Deposition Transcript of Michael Schloessman

EXHIBIT 161
FILED: NEW YORK COUNTY CLERK 12/11/2012

INDEX NO. 602825/2008
NYSCEF DOC. NO. 3969 RECEIVED NYSCEF: 12/11/2012
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
In The Matter Of:
MBIAINSURANCECORPORATION
v.
COUNTRYWIDEHOMELOANS,INC.,etal.
___________________________________________________
MICHAELW.SCHLOESSMANNVol.3
August29,2012
_________________________________________________
HIGHLY CONFIDENTIAL
c2ec3655-85ea-4ce7-b9a1-c78cf0cdfa11
HIGHLY CONFIDENTIAL
MICHAEL W. SCHLOESSMANN - 8/29/2012
1-800-325-3376 www.merrillcorp.com/law
Merrill Corporation - New York
Page 825
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
-----------------------------------------x
MBIA INSURANCE CORPORATION,
Plaintiff,
Index No. 08/602825
vs.
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE BANK, F.S.B., and
BANK OF AMERICA CORP.,
Defendants.
-----------------------------------------x
HIGHLY CONFIDENTIAL
August 29, 2012
9:45 a.m.
Continued Videotaped Deposition of
MICHAEL W. SCHLOESSMANN taken by Plaintiff,
pursuant to Notice, at the offices of Quinn
Emanuel Urquhart & Sullivan LLP, 51 Madison
Avenue, New York, New York, before TAMMEY M.
PASTOR, a Registered Professional Reporter,
Certified LiveNote Reporter and Notary Public
within and for the State of New York.
HIGHLY CONFIDENTIAL
2 (Pages 826 to 829)
Page 826
1
2 A P P E A R A N C E S:
3 QUINN EMANUEL URQUHART & SULLIVAN LLP
Attorneys for Plaintiff
4 51 Madison Avenue
New York, New York 10010
5
BY: PHILIPPE Z. SELENDY, ESQ.
6 -and-
SARAH E. TROMBLEY, ESQ.
7 (pselendy@quinnemanuel.com)
(Sarahtrombley@quinnemanuel.com)
8
9
GOODWIN PROCTER LLP
10 Attorneys for the COUNTRYWIDE Entity
Defendants
11 901 New York Avenue, NW
Washington, D.C. 20001
12
13 BY: DAVID I. FREEBURG, ESQ.
(Dfreeburg@goodwinprocter.com)
14
15
GOODWIN PROCTER LLP
16 Attorneys for the COUNTRYWIDE Entity
Defendants
17 Exchange Place
Boston, MA 02109
18
19 BY: SARAH HEATON CONCANNON, ESQ.
(sconcannon@goodwinprocter.com)
20
21
22
23
24
25
Page 827
1
2 APPEARANCES CONTINUED:
O'MELVENY & MYERS LLP
3 Attorneys for Bank of America Corp.
Times Square Tower
4 7 Times Square
New York, New York 10036
5
BY: ALLEN W. BURTON, ESQ.
6 (aburton@omm.com)
7
8 ALSO PRESENT:
9
CHRISTOPHER LUCHT, Assistant General Counsel
10 MBIA Insurance Corporation
11 09:15:21 DAVID SANDERS, Videographer
Merrill Legal Solutions
12
13
14
15
16
17
18
19
20
21
22
23
24
25 09:57:10
Page 828
1 MICHAEL SCHLOESSMAN-HIGHLY CONFIDENTIAL
2 09:57:59 THE VIDEOGRAPHER: Here begins
3 09:58:00 volume 3, videotape number 13 in the
4 09:58:05 deposition of Mike Schloessmann.
5 09:58:09 Today's date is August 29, 2012. The
6 09:58:12 time on the video monitor is 9:58 a.m.
7 09:58:18 The video operator today is David
8 09:58:21 Sanders of Merrill Legal Corporation,
9 09:58:23 225 Varick Street, New York, New York
10 09:58:27 10014.
11 09:58:28 Counsel please voice identify
12 09:58:33 yourself and state whom you represent.
13 09:58:36 MR. SELENDY: Philippe Selendy of
14 09:58:40 Quinn Emanuel for Plaintiff MBIA. I am
15 09:58:41 here with my colleague Sarah Trombley.
16 09:58:45 MS. CONCANNON: Sarah Concannon
17 09:58:46 of Goodwin Procter on behalf of the
18 09:58:47 Countrywide Defendants and the witness,
19 09:58:49 Michael Schloessmann. With me is David
20 09:58:52 Freeburg also of Goodwin Procter.
21 09:58:54 MR. BURTON: Allen Burton from
22 09:58:55 O'Melveny & Myers on behalf of
23 09:58:57 Defendant, Bank of America Corporation.
24 09:58:58 THE VIDEOGRAPHER Please begin.
