other non-arm’s-length
relationships.
See Compl., Syncora Guar. Inc. v. EMC Mortgage Corp., ¶ 6 , 50-51, No. 09-cv-3106 (PAC)
(S.D.N.Y. filed Mar. 31, 2009).
204. GreenPoint’s own employees have corroborated the findings of U.S. Bank and
Syncora. A confidential witness in Federal Home Loan Bank of Indianapolis v. Banc of America
Mortgage Securities, Inc., confirmed that (1) GreenPoint employees faced intense pressure to
close loans at any cost; (2) GreenPoint managers overrode employees’ decisions to reject loans
and approved loans based upon inflated incomes; (3) GreenPoint approved loans that contained
exceptions for which there were no reasonable compensating factors; and (4) GreenPoint failed
to adhere to sound underwriting guidelines. This confidential witness was a senior loan
underwriter at GreenPoint from October 1997 through August 2007. See Compl., Fed. Home
Loan Bank of Indianapolis v. Banc of Am. Mortg. Secs., Inc., ¶ 265, No. 49D051010PL045071
(Ind. Sup. Ct., Marion Cnty. filed Oct. 15, 2010) (“FHLB Indianapolis”).
205. According to that confidential witness, sales staff and managers at GreenPoint
received bonuses based on the number of loans closed. As she said, “sales had tremendous
authority” at GreenPoint, and “[t]hey were in business to make more money. They would try to
find any way to close a loan.” Id. ¶ 266.
206. Between 2005 and 2007, the confidential witness said that stated income loans
became increasingly popular and GreenPoint managers approved loans based upon inflated
incomes that she believed should not have been approved. She saw a lot of loans with stated
“income that was more than could be justified by the borrower’s employment.” When she
84
denied loans because she believed the income was inflated, sometimes the underwriting
managers, operations managers, and the regional operations manager overrode her decisions. Id.
¶ 267.
207. More often than not, the confidential witness believed that her managers overrode
her denials due to the incentives that they received based upon loan volume. As she said, “They
were making the decision because they had to hit certain sales numbers.” She was aware of such
targets because of comments made in operations meetings about the company needing to meet
certain goals. Id. ¶ 268.
208. The FHLB Indianapolis suit survived a motion to dismiss, with the Court holding,
“the plaintiff has, indeed, stated a claim upon which relief can be granted on the issue of
underwriting guidelines.” Fed. Home Loan Bank of Indianapolis v. Bank of Am. Mortg. Secs.,
Inc., No. 49D051010PL045071, 2012 WL 2844690 (Ind. Sup. Ct., Marion Cnty. July 3, 2012).
209. In Allstate Bank v. J.P. Morgan Chase, N.A., Allstate, an RMBS investor, sued
J.P. Morgan, the RMBS underwriter, for misrepresentations in RMBS offering documents.
Allstate’s complaint relied on several confidential witnesses. One confidential witness, who was
an underwriting analyst at GreenPoint from 2003 to 2007, stated that GreenPoint reviewed only
10% of the loans it originated for fraud. He thought this was a “mistake” because the fraud and
misrepresentation uncovered in the 10% sample indicated that many more loans likely contained
fraud. But the remaining 90% of the loans were not reviewed. Am. Compl., Allstate Bank v.
JPMorgan Chase, N.A., ¶ 485, No. 11-1869 (S.D.N.Y. filed May 10, 2012).
210. That confidential witness also stated that sales personnel ran GreenPoint, and
senior management was comprised of people from sales who were incentivized to push the
volume of mortgage loans, not adherence to the underwriting guidelines or due diligence.
85
Managers’ bonuses were tied to production volume, and they were not penalized if loans were
later found to be fraudulent or if the borrower defaulted on the first payment. He stated that
GreenPoint’s management deliberately overlooked misrepresentations from mortgage loan
brokers, particularly if the broker brought in a high volume of loans. Problem brokers were
rarely suspended, and even when they were, there was never a review of the loans they
originated that were already in the pipeline. Id. ¶ 486.
211. Another confidential witness was a Wholesale Account Manager at GreenPoint
from 2004 to 2006. That confidential witness stated that GreenPoint employees understood that
if a mortgage loan could eventually be sold to Wall Street, GreenPoint was to approve and fund
the mortgage loan. The majority of the loan products originated in the confidential witness’s
office were stated income-stated asset loans and pay-option ARMs. Despite the risk inherent in
these products, the sales force “never learned of negative loan performance” and their
compensation was in no way tied to loan performance. Id. ¶ 487.
212. Another confidential witness was an Underwriting Supervisor at GreenPoint from
2005 to 2006 and supervised five Underwriters and three Conditions Specialists. That
confidential witness stated that GreenPoint management authorized exceptions to loan
underwriting guidelines in order to approve applications, even when there were no compensating
factors justifying the exceptions. The confidential witness was aware that management overrode
decisions to refuse funding in locations known for fraud and property flipping, even when
evidence of fraud was found. According to the confidential witness, “if the borrower is
breathing and could sign loan documents, they could get a loan” from GreenPoint. Id. at ¶ 488.
213. Allstate’s complaint also alleged that many of GreenPoint’s loans were granted by
the over 18,000 brokers that were approved to transact with GreenPoint – a large enough number
86
that GreenPoint could not exercise any realistic degree of control. Typically, new brokers were
actively monitored for only the first five to seven loans submitted, usually during only the first
90 days of being approved. Id. ¶ 490.
214. This was problematic because mortgage brokers were known to commit fraud in
order to get loan applications approved by originators. As one former mortgage wholesaler put
it, “I’d walk into mortgage shops and see brokers openly cutting and pasting income documents
and pay stubs, getting out the Wite-Out and changing Social Security numbers.” Mara Der
Hovanesian, Sex, Lies, and Subprime Mortgages, Bloomberg Businessweek (Nov. 12, 2008),
available at http://www.businessweek.com/stories/2008-11-12/sex-lies-and-subprime-
mortgages.
215. GreenPoint’s pervasive disregard of underwriting standards resulted in its
inclusion among the worst ten originators in the 2008 “Worst Ten in the Worst Ten” Report.
GreenPoint was identified 7th worst in Stockton, California, and 9th worst in both Sacramento,
California, and Las Vegas, Nevada. See 2008 “Worst Ten in the Worst Ten” Report. In the
2009 “Worst Ten in the Worst Ten” Report, GreenPoint was listed as 3rd worst in Modesto,
California; 4th worst in Stockton, Merced, and Vallejo-Fairfield-Napa, California; 6th worst in
Las Vegas, Nevada; and 9th in Reno, Nevada. See 2009 “Worst Ten in the Worst Ten” Report.
10. Impac’s Systematic Disregard of Underwriting Standards
216. Impac Funding Corporation (“Impac”) is a mortgage company that acquires,
purchases, and sells mortgage loans. It is a California corporation which is headquartered in
Irvine, California. Impac originated or contributed a material portion of the loans in the
mortgage pool underlying the Impac CMB Trust Series 2005-2, the Impac CMB Trust Series
2005-6 and the SACO Trust I 2006-2 offerings. See infra Table 6.
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217. Massachusetts Mutual Life Ins. Co. (“Mass. Mutual”), an RMBS investor like the
Credit Unions, recently sued Impac regarding RMBS for which Impac was the sponsor. Mass.
Mutual conducted a forensic analysis of loans underlying an RMBS it had purchased. The
analysis revealed that 48% of the loans tested had appraisals inflated by 10% or more, and 34%
of the loans tested had LTVs that were 10 or more points more than represented. Additionally,
15.45% of the loans that had been represented to be owner occupied were determined not to be
owner occupied. See Compl., Massachusetts Mutual Life Ins. Co. v. Impac Funding Corp., No.
11- 30127, ¶¶ 87-88, 95 (D. Mass. filed May 6, 2011).
218. Impac’s faulty loan origination practices were the subject of a suit by a class of its
shareholders. Their complaint contained detailed accounts of former employees regarding
Impac’s disregard of its underwriting guidelines. See Third Am. Compl., Pittleman v. Impac.
Mortg. Holdings, Inc., No. 07-970 (C.D. Cal. filed Oct. 27, 2008).
219. One former employee (Employee #1) was an underwriting manager in charge of
loan due diligence from October 2003 until July 2006. Employee #1’s job was to perform due
diligence on bulk loans by conducting a sampling of each loan pool. That job included
interacting with individual mortgage brokers who would sell loans to Impac in bulk,
evaluating bulk loans and making recommendations as to whether or not Impac should buy
particular loans and/or loan portfolios which were then resold in the secondary markets.
Bulk loans were typically valued in the $5 million dollar range and higher. Id. ¶ 46.
220. Employee #1 reported to Kevin Gillespie, Vice President of Underwriting, and
Scott Hedbon, Chief Credit Officer. Both Gillespie and Hedbon reported to William
Ashmore, Impac’s President, and Gillespie and Ashmore (plus Joseph Tomkinson, Impac’s
CEO) were members of the Loan Committee. After conducting due diligence on a bulk
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loan, Employee #1 would generate a detailed report regarding that loan pool, which included an
approval or rejection recommendation. Every report was then e-mailed to Employee #1’s
superiors, including Tomkinson and Ashmore. Id. ¶ 47.
221. Employee #1 stated that Impac’s underwriting guidelines were applied to bulk
loans. He said that the bulk guidelines were revised on a regular basis and that bulk
guidelines would change on a broker to broker basis. Employee #1 further stated that when
bulk loan pools did not satisfy Impac guidelines, they were still approved by management on
a regular basis, and specifically by Ashmore. Ashmore’s rationale for constantly reversing
rejection recommendations was that everyone in the industry was engaging in this type of
practice. Ashmore would justify his overriding the underwriting department recommendations
by stating that “everybody is doing it” or “if we didn’t do it, someone else would.” Id. ¶ 48.
222. One method of reversing bulk loan rejection recommendations was as follows.
Employee #1 would conduct due diligence on a bulk loan pool by reviewing a sampling of the
bulk loan, for example 10 loans. If 5 of the 10 loans did not comply with Impac underwriting
guidelines, the loan pool was recommended for rejection. However, Impac management,
under the direction of Ashmore and in violation of standard due diligence procedures,
would simply replace the 5 non-compliant loans with 5 loans that “satisfied” Impac
underwriting guidelines and then approve the entire bulk loan pool for sale to investors. Id.
¶ 49.
223. Employee #1 also noted that certain companies were notorious for selling bulk
loan pools to Impac that did not meet underwriting guidelines. These companies included
Pinnacle Financial Corporation (a company that Impac eventually acquired), Windham
Mortgage, and American Home Loans. Employee #1 specifically recalled numerous instances
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of bad loan pools which were purchased from third parties, some of which had to be repurchased
by Impac. He remembers significant pressure to approve a loan pool from Windham
Mortgage which was valued in the millions. He also recalled that Impac was forced to
repurchase approximately $50 million worth of loans by Impac from Countrywide, in June-
July of 2006, because the loans sold by Impac did not meet underwriting guidelines. During
the same time frame, he stated that Novelle was a division of Impac that had so many bad
loans (loans that did not comply with Impac’s underwriting guidelines), that the division was
closed and the loans were securitized and sold to investors. These loans were worth tens of
millions of dollars, if not more. Id. ¶ 50.
224. Employee #1 left Impac out of frustration because he said the majority of
loans that were being recommended for rejection were regularly approved for sale to investors.
As a result, he felt that performing due-diligence on bulk loan pools was a waste of his time
when Ashmore would just override the results of the due diligence. According to Employee
# 1, all management was looking for was a due-diligence officer to “rubber-stamp” the loan
pools because investors in the securitized loan pools required a certain level of quality control
concerning these financial instruments. Id. ¶ 51.
225. Employee #1 cited another example, in April or May of 2006, where Impac was
offered a loan pool from a seller with a past history of selling bad loans to Impac. Employee
#1 notified Linda Sepulveda, Vice President of Operations, that Impac had previously
“uncovered fraud” in past loans from this seller, and recommended that Impac (a) decline to
purchase the loan pool and (b) permanently remove the seller from Impac’s list of approved
customers. Employee # 1, Sepulveda, and Sepulveda’s boss, Executive Vice President of
Operations Kathy Murray discussed the loan pool and the recommendation, which Murray
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then provided to Ashmore. Employee # 1 stated that Sepulveda and Murray generally agreed
with his rejection recommendations on loan pools. Ashmore overrode the recommendation
of the underwriting department and caused Impac to buy the loan pool. Murray told
Employee # 1 that she went so far as to warn Ashmore that purchase of the loan pool could
negatively affect Impac’s employee retirement fund, which was invested in Impac stock,
telling Ashmore that “this is our retirement we’re talking about.” However, Employee #1
indicated that companies providing bulk loan pools would threaten to pull their business from
Impac if it didn’t purchase bad loan pools. Id. ¶ 52.
226. Another former employee (“Employee #2”) was employed by Impac from
January 2005 through October 2007, and was in Wholesale Loan Set-up. Employee #2 was
involved in the set up of Alt-A loans. He reported that many borrowers had credit scores that
were low or did not have enough income. He also reported that whatever loan came in, the
goal was to pass it on to the next step for approval which was underwriting. Employee #2
stated that the “system” was to pull credit scores to determine if the prospective borrower’s
reported credit score was high enough to qualify for the loan, a critical measure where
documented income verification was absent in Alt-A loans. Employee # 2 said that a low
credit score, however, would not “kill” the loan. Rather, the loan would then go to the “deal
desk,” where deals were regularly made to get loans approved. Id. ¶ 56.
227. Indeed, Impac repeatedly inflated the reported incomes of applicants in order
to approve loans for which the applicant would not otherwise qualify. The absence of
documented income verification permitted Impac to engage in such conduct. For instance,
Employee #2 recalled on one occasion that he and other co-workers were told in advance that a
senior executive of Impac had a relative that was going to request a loan for at least $1
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million, and that management told them to “make it work.” Thus, if an applicant was not
making enough money to qualify for a particular loan, Impac employees would make it look like
the applicant was making more money than stated. The way to accomplish this was to enter the
required information into the system. For example, if an applicant was making $700 per
week, it would be increased to $1,000 per week. Id. ¶ 57.
228. Employee # 2 stated that he was required to process at least 15 loans a day. Id.
¶ 58.
229. Another employee (“Employee #3”) was employed by Impac from May 2004
through October 2007 in Quality Control, primarily for closed loans where money had
already been disbursed. Employee # 3 checked for and investigated fraud. Employee # 3
stated that overstating the income of applicants made everyone happy, realtors, account
executives, and Impac senior management. Id. ¶ 59.
230. Employee # 3 stated that in processing 15 loans a day, there would not be
enough time to check and follow the seller guides which were documented in great detail. He
confirmed that management encouraged the selling of loans to customers who should have not
been eligible for Alt-A loans. Employee # 3 stated that this was accomplished because 90% of
the loans done at Impac did not have documentation of income. Id. ¶ 60.
231. Another former employee (“Employee #4”) was employed by Impac from June
1997 through July 2007 and worked in Underwriting inside the Conduit Division. After
loans were received in the office and reviewed by underwriting, Employee # 4 would work
with brokers to resolve problems. Id. ¶ 61.
232. Employee # 4 stated that Impac upper management tried to find a way to get loans
done and remembers disagreements regarding the loan approval process on a regular basis.
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He recalled a specific loan that was denied by underwriting and then approved by
management, and loan guidelines, with the exception of Credit Scores, were routinely
overridden by upper management. Id. ¶ 62.
233. Employee #4 also stated that underwriters could deny loans up to five
hundred thousand dollars ($500,000), but recalled that all denied loans went to upper
management, which included Gillespie and/or Assistant Vice President of Underwriting Bob
Corridan. Employee # 4 stated, “if there was a way to make the loan, then they (upper
management) wanted to do it.” He further stated that “management’s theory was to approve
loans,” and restated that all loans denied by underwriters went to senior management.
Employee #4 recalled a particular loan submitted by a broker who was a former IMH
employee. This loan of seven hundred and fifty thousand dollars ($750,000) was denied by
underwriting but reinstated by management. Id. ¶ 63.
234. Employee #4 believed that Impac was not flexible about FICO Credit
Scores—the only hard, documented number they could not get around—but all other
qualifications such as Payment History, Rent History, Employment History, Square Footage,
Charge Offs, Collections, Judgments, Cash outs, Cash Reserves, Related Liens, and LTV
Ratios were open to adjustment by Gillespie and Corridan in order to make the loan. This
witness stated that bulk loans from lenders and brokers were “bad half the time.” Id. ¶ 64.
235. Employee #4 believed that Impac failed because it did not abide by its stated
underwriting standards. In response to questions about how Impac arrived at underwriting
standards, Employee #4 stated that they were written by the Vice President of Guidelines, Lonna
Smith. Smith obtained these guidelines from other Alt-A funders and “was told what to write
by upper management.” This witness remembers frequent conversations with Smith regarding
93
the guidelines in which Smith would say, in reference to the guidelines, “this is crazy,” and
that when management would relax the guidelines Smith tried to get management to tighten
them up. Employee # 4 stated that he “saw it all the time where we’d deny it [a loan] and
they say, yeah, we could do this.” Id. ¶ 65.
236. The FHFA as conservator for Fannie Mae and Freddie Mac has also sued Bear
Stearns in connection with material misstatements and omissions in RMBS Offering Documents.
See Am. Compl., FHFA v. JP Morgan, No. 11-6188 (S.D.N.Y. filed June 13, 2012).
237. The FHFA conducted a forensic review of loans for an RMBS that contained
significant amounts of loans from Impac. This review consisted of an analysis of the loan
238. The FHFA reviewed 535 loan files from the group of loans backing an RMBS it
had purchased. Impac originated 13.56% of the loans in that group. The FHFA’s review
revealed that 98% of the loans (523 out of 535) were not underwritten in accordance with the
underwriting guidelines or otherwise breached the representations contained in the transaction
documents. Of the 523 loans that did not comply with the underwriting guidelines, none had
sufficient compensating factors to warrant an exception. Id. ¶¶ 359, 367.
239. Of the 535 loans reviewed, 89 loans (or 25.2 percent) revealed an incorrect
calculation of the borrower’s debts which, when corrected, caused the debt-to-income ratio to
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exceed the applicable underwriting guidelines for the product type. Id. ¶ 386.
11. Opteum Financial Service’s and Southstar Funding, LLC’s

Systematic Disregard of Underwriting Standards
240. Opteum Financial Services, LLC (“Opteum”) owns or owned approximately half
of Southstar Funding, LLC (“Southstar”). Opteum is a retail originator and SouthStar generally
is a wholesale originator.
241. Opteum originated or contributed a material portion of the loans in the mortgage
pool underlying the SACO I Trust 2006-2 offering. Southstar originated or contributed a
material portion of the loans in the mortgage pool underlying the Bear Stearns Second Lien Trust
2007-1, SACO I Trust 2006-2 and the SACO I Trust 2006-8 offerings. See infra Table 6.
242. Opteum’s disregard of its underwriting guidelines came to light in a shareholder
securities class action. See Am. Compl., In re Opteum, Inc. Sec. Litig., No. 07-14278 (S.D. Fla.
filed Oct. 12, 2009).
243. According to a confidential witness who was a retail loan officer at Opteum, it
was unusual for a loan to be turned down. Even if an underwriter said “no,” another underwriter
or manager could usually be found who would say “yes.” Id. ¶ 23.
244. Another confidential witness was a senior underwriter in the Conduit Division
and was responsible for reviewing and approving mortgages that Opteum purchased from
smaller mortgage firms. That confidential witness would deny applications if he discovered that
borrowers lied about their job titles. However, management consistently overrode those denials.
The confidential witness described the loans as “foreclosures looking for a place to happen.” In
one instance, Opteum purchased a $700,000 loan that was granted “literally [to] a maid and a
cherry picker.” The confidential witness’s boss was told by Senior Vice President Mary Glass to
“push all of the loans through … it did not matter how risky they were.” Id. ¶ 24.
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245. According to another confidential witness who was a loan officer, it became
prevalent in the Northeast region to encourage and permit potential borrowers to misrepresent
their adjusted gross income. Just before leaving the company in February 2007, the confidential
witness learned that it was common for loan applicants to misrepresent their adjusted gross
incomes by having their accountants prepare one tax return for the IRS and another for loan
officers. Id. ¶ 25.
246. Another confidential witness was a capital markets analyst who worked in
Secondary Marketing. That confidential witness recounted how a trader in the Structured
Finance department said Opteum was a high-risk operation and that the trader was “going to get
the hell out of there” as soon as possible. Id. ¶ 26.
247. The same confidential witness was responsible for reviewing loans for pooling.
The confidential witness received “boxes, and boxes, and boxes” of loans from the Conduit
Department. “[L]oan after loan” made no sense; stated income loans were given to people who
“clearly could not afford them.” “[G]ardeners and low wage employees” were getting loans for
hundreds of thousands of dollars. Id. ¶ 28.
248. The same confidential witness stated that one of the reasons loan officers
approved such “high risk” loans was that Opteum’s CEO, Jeffrey Zimmer, made it “very clear”
that if people did not meet their quota, they were out the door. Zimmer increased quotas, making
it “very hard for these guys” to keep up. Further, the loan officers were primarily paid on
commission; without commission pay, they made “basically no money.” Id. ¶ 29.
249. The shareholder suit subsequently settled.
12. People’s Choice Home Loan Inc.’s Systematic Disregard of

Underwriting Standards
250. People’s Choice Home Loan Inc. (“People’s Choice”) was a subprime mortgage
96
lender headquartered in Irvine, California. People’s Choice filed for bankruptcy in March 2007,
seeking Chapter 11 protection. People’s Choice originated a material portion of the loans in the
pool underlying the People’s Choice Home Loan Securities Trust Series 2005-4 offering. See
infra Table 6.
251. People’s Choice was prominently featured in a March 22, 2009 program on
Dateline NBC which highlighted the underhanded lending practices committed by various
mortgage companies:
James LaLiberte joined People’s Choice in 2004 as the chief credit officer,
overseeing the underwriting. Later, he was promoted to one of the top positions,
chief operating officer, and was in charge of all operations and setting credit
guidelines.
He presented Dateline with a list of nearly 13,000 loans People’s Choice funded
in one year from April 2004 through March 2005, totaling more than $2 billion.
Many of the loans, he said, were questionable; some possibly fraudulent.
In an interview, he said that when he came on board, the company’s reputation

was “spotty at best,” though he acknowledged the company was more
conservative than many other subprime lenders.
…
Income discrepancies Dateline independently researched dozens of the stated

income loans on the list LaLiberte presented and found many instances where
incomes apparently were inflated.
Examples on the People’s Choice list included a registered massage therapist who
claimed an income of $15,000 a month ($180,000 a year) and whom People’s
Choice loaned $640,000. According to the Web site Salary.com, which is often
used by lenders, the median income in the zip code where the borrower lived is
$3,799 a month, about one quarter of the amount the borrower claimed.
A manicurist who borrowed $445,500 in 2004 claimed monthly income of

$16,800, more than $200,000 a year. Later, she filed for bankruptcy and
submitted papers to the court reporting her 2005 annual income as $27,092,
meaning $2,258 a month (plus approximately $4,500 a year in child support).
Another borrower in 2005 listed herself as director of development for a charity

earning $15,500 a month ($186,000 a year) and obtained $655,000. But a review
of the charity’s publicly-filed tax returns shows that the director of development
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that year was paid $69,808, or $5,817 a month. Surprisingly, that person has a
different name from the borrower. A call to the charity elicited the information
that the borrower indeed had worked there at the time the loan was issued, but
held a position below director of development.
Former People’s Choice COO LaLiberte said that he used the list of loans as a
training tool. He put the spreadsheet up on a screen to highlight the types of loans
the company should stop issuing.
“The initial reaction was laughter,” LaLiberte said. “And then I said, ‘Well, wait a
minute here. Y’all think it's funny. I think it’s funny, too, sort of. But these are
loans that we funded. These are loans that we wired the money on.’”
He said that when he tried to implement more controls, he ran into resistance.
“The chief appraiser once said, ‘Fraud is what we do.’ That’s how we got where
we are today.’” Another former executive told Dateline he was present when the
comment was made and confirmed the accuracy of LaLiberte’s account.
…
Eileen Loiacono was an underwriter at People’s Choice from 2003 until

September 2005. She said LaLiberte tried to do the right thing, but lost out to
more powerful forces.
She and several other underwriters told Dateline that they felt pressured by sales
staff to approve questionable applications. While their work as underwriters was
supervised by a chief credit officer, they said that for administrative and basic
personnel matters, they reported to sales managers.
One former People’s Choice manager who spoke on condition of anonymity said,
“That place was run by the sales people,” some making $200,000 to $300,000 a
month. That did create pressure on underwriters, the former manager said. “There
was a lot of ‘keep your mouth shut’ going on, meaning you just didn't ask
questions about things you knew were wrong.”
Loiacono said that the problems and pressure were not restricted to stated income
loans, but also involved full documentation applications for which borrowers
submitted records to prove how much they made.
Falsified documents
She said she saw numerous instances of falsified W-2s, tax returns, and bank
statements, including crude cut-and-paste jobs. “They would use someone else’s
tax returns, and then they’d put someone else’s name in them,” she said.
She said that she challenged about a third of all loan applications but was
overruled by company executives the vast majority of the time.
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According to Loiacono and several other underwriters, in a few instances, sales
people offered incentives to sign off on loans. Loaicono claimed the offers
included breast implants, cars, and cash. She said she declined all such offers and
reported them to the human resources department. She said nothing was done, as
far as she knows.
Loiacono said that some sales people engaged in intimidation, threatening, for
instance, to slash the tires of an uncooperative underwriter. Another underwriter,
who requested anonymity, told Dateline her car was scratched up with a key by a
sales person she crossed.
The environment became too uncomfortable, Loiacono said, so she quit in

September 2005. “I wanted to be able to sleep at night without feeling like I was
coming into a fight every day about something that I knew needed to be done
right, and was not being done right.”
Chris Hansen, ‘If You Had a Pulse, We Gave You a Loan,’ NBC Dateline (Mar. 22, 2009)
http://www.msnbc.msn.com/id/29827248/ns/dateline_nbc-the_hansen_files_with_chris_hansen/.
E. Loans That Did Not Comply with the Underwriting Guidelines Were
Routinely Collateral for J.P. Morgan/Bear Stearns-Underwritten RMBS
252. During the FCIC investigation referenced above (supra at Section VII.D.1),
Clayton Holdings provided evidence that J.P. Morgan and Bear Stearns securitized a significant
number of loans that did not comply with the stated underwriting guidelines.
253. Clayton was the leading provider of due diligence services for RMBS offerings
during the relevant time period. This gave Clayton “a unique inside view of the underwriting
standards that originators were actually applying.” FCIC Report at 166.
254. Banks routinely hired Clayton to inspect the mortgage loans that the banks
securitized into RMBS. Clayton would determine whether the loans complied with the
originators’ stated underwriting guidelines, and prepare a report of its findings for the bank. See
FCIC Testimony of Vicki Beal, Senior Vice President of Clayton Holdings (Sept. 23, 2010),
available at http://fcic-static.law.stanford.edu/cdn_media/fcic-testimony/2010-0923-Beal.pdf.
255. From January 1, 2006 through June 30, 2007, Clayton reviewed 911,039 loans.
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Only 54% of those met the originators’ underwriting guidelines. Clayton’s former President and
CEO, Keith Johnson, testified that the “54% says there [was] a quality control issue in the
[originators].” FCIC Report at 166; Audiotape of FCIC Interview with Keith Johnson, former
President of Clayton (“Johnson FCIC Interview”) (Sept. 2, 2010) (“Beal FCIC Testimony”)
(“Even if the guideline was bad, [the loans] didn’t adhere to the guideline . . . . To me in
hindsight, [the data] just said there was a . . . fundamental breakdown.”), available at
http://fcic.law.stanford.edu/interviews/view/220. Another 18% of the loans failed the
underwriting guidelines but were deemed to have adequate compensating factors. That left a
large number – 28% – that did not meet the underwriting guidelines and had no compensating
factors. See All Clayton Trending Reports, 1st Quarter 2006 – 2nd Quarter 2007, at 1 (2007),
available at http://fcic-static.law.stanford.edu/cdn_media/fcic-testimony/2010-0923-Clayton-
All-Trending-Report.pdf (“All Clayton Trending Report”).
256. Clayton confirmed that the RMBS sold by J.P. Morgan and Bear Stearns from the
beginning of 2006 through the middle of 2007—which includes nearly all of the J.P. Morgan and
Bear Stearns Certificates listed in Table 1 of this Complaint—contained a substantial number of
loans that were not originated in conformity with underwriting guidelines. See All Clayton
Trending Report at 2, 7.
257. As revealed during the FCIC investigation in 2010, Clayton routinely found large
numbers of loans that were not properly originated under the applicable underwriting guidelines.
Despite identifying these defectively originated loans, Clayton stated that they often were
included into the RMBS that was being sold to investors. See FCIC Report at 166-67; All
Clayton Trending Report at 1.
258. Clayton reviewed 72,379 loans for Bear Stearns/EMC. It found that 11,771
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(16%) did not comply with the stated underwriting guidelines and did not have compensating
factors. Bear Stearns/EMC waived the defects for 4,923 of the 11,771 (42%).
259. Clayton reviewed 23,668 loans for J.P. Morgan. It found that 6,325 (26.7%) did
not comply with the stated underwriting guidelines and did not have compensating factors. J.P.
Morgan waived the defects for 3,238 of the 6,325 (51%).
260. Clayton typically performed due diligence on a small sample of the loans that
were being securitized into an RMBS offering. See FCIC Beal Testimony at 2. No due
diligence was performed on the remaining loans. Of the small sample of loans that Clayton did
review, approximately 14% (for J.P. Morgan) and approximately 7% (for Bear Stearns) of the
loans securitized during the time period of first quarter of 2006 through the second quarter of
2007 did not comply with the underwriting guidelines and did not have compensating factors.
Extrapolating Clayton’s results shows that for the remaining loans that were not reviewed, Bear
Stearns and J.P. Morgan securitized a significant number of loans that did not comply with the
underwriting guidelines and did not have compensating factors. All Clayton Trending Reports at
2, 7.
F. Additional Evidence Confirms That Defective Loans Were Routinely

Packaged into Bear Stearns and J.P. Morgan’s RMBS.
261. Clayton officials offered an explanation for why so many defective loans were
packaged into RMBS. When asked what caused the financial crisis, one pointed to the banks
belief that they had no liability for loans’ compliance with underwriting guidelines: “When it
came to the underwriting [guidelines] . . . and [securitizers] could perhaps distribute that risk
quickly, then that wasn’t as high on their priorities.” Johnson FCIC Interview.
262. A number of loan originators had an express policy of attempting to sell loans that
had already been rejected. Because only a small percentage of the pools were reviewed by a due
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diligence firm like Clayton (or its chief competitor, Bohan), there was a very strong likelihood
that those defective loans would enter the pool on the second or third attempt. Clayton referred
to this practice as the “three strikes, you’re out rule.” Transcript, FCIC Hearing, The Financial
Crisis at the Community Level—Sacramento, CA at 178 (Sept. 23, 2010) (testimony of D. Keith
Johnson, former President of Clayton), available at http://fcic-
static.law.stanford.edu/cdn_media/fcic-testimony/2010-0923-transcript.pdf.
263. The FCIC Report also concluded that banks like J.P. Morgan that securitized
loans were reluctant to review or reject loans in greater numbers because doing so would
endanger their relationship with originators. FCIC Report at 166 (“[Clayton’s former CEO]
concluded that his clients often waived in loans to preserve their business relationship with the
loan originator—a high number of rejections might lead the originator to sell the loans to a
competitor.”); PAUL MUOLO & MATTHEW PADILLA, CHAIN OF BLAME 228-29 (2010) (“There
were two reasons the [Wall] Street firms reviewed only a small sample of the loans they were
buying . . . . The most important reason was the relationship with the lender. ‘The lower the
sample you requested [of the lender], the more likely it was that you’d win the bid.’ ”).
VIII. THE OFFERING DOCUMENTS CONTAINED UNTRUE STATEMENTS OF