25
Page 829
2
3 MICHAEL SCHLOESSMANN,
4 resumed, having been previously duly
5 sworn, was examined and testified
6 further as follows:
7 09:59:00 CONTINUED EXAMINATION BY MR. SELENDY:
8 09:59:00 Q. Mr. Schloessmann, welcome back.
9 09:59:02 A. Thank you.
10 09:59:04 Q. You understand you are still
11 09:59:05 under oath?
12 09:59:06 A. Yes.
13 09:59:07 Q. Which companies are you working
14 09:59:08 for now?
15 09:59:10 MS. CONCANNON: Objection.
16 09:59:14 A. I am an employee of Countrywide
17 09:59:18 Home Loans.
18 09:59:18 Q. Is that the only company you
19 09:59:20 are an employee of?
20 09:59:20 A. Yes, as an employee I have dual
21 09:59:23 officer roles with Bank of America National
22 09:59:27 Association, as well as my title at
23 09:59:30 Countrywide Home Loans and various other
24 09:59:32 Countrywide entities.
25 09:59:36 Q. Other than Bank of America
HIGHLY CONFIDENTIAL
3 (Pages 830 to 833)
Page 830
2 09:59:37 National Association and Countrywide Home
3 09:59:39 Loans and the other Countrywide entities, do
4 09:59:41 you have any titles or positions within Bank
5 09:59:46 of America?
6 09:59:47 A. I don't believe so.
7 09:59:50 Q. Do you know which company pays
8 09:59:51 your salary?
9 09:59:53 A. Countrywide Home Loans.
10 09:59:55 Q. Has your title changed since
11 09:59:57 you were last deposed in this case?
12 09:59:59 A. No, it hasn't.
13 10:00:02 Q. What is your current title?
14 10:00:03 A. I am Senior Vice President at
15 10:00:06 BANA, Bank of America National Association.
16 10:00:11 President of Countrywide Home Loans and
17 10:00:12 Countrywide Financial Corporation.
18 10:00:17 Q. Have your responsibilities
19 10:00:18 changed since March of 2011?
20 10:00:20 A. Yes.
21 10:00:20 Q. In what respect?
22 10:00:21 A. In the approximate fourth
23 10:00:24 quarter of 2011 I assumed a role more
24 10:00:33 focused on resolution strategy and the rep
25 10:00:36 and warrant and mortgage insurance space.
Page 831
2 10:00:39 Really resolution strategy and settlement
3 10:00:42 related.
4 10:00:43 Prior to that I had managed the
5 10:00:47 entirety of the rep and warrant or
6 10:00:50 representations and warranties organization,
7 10:00:52 including the operational infrastructure.
8 10:00:56 Q. Okay. Is there a name for that
9 10:00:58 representation and warranties organization
10 10:01:01 that you previously managed?
11 10:01:02 A. It is currently representations
12 10:01:05 and warranties. It was previously referred
13 10:01:09 to as workout strategies group also.
14 10:01:21 Q. Is there an organizational name
15 10:01:22 for the resolution strategy group you're
16 10:01:27 managing now?
17 10:01:28 A. It is not a group. I'm an
18 10:01:29 individual contributor focused on helping
19 10:01:33 devise resolution strategies and execute
20 10:01:36 settlements in the related space.
21 10:01:38 Q. Okay. Who do you report to
22 10:01:39 today?
23 10:01:40 A. John Dixon.
24 10:01:42 Q. What is his title?
25 10:01:44 A. John Dixon, I believe is also
Page 832
2 10:01:49 an SVP of BANA. I also believe he is an
3 10:01:56 employee of Countrywide, although I'm not
4 10:01:58 sure. And I don't know exactly what his
5 10:02:02 title is with Countrywide.
6 10:02:03 Q. What are his responsibilities?
7 10:02:05 A. John basically assumed my
8 10:02:10 operational role, so he is managing the
9 10:02:12 representations and warranties organization.
10 10:02:16 Which includes the strategy, settlement side
11 10:02:19 as well as the operational side.
12 10:02:24 Q. Okay. And who reports to you
13 10:02:26 today?
14 10:02:26 A. As I said, I am an individual
15 10:02:29 contributor, so no one reports to me other
16 10:02:31 than my administrative assistant.
17 10:02:34 Q. All right. When you say you
18 10:02:36 are an individual contributor, in what
19 10:02:38 capacity are you contributing to the
20 10:02:41 resolution organization?
21 10:02:42 A. So, I work very closely with
22 10:02:47 those in the representations and warranties
23 10:02:50 organization helping devise strategies
24 10:02:53 around the operational infrastructure, as
25 10:02:58 well as resolution strategies which I
Page 833
2 10:03:00 mentioned.
3 10:03:01 So, you know, whether it is how
4 10:03:03 we are executing our responsibilities on a
5 10:03:08 loan level basis or on a more aggregated
6 10:03:12 basis, alternative resolution strategies.