MATERIAL FACT
264. The Offering Documents included material untrue statements or omitted facts
necessary to make the statements made, in light of the circumstances under which they were
made, not misleading.
265. For purposes of Section 11 liability, the prospectus supplements are part of and
included in the registration statements of the offerings pursuant to 17 C.F.R. §§ 230.158,
230.430B (2008); see also Securities Offering Reform, 70 Fed. Reg. 44722-01, 44768-69 (Aug.
3, 2005).
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266. Statements in the Offering Documents concerning the following subjects were
material and untrue at the time they were made: (1) the loans adhered to the applicable
underwriting guidelines, including that exceptions to those guidelines would only be granted
when warranted by compensating factors; (2) the loans adhered to certain underwriting standards
for reduced documentation programs; and (3) that appraisals were accurate, that loans had certain
“loan-to-value” ratios individually and in the aggregate, that a certain percentage of the
properties were owner-occupied, and that the borrowers had certain debt-to-income (“DTI”)
ratios.
267. The following table lists the originators that contributed loans to each RMBS, as
identified in the Offering Documents. Under SEC’s Regulation AB, the Offering Documents
must disclose the originators that contributed more than 10% of the loans underlying the RMBS,
and the Offering Documents must include underwriting guidelines for the originators that
contributed more than 20% of the loans underlying the RMBS. See 17 C.F.R. § 229.1110
(2005). For the RMBS listed below, the Offering Documents included only those underwriting
guidelines for the Originators that contributed more than 20% of the loans to the RMBS.
Table 6
Originators Supplying Loans for Each RMBS at Issue
CUSIP Issuing Entity Tranche Originator(s)
Bear Stearns ALT-A
07386HXN6 I-1A-1 Countrywide Home Loans (12.01% Group 1)
Trust 2005-9
EMC Mortgage Corp. (75.81% Group 1)
GreenPoint Mortgage Funding, Inc. (47.21%
Group 1)
Bear Stearns Second Lien
07401WAA7 I-A PMC Bancorp (15.67% Group 1)
Trust 2007-1
Just Mortgage INC. (12.74% Group 1)
SouthStar Funding,(11.16% Group 1)
Bear Stearns Second Lien Bear Stearns Residential Mortgage (31.35%
07401WAP4 Trust 2007-1, Groups II 2-A Group 2)
and III
16165WAA4 ChaseFlex Trust Series A-1 JPMorgan Chase Bank, N.A. (100%)
16165WAB2 2007-2 A-2
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16165AAE4 ChaseFlex Trust Series II-A2 JPMorgan Chase Bank, N.A. (100%)
16165AAD6 2007-3 II-A1
ChaseFlex Trust Series

16165YAB8 1-A2 JPMorgan Chase Bank, N.A. (100%)
2007-M1
GMACM Home Equity GMAC Mortgage Corporation (41.75%)

361856ER4 A
Loan Trust 2006-HE1 GMAC Bank (58.25%)
GMACM Home Equity GMAC Mortgage, LLC (14%)

38012EAC9 II-A-2
Loan Trust 2006-HE5 GMAC Bank (86%)
Impac CMB Trust Series

45254NNB9 1-M-1
2005-2
Impac Mortgage Holdings, Inc. (100%)
Impac CMB Trust Series 2-A-1 Impac Mortgage Holdings, Inc. (100%)
45254NQG5
2005-6
GreenPoint Mortgage Funding, Inc. (24.56%
Group 1)
Chase Home Finance LLC
J.P. Morgan Alternative
46628GAE9 1-A-5 or JPMorgan Chase Bank, NA (21.97% Group 1)
Loan Trust 2006-A2
Countrywide Home Loans (15.45% Group 1)
M&T Mortgage Corporation (14.05% Group 1)
PHH Mortgage Corporation (11.57% Group 1)
The Chase Originators (41.89% Group 1)

466287AA7 J.P. Morgan Alternative
1-A-1-A GreenPoint Mortgage Funding, Inc. (38.9%
466287AE9 Loan Trust 2007-A1
1-A-5 Group 1)
Countrywide Home Loans, Inc. (12.82% Group 1)
The Chase Originators (57.87% Group 1)

466278AE8 1-2-A3 American Home Mortgage Corp. (20.02% Group
Loan Trust 2007-A2
1) GreenPoint Mortgage Funding (11.75% Group
1)
Chase Home Finance LLC and JPMorgan Chase
466275AA2 A-1 Bank (71.90%)
Loan Trust 2007-S1
American Home Mortgage Corporation (15.93%)
People’s Choice Home People's Choice Home Loan, Inc. (100%)
1A2
71085PDD2 Loan Securities Trust
Series 2005-4
American Home Mortgage Investment Corp.
(28.83% Group 1)
Southstar Funding, LLC and Opteum Financial
Services, LLC (18.39% Group 1)
785778PF2
SACO I Trust 2006-2 Impac Mortgage Corporation (13.8% Group 1)
785778PG0
I-A Suntrust Mortgage Corporation (15.01% Group 2)
II-A Waterfield Mortgage Corporation (12.97%
Group 2)
104
EMC Mortgage Corporation (70.53%)
A
78577PAA1 SACO I Trust 2006-7
American Home Mortgage Corp. (31.07%)

SouthStar Funding, LLC (19.79%)
A
785813AA4 SACO I Trust 2006-8 Just Mortgage Inc. (16.15%)
Metrocities Mortgage, LLC (11.8%)
GreenPoint Mortgage Funding, Inc. (100%)

II-A
78577NAG3 SACO I Trust 2006-12
SG Mortgage Securities A-2C Fremont Investment and Loan (100%)

784208AD2
Trust 2006-FRE2
Structured Asset Countrywide Home Loans, Inc. (100%)
A-1
86359LSM2 Mortgage Investments II
Trust 2006-AR2
268. Examples of material untrue statements and/or omissions of fact in the Offering
Documents of the RMBS listed above follow.
A. Untrue Statements Concerning Adherence to Underwriting Guidelines
269. The Bear Stearns ALT-A Trust 2005-9 Prospectus Supplement provided the
following description of Countrywide’s underwriting guidelines:
As part of its evaluation of potential borrowers, Countrywide Home Loans

generally requires a description of income. If required by its underwriting
guidelines, Countrywide Home Loans obtains employment verification providing
current and historical income information and/or a telephonic employment
confirmation. Such employment verification may be obtained, either through
analysis of the prospective borrower’s recent pay stub and/or W-2 forms for the
most recent two years, relevant portions of the most recent two years’ tax returns,
or from the prospective borrower’s employer, wherein the employer reports the
length of employment and current salary with that organization. Self-employed
prospective borrowers generally are required to submit relevant portions of their
federal tax returns for the past two years.
In assessing a prospective borrower’s creditworthiness, Countrywide Home Loans

may use FICO Credit Scores. “FICO Credit Scores” are statistical credit scores
designed to assess a borrower’s creditworthiness and likelihood to default on a
consumer obligation over a two-year period based on a borrower’s credit history.
FICO Credit Scores were not developed to predict the likelihood of default on
mortgage loans and, accordingly, may not be indicative of the ability of a
borrower to repay its mortgage loan. FICO Credit Scores range from
105
approximately 250 to approximately 900, with higher scores indicating an
individual with a more favorable credit history compared to an individual with a
lower score. Under Countrywide Home Loans’ underwriting guidelines,
borrowers possessing higher FICO Credit Scores, which indicate a more favorable
credit history and who give Countrywide Home Loans the right to obtain the tax
returns they filed for the preceding two years, may be eligible for Countrywide
Home Loans' processing program (the “Preferred Processing Program”).
Periodically the data used by Countrywide Home Loans to complete the

underwriting analysis may be obtained by a third party, particularly for mortgage
loans originated through a loan correspondent or mortgage broker. In those
instances, the initial determination as to whether a mortgage loan complies with
Countrywide Home Loans’ underwriting guidelines may be made by an
independent company hired to perform underwriting services on behalf of
Countrywide Home Loans, the loan correspondent or mortgage broker. In
addition, Countrywide Home Loans may acquire mortgage loans from approved
correspondent lenders under a program pursuant to which Countrywide Home
Loans delegates to the correspondent the obligation to underwrite the mortgage
loans to Countrywide Home Loans’ standards. Under these circumstances, the
underwriting of a mortgage loan may not have been reviewed by Countrywide
Home Loans before acquisition of the mortgage loan and the correspondent
represents that Countrywide Home Loans’ underwriting standards have been met.
After purchasing mortgage loans under those circumstances, Countrywide Home
Loans conducts a quality control review of a sample of the mortgage loans. The
number of loans reviewed in the quality control process varies based on a variety
of factors, including Countrywide Home Loans’ prior experience with the
correspondent lender and the results of the quality control review process itself.
Countrywide Home Loans’ underwriting standards are applied by or on behalf of

Countrywide Home Loans 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.
Bear Stearns ALT-A Trust 2005-9 Prospectus Supplement at S-47; Structured Asset Mortgage
Investments II Trust 2006-AR2 Prospectus Supplement at S-38-39.
270. The Bear Stearns ALT-A Trust 2005-9 Prospectus Supplement stated:
Exceptions to Countrywide Home Loan’s underwriting guidelines may be made if
106
compensating factors are demonstrated by a prospective borrower.
Investments II Trust 2006-AR2 Prospectus Supplement at S-39.
Approximately 52.90% of the mortgage loans in the aggregate have been acquired
by EMC from various sellers and were originated generally in accordance with
the following underwriting guidelines established by EMC.
Bear Stearns ALT-A Trust 2005-9 Prospectus Supplement at S-52.
The mortgage loans originated by EMC, or EMC mortgage loans, are

“conventional non-conforming mortgage loans” (i.e., loans that are not insured by
the Federal Housing Authority, or FHA, or partially guaranteed by the Veterans
Administration or which do not qualify for sale to Fannie Mae or Freddie Mac)
and are secured by first liens on one-to four-family residential properties. These
loans typically differ from those underwritten to the guidelines established by
Fannie Mae and Freddie Mac primarily with respect to the original principal
balances, loan-to-value ratios, borrower income, required documentation, interest
rates, borrower occupancy of the mortgaged property, property types and/or
mortgage loans with loan-to-value ratios over 80% that do not have primary
mortgage insurance. The EMC mortgage loans were originated or purchased by
EMC and were generally underwritten in accordance with the standards described
herein.
Such underwriting standards are applied to evaluate the prospective borrower’s

credit standing and repayment ability and the value and adequacy of the
mortgaged property as collateral. These standards are applied in accordance with
the applicable federal and state laws and regulations. Exceptions to the
underwriting standards are permitted where compensating factors are present.
Generally, each mortgagor will have been required to complete an application

designed to provide to the lender pertinent credit information concerning the
mortgagor. The mortgagor will have given information with respect to its assets,
liabilities, income (except as described below), credit history, employment history
and personal information, and will have furnished the lender with authorization to
obtain a credit report which summarizes the mortgagor’s credit history. In the
case of investment properties and two- to four-unit dwellings, income derived
from the mortgaged property may have been considered for underwriting
purposes, in addition to the income of the mortgagor from other sources. With
respect to second homes or vacation properties, no income derived from the
107
property will have been considered for underwriting purposes.
273. The Bear Stearns Second Lien Trust 2007-1 Prospectus Supplement stated: “The
mortgage loans originated by BSRM were originated generally in accordance with guidelines
(the “BSRM Underwriting Guidelines”)…” Bear Stearns Second Lien Trust 2007-1 Group II and
III Prospectus Supplement at S-43.
274. The Bear Stearns Second Lien Trust 2007-1 Prospectus Supplement stated: “The
BSRM Underwriting Guidelines are intended to make sure that (i) the loan terms relate to the
borrower’s ability to repay and (ii) the value and marketability of the property are acceptable.”
Bear Stearns Second Lien Trust 2007-1 Group II and III Prospectus Supplement at S-43.
275. The Bear Stearns Second Lien Trust 2007-1 Prospectus Supplement stated:
During the underwriting process, BSRM reviews and verifies the loan applicant’s
sources of income (except under the Stated Documentation type, under which
programs such information may not be independently verified), calculates the
amount of income from all such sources indicated on the loan application, reviews
the credit history of the applicant, calculates the debt-to-income ratio to determine
the applicant’s ability to repay the loan, and reviews the mortgaged property for
compliance with the BSRM Underwriting Guidelines.
Exceptions to the BSRM Underwriting Guidelines are considered with reasonable

compensating factors on a case-by-case basis and at the sole discretion of senior
management. When exception loans are reviewed, all loan elements are examined
as a whole to determine the level of risk associated with approving the loan,
including appraisal, credit report, employment, compensating factors and
borrower’s willingness and ability to repay the loan. Compensating factors may
include, but are not limited to, validated or sourced/seasoned liquid reserves in
excess of the program requirements, borrower’s demonstrated ability to
accumulate savings or devote a greater portion of income to housing expense and
borrower’s potential for increased earnings based on education, job training, etc.
Loan characteristics such as refinance transactions where borrowers are reducing
108
mortgage payments and lowering debt ratios may become compensating factors as
well.
The underwriting guidelines are primarily intended to assess the borrower’s

ability to repay the mortgage loan, to assess the value of the mortgaged property
and to evaluate the adequacy of the mortgaged property as collateral for the
mortgage loan.
...
On a case-by-case basis, exceptions to the underwriting guidelines are made
where compensating factors exist. It is expected that a substantial portion of the
mortgage loans in the mortgage pool that were originated by the originators will
represent these exceptions.
...
Mortgaged properties that are to secure mortgage loans generally are appraised by
qualified independent appraisers. These appraisers inspect and appraise the
subject property and verify that the property is in acceptable condition. Following
each appraisal, the appraiser prepares a report that includes a market value
analysis based on recent sales of comparable homes in the area and, when deemed
appropriate, market rent analysis based on the rental of comparable homes in the
area. All appraisals are required to conform to the Uniform Standard of
Professional Appraisal Practice adopted by the Appraisal Standards Board of the
Appraisal Foundation and are generally on forms acceptable to Fannie Mae and
Freddie Mac.
....
The mortgage loans were originated consistent with and generally conform to the
underwriting guidelines’ full/alternative documentation, stated income
documentation and limited documentation residential loan programs. Under each
of the programs, the originator reviews the applicant’s source of income,
calculates the amount of income from sources indicated on the loan application or
similar documentation, reviews the credit history of the applicant, calculates the
debt service to income ratio, if required, to determine the applicant’s ability to
repay the loan, and reviews the appraisal.
Bear Stearns Second Lien Trust 2007-1 Group II and Group III Prospectus Supplement at S-41-
42.
278. The Bear Stearns Second Lien Trust 2007-1 Prospectus Supplement states:
Generally, the GreenPoint underwriting guidelines are applied to evaluate the

prospective borrower’s credit standing and repayment ability and the value and
109
adequacy of the mortgaged property as collateral. Exceptions to the guidelines
are permitted where compensating factors are present. The GreenPoint
underwriting guidelines are generally not as strict as Fannie Mae or Freddie Mac
guidelines. GreenPoint’s underwriting guidelines are applied in accordance with
applicable federal and state laws and regulations.
Bear Stearns Second Lien Trust Group I Prospectus Supplement at the “GreenPoint
Underwriting Guidelines” section; see also SACO I Trust 2006-12 Prospectus Supplement at S-
35.
As part of its evaluation of potential borrowers, GreenPoint generally requires a

description of the borrower’s income. If required by its underwriting guidelines,
GreenPoint obtains employment verification providing current and historical
income information and/or a telephonic employment confirmation. Employment
verification may be obtained through analysis of the prospective borrower’s
recent pay stubs and/or W-2 forms for the most recent two years or relevant
portions of the borrower’s most recent two years’ tax returns, or from the
prospective borrower’s employer, wherein the employer reports the borrower’s
length of employment and current salary with that organization. Self-employed
prospective borrowers generally are required to submit relevant portions of their
federal tax returns for the past two years.
Bear Stearns Second Lien Trust 2007-1 Group I Prospectus Supplement at the “GreenPoint
Underwriting Guidelines” section; see also SACO I Trust 2006-12 Prospectus Supplement at S-
35.
In determining whether a prospective borrower has sufficient monthly income

available to meet the borrower’s monthly obligation on the proposed mortgage
loan and monthly housing expenses and other financial obligations, GreenPoint
generally considers the ratio of those amounts to the proposed borrower’s
monthly gross income. These ratios vary depending on a number of underwriting
criteria, including loan-to-value ratios (“LTV”), and are determined on a loan-by-
loan basis. The ratios generally are limited to 40% but may be extended to 50%
with adequate compensating factors, such as disposable income, reserves, higher
FICO credit score, or lower LTV’s. Each mortgage loan has a required amount of
reserves, with the minimum being three months of principal, interest, taxes and
insurance for full documentation loans. Depending on the LTV and occupancy
types, these reserve requirements may be increased to compensate for the
110
additional risk.
Bear Stearns Second Lien Trust 2007-1 Group I Prospectus Supplement at the “GreenPoint
Underwriting Guidelines” section.
281. The ChaseFlex Trust Series 2007-2 Prospectus Supplement dated Apr. 25, 2007,
stated at S-56: “The Mortgage Loans were originated by or for JPMorgan or its affiliates
generally using underwriting guidelines originally established by Chase Home Finance LLC as
set forth below.” See also ChaseFlex Trust Series 2007-3 Prospectus Supplement at S-118;
ChaseFlex Trust Series 2007-M1 Prospectus Supplement at S-95.
282. The ChaseFlex Trust Series 2007-2 Prospectus Supplement stated:
The Mortgage Loans were not originated in a manner generally consistent with
Fannie Mae or Freddie Mac published underwriting guidelines and were
originated using underwriting policies (the “ALTERNATIVE A
UNDERWRITING POLICIES”) that are different from and, in certain respects,
less stringent than the general underwriting policies of JPMorgan and its affiliates
during the period of origination of the Mortgage Loans. For example, such
Mortgage Loans include mortgage loans secured by non-owner occupied
properties, mortgage loans made to borrowers whose income is not required to be
provided or verified, mortgage loans with higher loan-to-value ratios or mortgage
loans made to borrowers whose ratios of debt service on the mortgage loans to
income and total debt service on borrowings to income are higher than for such
other programs, or mortgage loans made to international borrowers. Other
examples include mortgage loans secured by shares in cooperative housing
corporations, “condotels,” smaller or larger or otherwise unusual parcels of land
and mortgage loans with higher loan-to-value ratios than in such other programs.
The inclusion of such Mortgage Loans may present certain risks that are not
present in such other programs.
Under the Alternative A Underwriting Policies, the borrower is required to

complete an application designed to provide pertinent credit information
concerning the borrower. As part of the description of the borrower’s financial
condition, each borrower is required to furnish information (which may have been
supplied solely in such application) with respect to its assets, liabilities, income
(except as described below), credit history and employment history, and to furnish
an authorization to apply for a credit report which summarizes the borrower's
credit history with local merchants and lenders and any record of bankruptcy. The
borrower may also be required to authorize verifications of deposits at financial
institutions where the borrower had demand or savings accounts. In the case of
111
non-owner occupied properties, income derived from the mortgaged property may
be considered for underwriting purposes. With respect to mortgaged property
consisting of a vacation or second home, generally no income derived from the
property is considered for underwriting purposes.
ChaseFlex Trust Series 2007-2 Prospectus Supplement at S-56. See also ChaseFlex Trust Series
2007-3 Prospectus Supplement at S-118; ChaseFlex Trust Series 2007-M1 Prospectus
Supplement at S-95.
From time to time, exceptions and/or variances to Alternative A Underwriting

Policies may be made. Such exceptions and/or variances may be made only if
specifically approved on a loan-by-loan basis by certain credit personnel who
have the authority to make such exceptions and/or variances. Exceptions and/or
variances may be made only after careful consideration of certain mitigating
factors such as borrower capacity, liquidity, employment and residential stability
and local economic conditions.
ChaseFlex Trust Series 2007-2 Prospectus Supplement at S-57. See also ChaseFlex Trust Series
2007-3 Prospectus Supplement at S-119; ChaseFlex Trust Series 2007-M1 Prospectus
Supplement at S-96.
284. The SG Mortgage Securities Trust 2006-FRE2 Prospectus Supplement
represented:
Fremont’s underwriting guidelines are primarily intended to assess the ability and
willingness of the borrower to repay the debt and to evaluate the adequacy of the
mortgaged property as collateral for the mortgage loan. The Scored Programs
assess the risk of default by using Credit Scores obtained from third party credit
repositories along with, but not limited to, past mortgage payment history,
seasoning on bankruptcy and/or foreclosure and loan-to-value ratios as an aid to,
not a substitute for, the underwriter’s judgment. All of the mortgage loans in the
mortgage pool were underwritten with a view toward the resale of the mortgage
loans in the secondary mortgage market.
SG Mortgage Securities Trust 2006-FRE2 Prospectus Supplement at S-35.
285. The SG Mortgage Securities Trust 2006-FRE2 Prospectus Supplement also
stated:
112
Fremont Investment & Loan conducts a number of quality control procedures,
including a post-funding compliance audit as well as a full re-underwriting of a
random selection of loans to assure asset quality.
286. The GMACM Home Equity Loan Trust 2006-HE1 Prospectus Supplement dated
Mar. 27, 2006 stated at S-39: “All of the HELOCs were underwritten generally in accordance
with GMAC Mortgage Corporation’s underwriting standards.” See also GMACM Home Equity
Loan Trust 2006-HE5 Prospectus Supplement at S-34.
287. The GMACM Home Equity Loan Trust 2006-HE1 Prospectus Supplement stated:
The underwriting standards set forth in the GMAC Mortgage Corporation

underwriting guidelines with respect to HELOCs originated under the GMAC
Mortgage Corporation Home Equity Program may be varied in appropriate cases.
There can be no assurance that every HELOC was originated in conformity with
the applicable underwriting standards in all material respects, or that the quality or
performance of the HELOCs will be equivalent under all circumstances.
GMAC Mortgage Corporation’s underwriting standards include a set of specific

criteria pursuant to which the underwriting evaluation is made. However, the
application of those underwriting standards does not imply that each specific
criterion was satisfied individually. Rather, a HELOC will be considered to be
originated in accordance with a given set of underwriting standards if, based on an
overall qualitative evaluation, the loan is in substantial compliance with those
underwriting standards. For example, a HELOC may be considered to comply
with a set of underwriting standards, even if one or more specific criteria included
in the underwriting standards were not satisfied, if other factors compensated for
the criteria that were not satisfied or if the HELOC is considered to be in
substantial compliance with the underwriting standards.
Conformity with the applicable underwriting standards will vary depending on a

number of factors relating to the specific HELOC, including the principal amount
or credit limit, the CLTV Ratio, the loan type or loan program, and the applicable
credit score of the related borrower used in connection with the origination of the
HELOC, as determined based on a credit scoring model acceptable to GMAC
Mortgage Corporation. Credit scores are not used to deny loans. However, credit
scores are used as a “tool” to analyze a borrower’s credit. Generally, credit
scoring models provide a means for evaluating the information about a
prospective borrower that is available from a credit reporting agency. The
underwriting criteria applicable to any program under which the HELOCs may be
originated may provide that qualification for the loan, the level of review of the
113
loan’s documentation, or the availability of certain loan features, such as
maximum loan amount, maximum CLTV Ratio, property type and use, and
documentation level, may depend on the borrower’s credit score.
GMACM Home Equity Loan Trust 2006-HE1 Prospectus Supplement at S-40-41. See also
GMACM Home Equity Loan Trust 2006-HE5 Prospectus Supplement at S-36-37.
288. The SACO I Trust 2006-2 Prospectus Supplement represented:
American Home’s underwriting philosophy is to weigh all risk factors inherent in

the loan file, giving consideration to the individual transaction, borrower profile,
the level of documentation provided and the property used to collateralize the
debt. These standards are applied in accordance with applicable federal and state
laws and regulations. Exceptions to the underwriting standards may be permitted
where compensating factors are present. . . . Because each loan is different,
American Home expects and encourages underwriters to use professional
judgment based on their experience in making a lending decision.
SACO I Trust 2006-2 Prospectus Supplement at S-34; SACO I Trust 2006-8 Prospectus
Supplement at S-26.
American Home underwrites a borrower’s creditworthiness based solely on

information that American Home believes is indicative of the applicant’s
willingness and ability to pay the debt they would be incurring.
Supplement at S-26.
American Home realizes that there may be some acceptable quality loans that fall
outside published guidelines and encourages “common sense” underwriting.
Because a multitude of factors are involved in a loan transaction, no set of
guidelines can contemplate every potential situation. Therefore, each case is
weighed individually on its own merits and exceptions to American Home’s
underwriting guidelines are allowed if sufficient compensating factors exist to
offset any additional risk due to the exception.
Supplement at S-34; SACO I Trust 2006-8 Prospectus Supplement at S-27.

114
291. The Impac CMB Trust Series 2005-2 Prospectus Supplement stated:
The underwriting guidelines utilized in the Progressive Series Program, as

developed by the Seller, are intended to assess the borrower’s ability and
willingness to repay the mortgage loan obligation and to assess the adequacy of
the mortgaged property as collateral for the mortgage loan. The Progressive Series
Program is designed to meet the needs of borrowers with excellent credit, as well
as those whose credit has been adversely affected.
Impac CMB Trust Series 2005-2 Prospectus Supplement at S-57. See also Impac CMB
Trust Series 2005-6 Prospectus Supplement at the “Underwriting Standards” section.
The philosophy of the Progressive Series Program is that no single borrower

characteristic should automatically determine whether an application for a
mortgage loan should be approved or disapproved. Lending decisions are based
on a risk analysis assessment after the review of the entire mortgage loan file.
293. The Impac CMB Trust Series 2005-2 Prospectus Supplement also stated:
Under the Progressive Series Program, the Seller underwrites one- to four-family
mortgage loans with loan-to-value ratios at origination of up to 100%, depending
on, among other things, a borrower’s credit history, repayment ability and debt
service-to-income ratio, as well as the type and use of the mortgaged property.
294. On the issue of the Chase Originators’ guidelines, the J.P. Morgan Alternative
Loan Trust 2007-A2 Prospectus Supplement states:
The Chase Originators have represented to the Seller that, except for
approximately 74.27% of these Chase Originator Mortgage Loans, such Chase
Originator Mortgage Loans were originated generally in accordance with such
policies. The depositor believes that such Mortgage Loans subject to the
exception in the previous sentence were originated generally in accordance with
the underwriting guidelines set forth under the heading “The Originators—
General Underwriting Guidelines” in this prospectus supplement. References to
115
Mortgage Loans in this section refer to the Chase Originator Mortgage Loans
originated or acquired by the Chase Originators in accordance with the
underwriting guidelines described below.
J.P. Morgan Alternative Loan Trust 2007-A2 Prospectus Supplement at S-40-41; J.P. Morgan
Alternative Loan Trust 2007-A1 Prospectus Supplement at S-37-38; J.P. Morgan Alternative
Loan Trust 2007-S1 Prospectus Supplement at “The Originators”; J.P. Morgan Alternative Loan
Trust 2006-A2 Prospectus Supplement at S-37; J.P. Morgan Alternative Loan Trust 2007-A1
Free Writing Prospectus, Feb. 9, 2007 at “The Chase Originators”; J.P. Morgan Alternative Loan
Trust 2006-A2 Free Writing Prospectus, April 5, 2006, at “The Chase Originators.”
295. With respect to exceptions to the Chase Originators’ guidelines, the J.P. Morgan
Alternative Loan Trust 2007-A2 Prospectus Supplement stated:
From time to time, exceptions and/or variances to Alternative A Underwriting

Policies may be made. Such exceptions and/or variances may be made only if
specifically approved on a loan-by-loan basis by certain credit personnel who
have the authority to make such exceptions and/or variances. Exceptions and/or
variances may be made only after careful consideration of certain mitigating
factors such as borrower capacity, liquidity, employment and residential stability
and local economic conditions.
J.P. Morgan Alternative Loan Trust 2007-A2 Prospectus Supplement, May 31, 2007, at S-42;
J.P. Morgan Alternative Loan Trust 2007-A1 Prospectus Supplement at S-39; J.P. Morgan
Alternative Loan Trust 2007-S1 Prospectus Supplement at “The Originators” section; J.P.
Morgan Alternative Loan Trust 2006-A2 Prospectus Supplement at S-38; see J.P. Morgan
Alternative Loan Trust 2007-S1 Free Writing Prospectus, May 10, 2007, at “The Chase
Originators”; J.P. Morgan Alternative Loan Trust 2007-A1 Free Writing Prospectus, Feb. 9,
2007 at “The Chase Originators”; J.P. Morgan Alternative Loan Trust 2006-A2 Free Writing
Prospectus, Apr. 5, 2006, at “The Chase Originators.”
296. The J.P. Morgan Alternative Loan Trust 2007-A2 Prospectus Supplement
116
represented the following concerning American Home’s underwriting guidelines:
The following information generally describes American Home’s underwriting

guidelines with respect to mortgage loans originated pursuant to its “conforming”
or “prime” underwriting guidelines and its Alt-A underwriting guidelines.
J.P. Morgan Alternative Loan Trust 2007-A2 Prospectus Supplement at S-43; see also J.P.
Morgan Alternative Loan Trust 2007-A2 Free Writing Prospectus, May 23, 2007, at “American
Home Mortgage Corp”.
represented J.P. Morgan’s “general underwriting standards” to require:
Underwriting standards are applied by or on behalf of a lender to evaluate a

borrower’s credit standing and repayment ability, and the value and adequacy of
the related Mortgaged Property as collateral. In general, a prospective borrower
applying for a loan is required to fill out a detailed application designed to provide
to the underwriting officer pertinent credit information. As part of the description
of the borrower’s financial condition, the borrower generally is required to
provide a current list of assets and liabilities and a statement of income and
expenses, as well as an authorization to apply for a credit report which
summarizes the borrower’s credit history with local merchants and lenders and
any record of bankruptcy. In most cases, an employment verification is obtained
from an independent source (typically the borrower’s employer), which
verification repots, among other things, the length of employment with that
organization, the current salary, and whether it is expected that the borrower will
continue such employment in the future. If a prospective borrower is self
employed, the borrower may be required to submit copies of signed tax returns.
Alternative Loan Trust 2007-A1 Prospectus Supplement at S-35-36; J.P. Morgan Alternative
Loan Trust 2006-A2 Prospectus Supplement at S-29-30; see J.P. Morgan Alternative Loan Trust
2007-A2 Registration Statement, Mar. 27, 2006, at “Underwriting Standards”; J.P. Morgan
Alternative Loan Trust 2007-A1 Registration Statement, Dec. 7, 2005, at “Underwriting
Standards”; J.P. Morgan Alternative Loan Trust 2006-A2 Registration Statement, Dec. 7, 2005,
at “Underwriting Standards.”
117
298. On GreenPoint’s underwriting guidelines, the J.P. Morgan Alternative Loan Trust
2007-A1 Prospectus Supplement stated:
Generally, the GreenPoint underwriting guidelines are applied to evaluate the

prospective borrower’s credit standing and repayment ability and the value and
adequacy of the mortgaged property as collateral.
Alternative Loan Trust 2006-A2 Prospectus Supplement at S-39; see J.P. Morgan Alternative
Loan Trust 2007-A1 Free Writing Prospectus, Feb. 9, 2007, at “GreenPoint Mortgage Funding,
Inc.”; J.P. Morgan Alternative Loan Trust 2006-A2 Free Writing Prospectus, Apr. 5, 2006, at
“GreenPoint Mortgage Funding, Inc.”
continued:
Periodically, the data used by GreenPoint to underwrite mortgage loans may be

obtained by an approved loan correspondent. In those instances, the initial
determination as to whether a mortgage loan complies with GreenPoint’s
underwriting guidelines may be made by such loan correspondent. In addition,
GreenPoint may acquire mortgage loans from approved correspondent lenders
under a program pursuant to which GreenPoint delegates to the correspondent the
obligation to underwrite the mortgage loans to GreenPoint’s standards. Under
these circumstances, the underwriting of a mortgage loan may not have been
reviewed by GreenPoint before acquisition of the mortgage loan, and the
correspondent represents to GreenPoint that its underwriting standards have been
met. After purchasing mortgage loans under those circumstances, GreenPoint
conducts a quality control review of a sample of the mortgage loans. The number
of loans reviewed in the quality control process varies based on a variety of
factors, including GreenPoint’s prior experience with the correspondent lender
and the results of the quality control review process itself.
Alternative Loan Trust 2006-A2 Prospectus Supplement, dated April 24, 2006, at S-40; see J.P.
Morgan Alternative Loan Trust 2007-A1 Free Writing Prospectus, Feb. 9, 2007, at “GreenPoint
Mortgage Funding, Inc.”; J.P. Morgan Alternative Loan Trust 2006-A2 Free Writing Prospectus,
118
Apr. 5, 2006, at “GreenPoint Mortgage Funding, Inc.”; SACO I Trust 2006-12 Prospectus
Supplement at S-36.
300. On the issue of exceptions to GreenPoint’s guidelines, the J.P. Morgan
Alternative Loan Trust 2007-A1 Prospectus Supplement represented:
Exceptions to the guidelines are permitted where compensating factors are

present. The GreenPoint underwriting guidelines are generally not as strict as
Fannie Mae or Freddie Mac guidelines. GreenPoint’s underwriting guidelines are
applied in accordance with applicable state laws and regulations.
Alternative Loan Trust 2006-A2 Prospectus Supplement at S-39; see J.P. Morgan Alternative
Loan Trust 2007-A1 Free Writing Prospectus, Feb. 9, 2007, at “GreenPoint Mortgage Funding,
Inc.”; J.P. Morgan Alternative Loan Trust 2006-A2 Free Writing Prospectus, Apr. 5, 2006, at
“GreenPoint Mortgage Funding, Inc.”
301. The People’s Choice Home Loan Securities Trust Series 2005-4 Prospectus
Supplement stated:
All of the [People’s Choice Home Loan, Inc. (“PCHLI”)] mortgage loans were
originated by PCHLI in accordance with the underwriting criteria described in
this section. Approximately 90% of PCHLI loan production consists of wholesale
loan transactions. To obtain a loan in this manner, an independent third-party
mortgage broker receives a mortgage loan application from a borrower, gathers
information needed to make a credit decision, processes that information, and
provides that information to PCHLI. PCHLI then reviews the information
provided by the mortgage broker and makes a credit decision based on the
borrower’s application for a mortgage loan. PCHLI thoroughly reviews all credit,
income, character and collateral information provided by the broker for
completeness, accuracy and authenticity. For example, PCHLI orders its own tri-
merged credit report, verbally verifying employment, verifying income where
available, and completing an internal independent review of each appraisal
submitted for consideration. They also use third-party vendors to verify the
customer information disclosed on the borrower’s credit application.
For PCHLI’s fiscal year-ended December 31, 2004, approximately 10% of

PCHLI loan production consists of retail loan transactions. A PCHLI loan officer
receives a mortgage loan application from a borrower, gathers information needed
119
to make a credit decision, processes that information, packages and checks the
information for inaccuracies prior to submitting it for underwriting, and provides
that information to PCHLI underwriters. PCHLI thoroughly reviews all credit,
income, character and collateral information provided by the PCHLI loan officer
and makes a credit decision based on the borrower’s application for a mortgage
loan using the same processes and guidelines used in wholesale transactions.
PCHLI typically conducts a final pre-funding check of the underwriting packages
prior to wiring money to fund a mortgage loan.
People’s Choice Home Loan Securities Trust Series 2005-4 Prospectus Supplement at S-55.
Supplement continued:
The mortgage loans are generally consistent with and conform to the
Underwriting Guidelines for “full documentation,” “lite documentation,” and
“stated income documentation” residential loan programs. On a case-by-case
basis, exceptions to the Underwriting Guidelines are made where compensating
factors exist. It is expected that some portion of the PCHLI loans will represent
those exceptions. In addition, PCHLI documents all exceptions in its loan files
and has recently adopted a policy completely prohibiting exceptions for borrowers
with credit scores of 540 or lower and for any borrowers that use stated income
documentation for the 80/20 combination (100% LTV) loan program. Under each
program, PCHLI reviews the applicant’s source of income, calculates the amount
of income from sources indicated on the loan application or similar
documentation, reviews the credit history of the applicant, calculates the debt
service-to-income ratio to determine the applicant’s ability to repay the loan,
reviews the type and use of the property being financed, and reviews the property
appraisal. In determining the ability of the applicant to repay the loan, a loan rate
is assigned that is generally equal to the interest rate established under the
Underwriting Guidelines. The Underwriting Guidelines require that mortgage
loans be underwritten in a standardized procedure and require the underwriters to
be satisfied that the value of the property being financed, as reflected by an
appraisal and a review of the appraisal, supports the outstanding loan balance at
time of loan funding.
303. People’s Choice Home Loan Securities Trust Series 2005-4 Prospectus
Supplement stated:
In evaluating the credit quality of borrowers, PCHLI utilizes Credit Scores,

mortgage or rent payment history, job stability and income. The Underwriting
Guidelines require all borrowers to have demonstrated a willingness to pay.
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Supplement stated:
Under the Underwriting Guidelines, PCHLI has established eight principal risk
categories ranging from “AAA” to “C,” with respect to the credit profile of
potential borrowers, and assigns a rating to each mortgage loan based upon these
classifications, assessing the likelihood the applicant will repay the mortgage
loan. These risk categories establish the maximum permitted LTV, the maximum
loan amount and the allowed use of loan proceeds given the borrower’s mortgage
payment history, consumer credit history, liens/charge-offs/bankruptcy history,
debt-to-income ratio, use of proceeds, documentation type and other factors.
In general, higher credit risk mortgage loans are graded in categories that require
lower debt to income ratios and lower LTV ratios and permit more (or more
recent) major derogatory credit items, such as outstanding judgments or prior
bankruptcies.
305. The SACO I Trust 2006-7 Prospectus Supplement stated:
The underwriting guidelines are primarily intended to assess the borrower’s

ability to repay the mortgage loan, to assess the value of the mortgaged property
and to evaluate the adequacy of the mortgaged property as collateral for the
mortgage loan. While the originator’s primary consideration in underwriting a
mortgage loan is the value of the mortgaged property, the originator also
considers, among other things, a mortgagor’s credit history, repayment ability and
debt service to income ratio as well as the type and use of the mortgaged property.
Some of the mortgage loans bear higher rates of interest than mortgages loan that
are originated in accordance with Fannie Mae and Freddie Mac standards, which
is likely to result in rates of delinquencies and foreclosures that are higher, and
that may be substantially higher, than those experienced by portfolios of mortgage
loans underwritten in a more traditional manner. The mortgage loans will have
been originated in accordance with the underwriting guidelines. On a case-by-
case basis, exceptions to the underwriting guidelines are made where
compensating factors exist. It is expected that a substantial portion of the
mortgage loans in the mortgage pool that were originated by the originators will
represent these exceptions.
Each applicant completes an application that includes information with respect to

the applicant’s liabilities, income, credit history, employment history and personal
information. The underwriting guidelines require a credit report on each applicant
from a credit reporting company. The report typically contains information
121
relating to matters such as credit history with local and national merchants and
lenders, installment debt payments and any record of defaults, bankruptcies,
repossessions or judgments.
SACO I Trust 2006-7 Prospectus Supplement at S-33.
306. UNTRUE STATEMENTS AND OMITTED INFORMATION: The preceding
statements were material at the time they were made, because the quality of the loans in the
mortgage pool directly affects the riskiness of the RMBS investment, and the quality of the loans
is dependent upon the underwriting process employed. The preceding statements were untrue at
the time they were made because, among other things, the Originators did not adhere to the
stated underwriting guidelines, did not effectively evaluate the borrowers’ ability or likelihood to
repay the loans, did not properly evaluate whether the borrower’s debt-to-income ratio supported
a conclusion that the borrower had the means to meet his/her monthly obligations, and did not
ensure that adequate compensating factors justified the granting of exceptions to guidelines.
B. Untrue Statements Concerning Adherence to Reduced Documentation

Program Underwriting Guidelines
In connection with the Standard Underwriting Guidelines, Countrywide Home

Loans originates or acquires mortgage loans under the Full Documentation
Program, the Alternative Documentation Program, the Reduced Documentation
Program, the CLUES Plus Documentation Program or the Streamlined
Documentation Program.
The Alternative Documentation Program permits a borrower to provide W-2
forms instead of tax returns covering the most recent two years, permits bank
statements in lieu of verification of deposits and permits alternative methods of
employment verification.
Under the Reduced Documentation Program, some underwriting documentation
concerning income, employment and asset verification is waived. Countrywide
Home Loans obtains from a prospective borrower either a verification of deposit
or bank statements for the two-month period immediately before the date of the
mortgage loan application or verbal verification of employment. Since
information relating to a prospective borrower’s income and employment is not
verified, the borrower’s debt-to-income ratios are calculated based on the
122
information provided by the borrower in the mortgage loan application. The
maximum Loan-to-Value Ratio ranges up to 95%.
The CLUES Plus Documentation Program permits the verification of employment
by alternative means, if necessary, including verbal verification of employment or
reviewing paycheck stubs covering the pay period immediately prior to the date of
the mortgage loan application. To verify the borrower's assets and the sufficiency
of the borrower’s funds for closing, Countrywide Home Loans obtains deposit or
bank account statements from each prospective borrower for the month
immediately prior to the date of the mortgage loan application. Under the CLUES
Plus Documentation Program, the maximum Loan-to-Value Ratio is 75% and
property values may be based on appraisals comprising only interior and exterior
inspections. Cash-out refinances and investor properties are not permitted under
the CLUES Plus Documentation Program.
The Streamlined Documentation Program is available for borrowers who are
refinancing an existing mortgage loan that was originated or acquired by
Countrywide Home Loans provided that, among other things, the mortgage loan
has not been more than 30 days delinquent in payment during the previous
twelve-month period. Under the Streamlined Documentation Program, appraisals
are obtained only if the loan amount of the loan being refinanced had a Loan-to-
Value Ratio at the time of origination in excess of 80% or if the loan amount of
the new loan being originated is greater than $650,000. In addition, under the
Streamlined Documentation Program, a credit report is obtained but only a limited
credit review is conducted, no income or asset verification is required, and
telephonic verification of employment is permitted. The maximum Loan-to-Value
Ratio under the Streamlined Documentation Program ranges up to 95%.
308. The Bear Stearns ALT-A Trust 2005-9 Prospectus Supplement also represented:
In connection with the Expanded Underwriting Guidelines, Countrywide Home

Loans originates or acquires mortgage loans under the Full Documentation
Program, the Alternative Documentation Program, the Reduced Documentation
Loan Program, the No Income/No Asset Documentation Program and the Stated
Income/Stated Asset Documentation Program. Neither the No Income/No Asset
Documentation Program nor the Stated Income/Stated Asset Documentation
Program is available under the Standard Underwriting Guidelines.
The same documentation and verification requirements apply to mortgage loans
documented under the Alternative Documentation Program regardless of whether
the loan has been underwritten under the Expanded Underwriting Guidelines or
the Standard Underwriting Guidelines. However, under the Alternative
Documentation Program, mortgage loans that have been underwritten pursuant to
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the Expanded Underwriting Guidelines may have higher loan balances and Loan-
to-Value Ratios than those permitted under the Standard Underwriting Guidelines.
Similarly, the same documentation and verification requirements apply to
mortgage loans documented under the Reduced Documentation Program
regardless of whether the loan has been underwritten under the Expanded
Underwriting Guidelines or the Standard Underwriting Guidelines. However,
under the Reduced Documentation Program, higher loan balances and Loan-to-
Value Ratios are permitted for mortgage loans underwritten pursuant to the
Expanded Underwriting Guidelines than those permitted under the Standard
Underwriting Guidelines. The maximum Loan-to-Value Ratio, including
secondary financing, ranges up to 90%. The borrower is not required to disclose
any income information for some mortgage loans originated under the Reduced
Documentation Program, and accordingly debt-to-income ratios are not calculated
or included in the underwriting analysis. The maximum Loan-to-Value Ratio,
including secondary financing, for those mortgage loans ranges up to 85%.
Under the No Income/No Asset Documentation Program, no documentation
relating to a prospective borrower's income, employment or assets is required and
therefore debt-to-income ratios are not calculated or included in the underwriting
analysis, or if the documentation or calculations are included in a mortgage loan
file, they are not taken into account for purposes of the underwriting analysis.
This program is limited to borrowers with excellent credit histories. Under the No
Income/No Asset Documentation Program, the maximum Loan-to-Value Ratio,
including secondary financing, ranges up to 95%. Mortgage loans originated
under the No Income/No Asset Documentation Program are generally eligible for
sale to Fannie Mae or Freddie Mac.
Under the Stated Income/Stated Asset Documentation Program, the mortgage
loan application is reviewed to determine that the stated income is reasonable for
the borrower's employment and that the stated assets are consistent with the
borrower's income. The Stated Income/Stated Asset Documentation Program
permits maximum Loan-to-Value Ratios up to 90%. Mortgage loans originated
under the Stated Income/Stated Asset Documentation Program are generally
eligible for sale to Fannie Mae or Freddie Mac.
Bear Stearns ALT-A Trust 2005-9 Prospectus Supplement at S-51-52; Structured Asset
Mortgage Investments II Trust 2006-AR2 Prospectus Supplement at S-43-44.
The mortgage loans originated by BSRM were originated generally in accordance

with guidelines (the “BSRM Underwriting Guidelines”) established by BSRM
with one of the following income documentation types: “Full Documentation”,
“Limited Documentation,” “Lite Documentation” or “Stated Income.”
…
124
Income Documentation Types
Full Documentation. The Full Documentation residential loan program is based

upon current year to date income documentation as well as the previous two
year’s income documentation (i.e., tax returns and/or W-2 forms) and either one
recent pay-stub with current year income on pay stub or two recent paystubs
within 30 days of closing if year to date income is not provided on pay-stub) or
bank statements for the previous 24 months. Self-employed borrowers must be
self-employed in the same business or have received 1099 income in the same job
for the last two years. Borrowers self-employed for less than two years (but at
least one year) are considered on a case-by-case basis subject to a two-year
history of previous successful employment in the same occupation or related field.
Limited Documentation. The Limited Documentation residential loan program is

based on the recent 12 months of consecutive bank statements.
Lite Documentation. The Lite Documentation residential loan program is based

on the most recent six months of consecutive bank statements.
Stated Income. The Stated Income residential loan program requires the
applicant’s employment and income sources to be stated on the application. The
applicant’s income as stated must be reasonable for the related occupation,
borrowers’ credit profile and stated asset, in the loan underwriter’s discretion.
However, the applicant’s income as stated on the application is not independently
verified. The borrower must demonstrate that they have at least reserves (sourced
and seasoned) greater than or equal to three months principal, interest, taxes and
insurance.
Bear Stearns Second Lien Trust 2007-1 Group II and III Prospectus Supplement at S-43-45.
The underwriting guidelines require that the income of each applicant for a
mortgage loan under the full/alternative documentation program be verified. The
specific income documentation required for the originator’s various programs is
as follows: under the full/alternative documentation program, applicants are
required to submit one written form of verification from the employer of stable
income for at least 12 months. The documentation may take the form of a
Verification of Employment form provided by the employer, the most recent pay
stub with year-to-date earnings and the most recent W-2 or a copy of the
borrower’s federal tax returns. Under the limited documentation program the
borrower may choose to submit 12 consecutive months of personal checking
account bank statements. Under the stated income documentation program, an
applicant may be qualified based upon monthly income as stated on the mortgage
loan application if the applicant meets certain criteria. Income stated on the
125
application is not verified under the stated income documentation program. All of
the foregoing programs require that, with respect to salaried employees, there be a
telephone verification of the applicant’s employment. Verification of the source
of funds to close the loan, if any, deposited by the applicant into escrow in the
case of a purchase money loan is required.
Bear Stearns Second Lien Trust 2007-1 Group II and Group III Prospectus Supplement at S-42-
43.
Pursuant to the “Streamlined Refinance Program,” borrowers for whom

JPMorgan or an affiliate currently services their mortgage loan are eligible for
reduced verification and documentation of application information on a refinance
or purchase transaction. In order to qualify for this program, the borrower’s most
recent 12 month mortgage history (24 months for purchase transactions) with
JPMorgan or an affiliate must document that the account has been paid as agreed
with no delinquency greater than 30 days past due. Additional credit history is
generally not required, except with respect to certain transactions such as 2-4
units, refinances of government insured loans, and purchase transactions, which
require standard credit history documentation. The property value on a refinance
may have been established by validation that the original value has not declined.
The property value for a purchase transaction always follows standard
documentation requirements. Income and assets as stated on the application
generally do not require verification. Debt ratios generally are not required.
“Reduced Documentation” program Mortgage Loans were originated under the

“no ratio” or “no income verification” guidelines. Under the “no ratio” guidelines,
no income is stated or verified but source(s) of income and employment are
verified; under the “no income verification” guidelines, income is stated but not
verified, however employment is verified; assets are verified in the case of both
such guidelines.
For ChaseFlex Stated program Mortgage Loans (also known as Proactive “SISA”
program Mortgage Loans or Stated Income/Stated Asset program Mortgage
Loans), verification of the income and assets, as stated on the application, is not
required. The underwriting for such mortgage loans requires AUS approval and is
based entirely on stronger credit profile and lower loan-to-value ratio
requirements.
For “No Doc” program Mortgage Loans, no employment information, sources of

income, income amount or assets are disclosed. Additionally, employment
verification is not required. The underwriting for such mortgage loans are based
primarily or entirely on a stronger credit profile (evidenced by a higher minimum
FICO credit risk score), a lower maximum product limit and additional due
126
diligence performed on the collateral.
ChaseFlex Trust Series 2007-2 Prospectus Supplement at S-56-57. See also ChaseFlex Trust
Series 2007-3 Prospectus Supplement at S-118-119; ChaseFlex Trust Series 2007-M1 Prospectus
Supplement at S-95-96.
represented:
There are three documentation types, Full Documentation (“Full

Documentation”), Easy Documentation (“Easy Documentation”) and Stated
Income (“Stated Income”). Fremont’s underwriters verify the income of each
applicant under various documentation types as follows: under Full
Documentation, applicants are generally required to submit verification of stable
income for the periods of one to two years preceding the application dependent on
credit profile; under Easy Documentation, the borrower is qualified based on
verification of adequate cash flow by means of personal or business bank
statements; under Stated Income, applicants are qualified based on monthly
income as stated on the mortgage application. The income is not verified under
the Stated Income program; however, the income stated must be reasonable and
customary for the applicant’s line of work.
313. The GMACM Home Equity Loan Trust 2006-HE1 Prospectus Supplement stated:
The underwriting standards set forth in the GMAC Mortgage Corporation

underwriting guidelines with respect to HELOCs originated or acquired under the
GMAC Mortgage Home Equity Program provide for varying levels of
documentation. For fully documented loans, such as the “Standard” program, a
prospective borrower is required to fill out a detailed application providing
pertinent credit information, including tax returns if they are self employed or
received income from dividends and interest, rental properties or other income
which can be verified via tax returns. In addition, a borrower may demonstrate
income and employment directly by providing alternative documentation in the
form of a pay stub and a W-2. For the “Standard” program, the borrower is
required to provide an authorization to apply for a credit report which summarizes
the borrower’s credit history with merchants and lenders and any record of
bankruptcy. The borrower generally must show, among other things, a minimum
of one year credit history reported on the credit report and that the HELOC is
current at the time of application. Borrowers who have less than a 12 month first
mortgage payment history may be subject to certain additional lending
restrictions. In addition, under the GMAC Mortgage Corporation Home Equity
127
Program, generally borrowers with a previous foreclosure or bankruptcy within
the past four years may not be allowed and a borrower generally must satisfy all
judgments, liens and other legal actions with an original amount of $1,000 or
greater prior to closing. Borrowers with a previous foreclosure or bankruptcy
generally do not qualify for a loan unless extenuating credit circumstances beyond
their control are documented. These loans require a drive by appraisal or
statistical property evaluation for property values of $500,000 or less, and a full
appraisal for property values of more than $500,000 and for all three and four unit
properties.
Under the GMAC Mortgage Corporation underwriting guidelines, loans may also
be originated under the “Stated Income Program,” a no income verification
program for self employed borrowers and salaried borrowers. For those loans,
only a credit check and an appraisal are required. Those loans are generally
limited to a loan amount of $25,000 to a high loan amount of $100,000 and are
limited to primary residences. In addition, the borrower may be qualified under
either the “No Income/No Appraisal” or “Stated Value” programs. Under such
programs, a credit check is required, and the CLTV Ratio permitted is dependent
upon the borrower’s credit score indicator. In the case of GM and GM subsidiary
employees under the “Family First Direct” program, the CLTV Ratio is limited to
90%. In addition, under the “Family First Direct” program, the borrower is
qualified on his or her stated income in the application and the CLTV Ratio is
based on the Stated Value, except that with respect to CLTV Ratios over 80%, the
borrower must supply evidence of value. The maximum loan amount under the
“Family First Direct” program is generally limited to $250,000. In addition, under
the “GM Expanded Family” program, certain extended family members of GM
and GM subsidiary employees are eligible for streamlined processing. The
maximum CLTV under this program is limited to 90% and the maximum loan
amount is generally limited to $250,000. Under the “GM Expanded Family”
program, salaried borrowers are required to submit a current paystub reflecting at
least 30 days of year-to-date earnings. For self-employed borrowers under the
“GM Expanded Family” program, a minimum of two years self employment and
a copy of the prior year’s tax returns are required. In addition, the borrower may
be qualified under a “No Income Verification” program. Under that program, a
credit check is required. The borrower is qualified based on the income stated on
the application. Those loans are generally limited to an amount of $100,000 or
less, and are limited to primary residences. Those loans require a drive by
appraisal or statistical property evaluation for property values of $500,000 or less,
and a full appraisal for property values of more than $500,000. “GoFast” is a no
income/no asset verification program that requires a minimum FICO score of 730
for up to a maximum 95% CLTV (a minimum FICO score of 700 for up to a
maximum 90% CLTV) and limits the line amount to $100,000. A property
valuation is required under the GoFast program.
Under GMAC Mortgage Corporation’s underwriting guidelines, loans may also

be originated under the “Relocation” or “Relocation-VIP” documentation
128
programs. Under these programs, certain items described above are verified using
alternative sources. In the case of “Relocation” documentation, a signed employer
relocation verification form is acceptable in lieu of a paystub. The “Relocation-
VIP” program does not require income verification, however, eligible borrowers
must have a minimum annual base salary of $75,000.
GMACM Home Equity Loan Trust 2006-HE1 Prospectus Supplement at S-39-40. See also
GMACM Home Equity Loan Trust 2006-HE5 Prospectus Supplement at S-34-36.
Under the Full Income Documentation/Stated Assets Program available to

borrowers in the Series I, II and III programs, the borrower provides full income
and employment documentation information, which the Seller is required to
verify. The borrower states assets on the Residential Loan Application (Fannie
Mae Form 1003 or Freddie Mac Form 65); however, verification of assets is not
required. With respect to the Full Income Documentation/Stated Assets Program,
a mortgage loan is allowed to have a loan-to-value ratio at origination of up to
100%.
Under each Reduced Documentation Program, which is available to borrowers in

every Progressive Series Program, the Seller obtains from prospective borrowers
either a verification of deposits or bank statements for the most recent one-month
period preceding the mortgage loan application. Under this program the borrower
provides income information on the mortgage loan application, and the debt
service-to-income ratio is calculated. However, income is not verified. Permitted
maximum loan-to-value ratios (including secondary financing) under the Reduced
Documentation Program generally are limited.
Under the “Stated Income Stated Assets” program available to borrowers in the
Series I & II program, the borrower provides income and asset information, which
the Seller is not required to verify, on the mortgage loan application. However, a
debt-to-income ratio is calculated. Employment information is provided and is
verbally verified. Permitted maximum loan-to-value ratios (including secondary
financing) under the Stated Income Stated Asset program generally are limited.
Under the “No Ratio” program available to borrowers in the Series I and II
program, the borrower provides no income information, but provides employment
and asset information, which the Seller is required to verify, on the mortgage loan
application. With respect to the “No Ratio” program, a mortgage loan with a loan-
to-value ratio at origination in excess of 80% is generally not eligible.
Under the “No Income, No Assets” Program available to borrowers in the Series I
Program, the borrower provides no income information, but provides employment
and unverified asset information on the mortgage loan application. With respect to
129
the “No Income, No Assets” Program, a mortgage loan with a loan-to-value ratio
at origination in excess of 80% is generally not eligible.
Under the Lite Income/Stated Assets Program which is available to borrowers for
the Series I, II, and III Programs, the Seller obtains from prospective salaried
borrowers a 30-day pay stub and from prospective self-employed borrowers bank
statements for the most recent twelve-month period preceding the mortgage loan
application and a year-to-date profit and loss statement. Under this program the
borrower provides income information on the mortgage loan application, and the
debt service-to-income ratio is provided. The maximum loan-to-value ratio under
this program is 97%.
Under the Lite Documentation Program, which is available to Series III+, Series
IV, and Series V Program self-employed borrowers, the previous 12 months bank
statements are utilized in lieu of tax returns. Under these programs the borrower
provides income information on the mortgage loan applicant and the debt-to-
service-to income ratio is calculated. However, income is not verified. Permitted
maximum loan-to-value ratios (including secondary financing) under the Lite
Documentation Program generally are limited.
Impac CMB Trust Series 2005-2 Prospectus Supplement at S-59-60. See also Impac
CMB Trust Series 2005-6 Prospectus Supplement at the “Underwriting Standards”
section.
315. On American Home’s documentation programs, the J.P. Morgan Alternative Loan
Trust 2007-A2 Prospectus Supplement represented:
Certain non-conforming stated income or stated asset products allow for less
verification documentation than Fannie Mae or Freddie Mac require. Certain
non-conforming Alt-A products also allow for less verification documentation
than Fannie Mae or Freddie Mac require. For these Alt-A products the borrower
may not be required to verify employment income, assets required to close or
both. For some other Alt-A products, the borrower is not required to provide any
information regarding employment income, assets required to close or both. Alt-
A products with less verification documentation generally have other
compensating factors such as higher credit score or lower loan-to-value
requirements.
J.P. Morgan Alternative Loan Trust 2007-A2 Prospectus Supplement at S-43; see also J.P.
Morgan Alternative Loan Trust 2007-A2 Free Writing Prospectus, May 23, 2007, at “American
130
Home Mortgage Corp.”; SACO I Trust 2006-2 Prospectus Supplement at S-34-35; SACO I Trust
2006-2 Prospectus Supplement at S-34; SACO I Trust 2006-8 Prospectus Supplement at S-26.
316. With respect to the Chase Originators’ documentation programs, the J.P. Morgan
Alternative Loan Trust 2007-A2 Prospectus Supplement stated:
For ChaseFlex Stated program Mortgage Loans (also known as Proactive “SISA”
program Mortgage Loans or Stated Income/Stated Asset program Mortgage
Loans), verification of the income and assets, as stated on the application is not
required. The underwriting for such mortgage loans requires AUS approval and
is based entirely on stronger credit profile and lower loan-to-value requirements.
J.P. Morgan Alternative Loan Trust 2007-A2 Prospectus Supplement at S-41; see J.P. Morgan
Alternative Loan Trust 2007-A2 Free Writing Prospectus, May 23, 2007, at “The Chase
Originators.”
Supplement stated:
The specific income documentation required for PCHLI’s various programs

varies as follows: under the full documentation program, applicants usually are
required to submit one written form of verification of stable income for at least 12
months. Under the lite documentation program, applicants usually are required to
submit verification of stable income for at least 6 months, such as 6 consecutive
months of complete personal or business (limited to 50% of the funds in a
business account; corporate accounts do not qualify) checking account bank
statements or a current paycheck stub with year-to-date information. Under the
stated income documentation program, an applicant will be qualified based upon
monthly income as stated on the mortgage loan application if the applicant meets
certain criteria. All of these programs require, for salaried employees, a telephone
verification of the applicant’s employment, and verification of funds, if any,
deposited by the applicant into escrow (if any) in the case of a purchase money
loan. For a self-employed borrower, there is a telephone verification as well as
additional documentation to verify the existence of the business owned by the
borrower.
The underwriting guidelines require that the income of each applicant for a
131
mortgage loan under the full/alternative documentation program be verified. The
specific income documentation required for the originator’s various programs is
as follows: under the full/alternative documentation program, applicants are
required to submit one written form of verification from the employer of stable
income for at least 12 months. The documentation may take the form of a
Verification of Employment form provided by the employer, the most recent pay
stub with year-to-date earnings and the most recent W-2 or a copy of the
borrower’s federal tax returns. Under the limited documentation program the
borrower may choose to submit 12 consecutive months of personal checking
account bank statements. Under the stated income documentation program, an
applicant may be qualified based upon monthly income as stated on the mortgage
loan application if the applicant meets certain criteria. Income stated on the
application is not verified under the stated income documentation program. All of
the foregoing programs require that, with respect to salaried employees, there be a
telephone verification of the applicant’s employment. Verification of the source
of funds to close the loan, if any, deposited by the applicant into escrow in the
case of a purchase money loan is required.
SACO I Trust 2006-7 Prospectus Supplement at S-34-35.
statements were material at the time they were made, because the quality of the loans in the
mortgage pool directly affects the riskiness of the RMBS investment, and the quality of the loans
is dependent upon the underwriting process employed. The preceding statements were untrue at
the time they were made, because regardless of the documentation program purportedly
employed, the Originators systematically disregarded their underwriting guidelines.
C. Untrue Statements Concerning Loan-to-Value Ratios, Owner-Occupancy

Rates, and DTI Ratios
320. The Offering Documents provided statistical descriptions of the collateral, such as
LTV ratios, CLTV ratios, owner-occupancy rates, and DTI ratios. See, e.g., SACO I Trust 2006-
8 Prospectus Supplement at “Schedule A.”
321. The Offering Documents represented that independent and objective appraisals
were obtained for the properties. See, e.g., SACO I Trust 2006-8 Prospectus Supplement at
“American Home Mortgage Corp” (“Every mortgage loan is secured by a property that has been
132
appraised by a licensed appraiser in accordance with the Uniform Standards of Professional
Appraisal Practice of the Appraisal Foundation.”).
Countrywide Home Loan’s Standard Underwriting Guidelines for mortgage loans

with non-conforming original principal balances generally allow Loan-to-Value
Ratios at origination of up to 95% for purchase money or rate and term refinance
mortgage loans with original principal balances of up to $400,000, up to 90% for
mortgage loans with original principal balances of up to $1,000,000, up to 65%
for mortgage loans with original principal balances of up to $1,500,000, and up to
60% for mortgage loans with original principal balances of up to $2,000,000.
For cash-out refinance mortgage loans, Countrywide Home Loan’s Standard
Underwriting Guidelines for mortgage loans with non-conforming original
principal balances generally allow Loan-to-Value Ratios at origination of up to
75% and original principal balances ranging up to $650,000. The maximum
“cash-out” amount permitted is $200,000 and is based in part on the original
Loan-to-Value Ratio of the related mortgage loan. As used in this prospectus
supplement, a refinance mortgage loan is classified as a cash-out refinance
mortgage loan by Countrywide Home Loans if the borrower retains an amount
greater than the lesser of 2% of the entire amount of the proceeds from the
refinancing of the existing loan or $2,000.
Countrywide Home Loan’s Standard Underwriting Guidelines for conforming
balance mortgage loans generally allow Loan-to-Value Ratios at origination on
owner occupied properties of up to 95% on 1 unit properties with principal
balances up to $417,000 ($625,500 in Alaska and Hawaii) and 2 unit properties
with principal balances up to $533,850 ($800,775 in Alaska and Hawaii) and up
to 80% on 3 unit properties with principal balances of up to $645,300 ($967,950
in Alaska and Hawaii) and 4 unit properties with principal balances of up to
$801,950 ($1,202,925 in Alaska and Hawaii). On second homes, Countrywide
Home Loan’s Standard Underwriting Guidelines for conforming balance
mortgage loans generally allow Loan-to-Value Ratios at origination of up to 95%
on 1 unit properties with principal balances up to $417,000 ($625,500 in Alaska
and Hawaii). Countrywide Home Loan’s Standard Underwriting Guidelines for
conforming balance mortgage loans generally allow Loan-to-Value Ratios at
origination on investment properties of up to 90% on 1 unit properties with
principal balances up to $417,000 ($625,500 in Alaska and Hawaii) and 2 unit
properties with principal balances up to $533,850 ($800,775 in Alaska and
Hawaii) and up to 75% on 3 unit properties with principal balances of up to
$645,300 ($967,950 in Alaska and Hawaii) and 4 unit properties with principal
balances of up to $801,950 ($1,202,925 in Alaska and Hawaii).
133
Investments II Trust 2006-AR2 Prospectus Supplement at S-41-42.
323. The Bear Stearns ALT-A Trust 2005-9 Prospectus Supplement continued:
Countrywide Home Loan’s Expanded Underwriting Guidelines for mortgage

loans with non-conforming original principal balances generally allow Loan-to-
Value Ratios at origination of up to 95% for purchase money or rate and term
refinance mortgage loans with original principal balances of up to $400,000, up to
90% for mortgage loans with original principal balances of up to $650,000, up to
80% for mortgage loans with original principal balances of up to $1,000,000, up
to 75% for mortgage loans with original principal balances of up to $1,500,000
and up to 70% for mortgage loans with original principal balances of up to
$3,000,000. Under certain circumstances, however, Countrywide Home Loan’s
Expanded Underwriting Guidelines allow for Loan-to-Value Ratios of up to 100%
for purchase money mortgage loans with original principal balances of up to
$375,000.
For cash-out refinance mortgage loans, Countrywide Home Loan’s Expanded
Underwriting Guidelines for mortgage loans with non-conforming original
principal balances generally allow Loan-to-Value Ratios at origination of up to
90% and original principal balances ranging up to $1,500,000. The maximum
“cash-out” amount permitted is $400,000 and is based in part on the original
Loan-to-Value Ratio of the related mortgage loan.
Countrywide Home Loan’s Expanded Underwriting Guidelines for conforming
balance mortgage loans generally allow Loan-to-Value Ratios at origination on
owner occupied properties of up to 100% on 1 unit properties with principal
balances up to $417,000 ($625,500 in Alaska and Hawaii) and 2 unit properties
with principal balances up to $533,850 ($800,775 in Alaska and Hawaii) and up
to 85% on 3 unit properties with principal balances of up to $645,300 ($967,950
in Alaska and Hawaii) and 4 unit properties with principal balances of up to
$801,950 ($1,202,925 in Alaska and Hawaii). On second homes, Countrywide
Home Loan’s Expanded Underwriting Guidelines for conforming balance
mortgage loans generally allow Loan-to-Value Ratios at origination of up to 95%
on 1 unit properties with principal balances up to $417,000 ($625,500 in Alaska
and Hawaii). Countrywide Home Loan’s Expanded Underwriting Guidelines for
conforming balance mortgage loans generally allow Loan-to-Value Ratios at
origination on investment properties of up to 90% on 1 unit properties with
principal balances up to $417,000 ($625,500 in Alaska and Hawaii) and 2 unit
properties with principal balances up to $533,850 ($800,775 in Alaska and
Hawaii) and up to 85% on 3 unit properties with principal balances of up to
$645,300 ($967,950 in Alaska and Hawaii) and 4 unit properties with principal
balances of up to $801,950 ($1,202,925 in Alaska and Hawaii).
134
With respect to purchase money or rate/term refinance loans secured by single

family residences, loan-to-value ratios at origination of up to 97% for EMC
EMC mortgage loans secured by one-to-two family, primary residences with
original principal balances of up to $400,000 and up to 90% for EMC mortgage
loans secured by one-to-four family, primary residences with original principal
balances of up to $650,000 are generally allowed. EMC mortgage loans with
principal balances up to $1,000,000, or super jumbos, are allowed if the loan is
secured by the borrower’s primary residence. The loan-to-value ratio for super
jumbos generally may not exceed 80%. For cash out refinance loans, the
maximum loan-to-value ratio generally is 90% and the maximum “cash out”
amount permitted is based in part on the original amount of the related EMC
mortgage loan.
With respect to EMC mortgage loans secured by investment properties, loan-to-

value ratios at origination of up to 95% for EMC mortgage loans with original
principal balances up to $1,000,000 are permitted. EMC mortgage loans secured
by investment properties may have higher original principal balances if they have
lower loan-to-value ratios at origination - typically below 80%. For cash out
refinance loans, the maximum loan-to-value ratio can be as high as 95% and the
maximum “cash out” amount permitted is based in part on the original amount of
the related mortgage loan.
represented:
“A.” Under the “A” category, an applicant must have not more than one 30-day
late mortgage payment within the last 12 months and it must be at least 24 months
since discharge of any Chapter 7 or Chapter 13 bankruptcy and/or foreclosure.
The maximum loan-to-value ratio is 100% with a minimum Credit Score of 600.
The maximum permitted loan-to-value ratio is reduced for: reduced income
documentation, non-owner occupied properties, properties with 3-4 units, or
properties with rural characteristics.
“A-.” Under the “A-” category, an applicant must have not more than three 30-
day late mortgage payments within the last 12 months and it must be at least 24
months since discharge of any Chapter 7 or Chapter 13 bankruptcy and/or
135
foreclosure. The maximum loan-to-value ratio is 90% with a minimum Credit
Score of 550. The maximum permitted loan-to-value ratio is reduced for: reduced
income documentation, non-owner occupied properties, properties with 3-4 units,
or properties with rural characteristics.
“B.” Under the “B” category, an applicant must have not more than one 60-day
The maximum loan-to-value ratio is 90% with a Credit Score of 550. The
maximum permitted loan-to-value ratio is reduced for: reduced income
“C.” Under the “C” category, an applicant must have not more than one 90-day
The maximum permitted loan-to-value ratio is 85% with a minimum Credit Score
of 580. The maximum permitted loan-to-value ratio is reduced for: reduced
income documentation, non-owner occupied properties, properties with 3-4 units,
or properties with rural characteristics.
“C-.” Under the “C-” category, an applicant must not be more than 150 days
delinquent with respect to its current mortgage payment and it must not be subject
of a Chapter 7 or Chapter 13 bankruptcy and/or foreclosure. The maximum
permitted loan-to-value ratio is 70% with a minimum Credit Score of 500. The
maximum permitted loan-to-value ratio is reduced for: reduced income
“D.” Under the “D” category, an applicant must not be more than 180 days
delinquent with respect to its current mortgage payment. Any Chapter 7 or
Chapter 13 bankruptcy proceedings and/or foreclosure actions must be paid in
connection with closing. The maximum permitted loan-to-value ratio is 65% with
a minimum Credit Score of 500. The maximum permitted loan-to-value ratio is
reduced to 60% if the property is currently subject to foreclosure proceedings.
SG Mortgage Securities Trust 2006-FRE2 Prospectus Supplement at S-37-38.
Supplement stated:
136
The maximum LTV depends on, among other things, the loan size, the purpose of
the mortgage loan, borrower’s credit history, repayment ability and debt service-
to-income ratio, as well as the type and occupancy of the property.
The maximum amount loaned to a borrower and the maximum loan to value ratio
allowed for that loan depends on, among other things, the purpose of the
mortgage loan, a borrower’s credit history, homeownership history, mortgage
payment history or rental payment history, repayment ability and debt service to
income ratio, as well as the type and use of the property. With respect to purchase
money, rate/term and cash out refinance loans secured by single family primary
residences, loan-to-value ratios at origination of up to 100% for A+ credit grade
A credit grade mortgage loans secured by single family, primary residences with
original principal balances of up to $500,000, up to 95% for A and B credit grade
mortgage loans secured by single family, primary residences with original
principal balances of up to $500,000, up to 80% for C credit grade mortgage loans
secured by single family, primary residences with original principal balances of
up to $450,000 and up to 70% for C- credit grade mortgage loans secured by
single family, primary residences with original principal balances up to $400,000
are allowed. The maximum “cash out” amount permitted is based in part on the
original amount of the related mortgage loan.
SACO I Trust 2006-7 Prospectus Supplement at S-34.
statements were material at the time they were made because the riskiness of the RMBS
investment is directly dependent on the quality of the collateral and creditworthiness of the
borrowers. The preceding statements were untrue at the time they were made because the LTV
ratios were higher than represented, the owner-occupancy rates were lower than represented, and
the DTI ratios were higher than represented.
IX. THE CLAIMS ARE TIMELY
329. For actions brought by the NCUA Board as Liquidating Agent, the FCUA extends
the statute of limitations for at least three years from the date of the appointment of the NCUA
137
Board as Conservator or Liquidating Agent. See 12 U.S.C. § 1787(b)(14)(B)(i).
330. The NCUA Board placed the Credit Unions into conservatorship on September
24, 2010. On October 31, 2010, the NCUA Board placed the Credit Unions into liquidation and
appointed itself as Liquidating Agent.
331. Actions brought under Section 11 of the Securities Act must be:
brought within one year after the discovery of the untrue statement or the
omission, or after such discovery should have been made by the exercise of
reasonable diligence . . . . In no event shall any such action be brought to enforce
a liability created under section 77k or 77l(a)(1) of this title more than three years
after the security was bona fide offered to the public, or under section 77l(a)(2) of
this title more than three years after the sale.
15 U.S.C. § 77m.
332. Actions brought under Section 13 of the Illinois Blue Sky law must be brought
within:
3 years from the date of sale; provided, that if the party bringing the action neither
knew nor in the exercise of reasonable diligence should have known of any
alleged violation of subsection E, F, G, H, I or J of Section 12 of this Act which is
the basis for the action, the 3 year period provided shall begin to run upon the
earlier of:
(1) the date upon which the party bringing the action has actual knowledge of the
alleged violation of this Act; or
(2) the date upon which the party bringing the action has notice of facts which in
the exercise of reasonable diligence would lead to actual knowledge of the alleged
violation of this Act; but in no event shall the period of limitation so extended be
more than 2 years beyond the expiration of the 3 year period otherwise applicable.
815 Ill. Comp. Stat. Ann. 5/13(D).
333. Actions brought under Section 581-33 of the Texas Blue Sky law must be brought
no “(a) more than three years after discovery of the untruth or omission, or after discovery
should have been made by the exercise of reasonable diligence; or (b) more than five years after
the sale.” Tex. Rev. Civ. Stat. Ann. art 581, § 33(H)(2).
138
334. As the Federal Reserve Board noted in November 2008, the “deteriorating lending
standards” and “the surge in early payment defaults suggests that underwriting . . . deteriorated
on dimensions that were less readily apparent to investors.” Christopher J. Mayer et al., The Rise
in Mortgage Defaults 15-16 (Fed. Reserve Bd. Fin. & Econ. Discussion Series, Paper No. 2008-
59).
335. The FSOC explained that the origination and securitization process contains
inherent “information asymmetries” that put investors at a disadvantage regarding critical
information concerning the quality and performance of RMBS. The FSOC Risk Retention
Report described the information disadvantage for investors of RMBS:
One important informational friction highlighted during the recent financial crisis
has aspects of a “lemons” problem that exists between the issuer and investor. An
originator has more information about the ability of a borrower to repay than an
investor, because the originator is the party making the loan. Because the investor
is several steps removed from the borrower, the investor may receive less robust
loan performance information. Additionally, the large number of assets and the
disclosures provided to investors may not include sufficient information on the
quality of the underlying financial assets for investors to undertake full due
diligence on each asset that backs the security.
FSOC Risk Retention Report at 9 (footnote omitted).
336. In addition, Southwest and/or the NCUA Board as its Liquidating Agent is or was
a member of the putative class in the case listed in Table 7, below. Therefore, the NCUA
Board’s claims are subject to legal tolling of the various periods of limitation pursuant to
American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974) (“American Pipe”) and its progeny.
Table 7
Purchases Subject to Tolling Under American Pipe
TRADE AMERICAN PIPE TOLLING
CUSIP ISSUING ENTITY PURCHASER
DATE COMMENCEMENT DATE
139
TRADE AMERICAN PIPE TOLLING
CUSIP ISSUING ENTITY PURCHASER
DATE COMMENCEMENT DATE
Plumbers & Pipefitters Local 562 v. J.P.

Morgan,
J.P. Morgan Alternative Loan Trust
46628GAE9 Southwest 5/4/2007 No. 08-5675 (New York State Sup. Ct.)
2006-A2
Complaint Filed: March 26, 2008
Removed No. 08-1713 (E.D.N.Y.)
337. With respect to that RMBS purchase for which the NCUA Board asserts claims
for Southwest under Section 11 of the Securities Act (Count Three), the earliest date it was bona
fide offered to the public – after accounting for American Pipe tolling – was not more than three
years prior to September 24, 2010. Accordingly, the NCUA Board’s Section 11 claim on behalf
of Southwest is not time-barred.
338. With respect to those RMBS purchases for which the NCUA Board asserts claims
under state law (Counts One, Two, Four and Five), the earliest purchase date/offering date with
respect to those claims was November 2, 2005, or not more than five years prior to September
24, 2010. Accordingly, the NCUA Board’s state law claims are not time-barred.
X. CLAIMS FOR RELIEF
COUNT ONE
(Bear Stearns Second Lien Trust 2007-1,
Bear Stearns Second Lien Trust 2007-1, Groups II and III,
Impac CMB Trust Series 2005-6,
People’s Choice Home Loan Securities Trust Series 2005-4,
SG Mortgage Securities Trust 2006-FRE2,
SACO I Trust 2006-2, SACO I Trust 2006-7, SACO I Trust 2006-8)
339. The NCUA Board realleges paragraphs 1 through 338 of this Complaint, as
though fully set forth here, except those paragraphs specific to offerings other than the Bear
Stearns Second Lien Trust 2007-1, Bear Stearns Second Lien Trust 2007-1, Groups II and III,
140
Impac CMB Trust Series 2005-6, People’s Choice Home Loan Securities Trust Series 2005-4,
SG Mortgage Securities Trust 2006-FRE2, SACO I Trust 2006-2, SACO I Trust 2006-7, and
SACO I Trust 2006-8 offerings.
340. The NCUA Board brings this cause of action pursuant to Section 33 of the Texas
Securities Act, with respect to Southwest’s purchases of the Bear Stearns Second Lien Trust
2007-1, Bear Stearns Second Lien Trust 2007-1, Groups II and III, Impac CMB Trust Series
2005-6, People’s Choice Home Loan Securities Trust Series 2005-4, SG Mortgage Securities
Trust 2006-FRE2, SACO I Trust 2006-2, SACO I Trust 2006-7, and SACO I Trust 2006-8
certificates against Defendant Bear Stearns as the seller of those certificates.
341. Defendant Bear Stearns offered to sell and sold the certificates to Southwest by
means of written and/or oral communications which included untrue statements of material fact
and/or omissions of material facts that were necessary to make the statements made not
misleading, as alleged above.
342. The untrue statements of material fact and omitted facts were material because a
reasonably prudent investor deciding whether to purchase the certificates would have viewed
them as important and as substantially altering the total mix of information available, as alleged
above.
343. Defendant Bear Stearns sold the certificates to Southwest in Texas.
344. At the time Southwest purchased the certificates, it did not know of these untruths
and omissions.
345. If Southwest had known about these untruths and omissions, it would not have
purchased the certificates from Defendant Bear Stearns.
346. Defendant Bear Stearns’s sales of the certificates violated Tex. Rev. Civ. Stat.
141
Ann. art. 581, § 33(A)(2).
347. Southwest and Plaintiff sustained damages as a result of Defendant Bear Stearns’s
violations of Tex. Rev. Civ. Stat. Ann. art. 581, § 33(A)(2).
348. WHEREFORE, the NCUA Board requests the Court to enter judgment in its
favor against Defendant Bear Stearns, awarding a rescissory measure of damages, or in the
alternative compensatory damages, in an amount to be proven at trial; costs, and such other relief
as the Court deems appropriate and just.
COUNT TWO
(Bear Stearns ALT-A Trust 2005-9, Bear Stearns Second Lien Trust 2007-1,
GMACM Home Equity Loan Trust 2006-HE5,
Impac CMB Trust Series 2005-2, SACO I Trust 2006-2,
SACO I Trust 2006-12, Structured Asset Mortgage Investments II Trust 2006-AR2)
though fully set forth here, except those paragraphs specific to offerings other than the Bear
Stearns ALT-A Trust 2005-9, Bear Stearns Second Lien Trust 2007-1, GMACM Home Equity
Loan Trust 2006-HE5, Impac CMB Trust Series 2005-2, SACO I Trust 2006-2, SACO I Trust
2006-12, and Structured Asset Mortgage Investments II Trust 2006-AR2 offerings.
350. The NCUA Board brings this cause of action pursuant to Section 12 of the Illinois
Securities Law of 1953, with respect to Members United’s purchases of the Bear Stearns ALT-A
Trust 2005-9, Bear Stearns Second Lien Trust 2007-1, GMACM Home Equity Loan Trust 2006-
HE5, Impac CMB Trust Series 2005-2, SACO I Trust 2006-2, SACO I Trust 2006-12, and
Structured Asset Mortgage Investments II Trust 2006-AR2 certificates against Defendant Bear
Stearns as the seller of those certificates.
351. Defendant Bear Stearns offered to sell and sold the certificates to Members
142
United by means of written and/or oral communications which included untrue statements of
material fact and/or omissions of material facts that were necessary to make the statements made
not misleading, as alleged above.
above.
353. Defendant Bear Stearns sold the certificates to Members United in Illinois.
354. At the time Members United purchased the certificates, it did not know of these
untruths and omissions.
355. If Members United had known about these untruths and omissions, it would not
have purchased the certificates from Defendant Bear Stearns.
356. Defendant Bear Stearns’s sales of the certificates violated 815 Ill. Comp. Stat.
Ann. 5/12(G).
357. Members United and Plaintiff sustained damages as a result of Defendant Bear
Stearns’s violations of 815 Ill. Comp. Stat. Ann. 5/12(G).
favor against Defendant Bear Stearns, awarding rescission or a rescissory measure of damages,
or in the alternative compensatory damages, in an amount to be proven at trial; costs, and such
other relief as the Court deems appropriate and just.
COUNT THREE
Section 11 of the Securities Act of 1933
(J.P. Morgan Alternative Loan Trust 2006-A2)
143
though fully set forth here, except those paragraphs specific to offerings other than the J.P.
Morgan Alternative Loan Trust 2006-A2 offering.
360. The NCUA Board brings this cause of action pursuant to Section 11 of the
Securities Act of 1933, with respect to Southwest’s purchase of the J.P. Morgan Alternative
Loan Trust 2006-A2 certificate against Defendant J.P. Morgan, as the underwriter, and against
Defendant J.P. Morgan Acceptance Corp. I as the issuer.
361. At the time the registration statement became effective, it (including the
prospectus and any prospectus supplements) contained untrue statements and omitted facts that
were necessary to make the statements made not misleading, as alleged above.
362. The untrue statements and omitted facts were material because a reasonably
prudent investor deciding whether to purchase the certificate would have viewed them as
important and as substantially altering the total mix of information available, as alleged above.
363. Southwest purchased the certificate pursuant to and traceable to a defective
registration statement, as alleged above.
364. At the time Southwest purchased the certificate, it did not know of the untrue
statements and omissions contained in the registration statement.
365. J.P. Morgan’s and J.P. Morgan Acceptance Corp. I’s conduct as alleged above
violated Section 11.
366. Southwest and Plaintiff sustained damages as a result of J.P. Morgan’s and J.P.
Morgan Acceptance Corp. I’s violations of Section 11.
favor against Defendant J.P. Morgan and Defendant J.P. Morgan Acceptance Corp. I, jointly and
severally, awarding all damages, in an amount to be proven at trial, costs, and such other relief as
144
the Court deems appropriate and just.
COUNT FOUR
(ChaseFlex Trust Series 2007-2, GMACM Home Equity Loan Trust 2006-HE1,
J.P. Morgan Alternative Loan Trust 2006-A2, J.P. Morgan Alternative Loan Trust
2007-S1, J.P. Morgan Alternative Loan Trust 2007-A1,
J.P. Morgan Alternative Loan Trust 2007-A2)
though fully set forth here, except those paragraphs specific to offerings other than the
ChaseFlex Trust Series 2007-2, GMACM Home Equity Loan Trust 2006-HE1, J.P. Morgan
Alternative Loan Trust 2006-A2, J.P. Morgan Alternative Loan Trust 2007-S1, J.P. Morgan
Alternative Loan Trust 2007-A1 and the J.P. Morgan Alternative Loan Trust 2007-A2 offerings.
369. The NCUA Board brings this cause of action pursuant to Section 33 of the Texas
Securities Act, with respect to Southwest’s purchases of the ChaseFlex Trust Series 2007-2,
GMACM Home Equity Loan Trust 2006-HE1, J.P. Morgan Alternative Loan Trust 2006-A2,
J.P. Morgan Alternative Loan Trust 2007-S1, J.P. Morgan Alternative Loan Trust 2007-A1 and
the J.P. Morgan Alternative Loan Trust 2007-A2 certificates against Defendant J.P. Morgan, as
the seller of those certificates.
370. Defendant J.P. Morgan offered to sell and sold the certificates to Southwest by
means of written and/or oral communications which included untrue statements of material fact
and/or omissions of material facts that were necessary to make the statements made not
145
above.
372. Defendant J.P. Morgan sold the certificates to Southwest in Texas.
373. At the time Southwest purchased the certificates, it did not know of these untruths
and omissions.
374. If Southwest had known about these untruths and omissions, it would not have
purchased the certificates from Defendant J.P. Morgan.
375. Defendant J.P. Morgan’s sales of the certificates violated Tex. Rev. Civ. Stat.
Ann. art. 581, § 33(A)(2).
376. Southwest and Plaintiff sustained damages as a result of Defendant J.P. Morgan’s
violations of Tex. Rev. Civ. Stat. Ann. art. 581, § 33(A)(2).
favor against Defendant J.P. Morgan, awarding a rescissory measure of damages, or in the
alternative compensatory damages, in an amount to be proven at trial; costs, and such other relief
as the Court deems appropriate and just.
COUNT FIVE
(ChaseFlex Trust Series 2007-3, ChaseFlex Trust Series 2007-M1,
GMACM Home Equity Loan Trust 2006-HE1, J.P. Morgan Alternative Loan
Trust 2007-S1, J.P. Morgan Alternative Loan Trust 2007-A1)
though fully set forth here, except those paragraphs specific to offerings other than the
ChaseFlex Trust Series 2007-3, ChaseFlex Trust Series 2007-M1, GMACM Home Equity Loan
Trust 2006-HE1, J.P. Morgan Alternative Loan Trust 2007-S1 and the J.P. Morgan Alternative
Loan Trust 2007-A1 offerings.
379. The NCUA Board brings this cause of action pursuant to Section 12 of the Illinois
146
Securities Law of 1953, with respect to Members United’s purchases of the ChaseFlex Trust
Series 2007-3, ChaseFlex Trust Series 2007-M1, GMACM Home Equity Loan Trust 2006-HE1,
J.P. Morgan Alternative Loan Trust 2007-S1 and the J.P. Morgan Alternative Loan Trust 2007-
A1 certificates against Defendant J.P. Morgan as the seller of those certificates.
380. Defendant J.P. Morgan offered to sell and sold the certificates to Members United
by means of written and/or oral communications which included untrue statements of material
fact and/or omissions of material facts that were necessary to make the statements made not
above.
382. Defendant J.P. Morgan sold the certificates to Members United in Illinois.
383. At the time Members United purchased the certificates, it did not know of these
untruths and omissions.
384. If Members United had known about these untruths and omissions, it would not
have purchased the certificates from Defendant J.P. Morgan.
385. Defendant J.P. Morgan’s sales of the certificates violated 815 Ill. Comp. Stat.
Ann. 5/12(G).
386. Members United and Plaintiff sustained damages as a result of Defendant J.P.
Morgan’s violations of 815 Ill. Comp. Stat. Ann. 5/12(G).
favor against Defendant J.P. Morgan, awarding rescission or a rescissory measure of damages, or
147
in the alternative compensatory damages, in an amount to be proven at trial; costs, and such other
relief as the Court deems appropriate and just.
Jury Demand
Plaintiff hereby demands a trial by jury of all issues properly triable.
148
Dated: September 23, 2013 NATIONAL CREDIT UNION
ADMINISTRATION BOARD,
as Liquidating Agent of Southwest Corporate
Federal Credit Union and Members United
Corporate Federal Credit Union
By:__________________________________
Peter W. Tomlinson
Philip R. Forlenza
Erik Haas
Michelle W. Cohen
PATTERSON BELKNAP WEBB & TYLER
LLP
1133 Avenue of the Americas
New York, NY 10036-6710
Phone: (212) 336-2000
Fax (212) 336-2222
[email protected]
[email protected]
[email protected]
George A. Zelcs [email protected]
KOREIN TILLERY LLC
205 North Michigan Avenue Mark C. Hansen
Suite 1950 David C. Frederick
Chicago, Illinois 60601 Wan J. Kim
Phone: (312) 641-9760 Gregory G. Rapawy
Fax: (312) 641-9751 KELLOGG, HUBER, HANSEN, TODD,
EVANS & FIGEL, P.L.L.C.
Stephen M. Tillery Sumner Square
Peter H. Rachman 1615 M Street, N.W.
Robert L. King Suite 400
Diane E. Moore Washington, D.C. 20036
KOREIN TILLERY LLC Phone: (202) 326-7900
505 North Seventh Street Fax: (202) 326-7999
Suite 3600
St. Louis, Missouri 63101-1625 Attorneys for the National Credit Union
Phone: (314) 241-4844 Administration Board
Fax: (314) 241-3525
Of Counsel:
Michael J. McKenna, General Counsel
John K. Ianno, Associate General Counsel
NATIONAL CREDIT UNION
ADMINISTRATION
1775 Duke Street
Alexandria, Virginia 22314
149
150

(D.E.1) Complaint NCUA V Bear Sterns & Co N/k/a JPMorgan Chase Securities 13-cv-06707 (S.D.N.Y.)

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(D.E.1) Complaint NCUA V Bear Sterns & Co N/k/a JPMorgan Chase Securities 13-cv-06707 (S.D.N.Y.)

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IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF NEW YORK

NATIONAL CREDIT UNION )

I. NATURE OF THE ACTION ...............................................................................................1

II. PARTIES AND RELEVANT NON-PARTIES ...................................................................4

III. JURISDICTION AND VENUE ...........................................................................................7

IV. MORTGAGE ORIGINATION AND THE PROCESS OF SECURITIZATION................7

V. RMBS CREDIT RATINGS AND CREDIT ENHANCEMENT .......................................11

VI. THE CREDIT UNIONS’ PURCHASES............................................................................13

VII. THE ORIGINATORS SYSTEMATICALLY DISREGARDED THE

A. The Surge in Mortgage Delinquency and Defaults Shortly

B. The Surge in Actual Versus Expected Cumulative Gross

C. The Collapse of the Certificates’ Credit Ratings is Evidence of

D. Revelations Subsequent to the Offerings Show That the

1. The Systematic Disregard of Underwriting Standards

2. American Home’s Systematic Disregard of

3. Bear Stearns Residential Mortgage Corporation’s

4. The Chase Originators’ Systematic Disregard of

5. Countrywide’s Systematic Disregard of Underwriting

6. EMC Mortgage’s Systematic Disregard of

7. Fremont Investment and Loan’s Systematic Disregard

8. GMAC’s Systematic Disregard of Underwriting

9. GreenPoint Mortgage Funding Inc.’s Systematic

10. Impac’s Systematic Disregard of Underwriting

11. Opteum Financial Service’s and Southstar Funding,

12. People’s Choice Home Loan Inc.’s Systematic

F. Additional Evidence Confirms That Defective Loans Were

VIII. THE OFFERING DOCUMENTS CONTAINED UNTRUE STATEMENTS

A. Untrue Statements Concerning Adherence to Underwriting

B. Untrue Statements Concerning Adherence to Reduced

C. Untrue Statements Concerning Loan-to-Value Ratios, Owner-

IX. THE CLAIMS ARE TIMELY..........................................................................................137

X. CLAIMS FOR RELIEF ....................................................................................................140

Corp. I (“the Issuer”), as issuer, of certain residential mortgage-backed securities (“RMBS”)

purchased by the Credit Unions, and alleges as follows:

I. NATURE OF THE ACTION

Underwriter Defendants acted as underwriters and/or sellers of the RMBS.

same rating as U.S. Treasury bonds) at the time of issuance.

pursuant to registration statements, prospectuses, prospectus supplements, free writing

Blue Sky law”).

4. The Offering Documents described, among other things, the mortgage

5. The Offering Documents represented that the Originators adhered to the

collateralizing the RMBS.

6. In fact, the Originators had systematically abandoned the stated underwriting

Offering Documents, the RMBS were significantly riskier than represented.

ability to repay the loan.

underwritten and/or sold by the Underwriter Defendants as indicated in Table 1 (infra).

Illinois Blue Sky Law as indicated in Table 1 (infra).

Bear Stearns Second Bear Stearns Asset

GMACM Home Residential Asset

Bear Stearns Asset

Bear Stearns Asset

Bear Stearns Asset

Bear Stearns Asset

GMACM Home Residential Asset

GMACM Home Residential Asset

the NCUA Board’s mitigation efforts.

II. PARTIES AND RELEVANT NON-PARTIES

10. The National Credit Union Administration (“NCUA”) is an independent agency