7 10:03:17 Q. Are there any people that you
8 10:03:18 tend to work with on a regular basis in that
9 10:03:23 connection?
10 10:03:23 A. Within representations and
11 10:03:25 warranties?
12 10:03:25 Q. Yes.
13 10:03:26 A. I work with quite a number of
14 10:03:29 people on a regular basis.
15 10:03:32 Q. Who would you identify as
16 10:03:34 people you work with most closely?
17 10:03:36 A. John Dixon, Sili Jacobson.
18 10:03:49 S-I-L-I Jacobson. Do you want the whole
19 10:03:51 litany? There are many I interact with
20 10:03:52 daily.
21 10:03:53 Q. Yes. Let's have the names of
22 10:03:54 people you interact with on a daily basis,
23 10:03:57 sure.
24 10:03:57 A. Josh Cousins. Elizabeth Chen.
25 10:04:08 Oleg Kotylar, K-O-T-Y-L-A-R, I believe.
HIGHLY CONFIDENTIAL
4 (Pages 834 to 837)
Page 834
2 10:04:21 Laurence Howard. By the way, this isn't
3 10:04:23 necessarily a daily basis. I am having
4 10:04:26 trouble differentiating those quite possibly
5 10:04:28 I talk to daily and others that are less
6 10:04:30 frequent.
7 10:04:32 Patrick Yousef, Y-O-U-S-E-F.
8 10:04:42 I'm not sure that is an exhaustive list. It
9 10:04:44 probably is not.
10 10:04:49 Q. How did you come to get the
11 10:04:50 position of being a contributor to the
12 10:04:56 resolution strategies function at BANA?
13 10:05:02 A. Pardon me?
14 10:05:04 Q. How did you, how were you
15 10:05:07 selected for this position to contribute to
16 10:05:09 the resolution strategies function?
17 10:05:11 A. Okay. It is not BANA. It's
18 10:05:17 within Countrywide. I think it occurred a
19 10:05:21 couple months after the head of legacy asset
20 10:05:24 servicing, Terry Laughlin assumed chief risk
21 10:05:29 officer role within the bank. Ron
22 10:05:32 Sturzenegger assumed Terry's job.
23 10:05:36 And as we continue to monitor
24 10:05:38 the evolution of the activity in the
25 10:05:41 representations and warranties space and the
Page 835
2 10:05:46 substantial amount of growth, I think there
3 10:05:49 was a desire to have me focus on an area
4 10:05:54 that was less operationally intense, you
5 10:05:57 know, had grown to a group in excess of a
6 10:06:00 thousand employees. And focus on the
7 10:06:05 transactional strategy related issues while
8 10:06:07 leveraging John's experience managing, you
9 10:06:12 know, large organizations.
10 10:06:15 Q. When you refer to a thousand
11 10:06:16 employees, that's in the workout strategies
12 10:06:19 group; is that right?
13 10:06:20 A. Now, again, the group is
14 10:06:24 referred to as representations and
15 10:06:25 warranties, previously workout strategies,
16 10:06:28 but, yes, that was the group I was referring
17 10:06:30 to.
18 10:06:39 Q. Did you have any
19 10:06:40 responsibilities regarding repurchases prior
20 10:06:41 to the merger of Bank of America and
21 10:06:42 Countrywide?
22 10:06:44 MR. BURTON: Objection.
23 10:06:50 A. I was involved in repurchases
24 10:06:51 in a number of realms. One of which was my
25 10:06:58 former role in Countrywide Capital Markets
Page 836
2 10:07:02 and Countrywide Securities Corporation.
3 10:07:05 That was very limited and I would also
4 10:07:09 clarify that it wasn't responsibility so
5 10:07:13 much as awareness and involvement in terms
6 10:07:17 of representing our investor base.
7 10:07:22 Subsequent to that and really
8 10:07:23 going to early 2008, and I can't remember
9 10:07:28 the dates exactly, I had at some point in
10 10:07:34 that first half of the year, prior to the,
11 10:07:37 you know, Legal Day 1, July 1, I was getting
12 10:07:43 increasingly involved in it. I can't be
13 10:07:45 sure exactly when that occurred, however.
14 10:07:50 Q. When you say you were getting
15 10:07:51 increasingly involved, in what respect were
16 10:07:54 you involved in repurchases?
17 10:07:57 A. Outside of -- well, as we were
18 10:08:00 leading up to midyear, I was, my role had
19 10:08:08 continued to change in light of market
20 10:08:09 conditions, we had consolidated, for
21 10:08:12 instance, all the transaction management
22 10:08:13 functions.
23 10:08:15 So I assumed a role, similar
24 10:08:17 role in addition to having the capital
25 10:08:19 markets portfolio. Also having Countrywide
Page 837
2 10:08:23 Home Loans, transaction management team and
3 10:08:24 investor relations group.
4 10:08:27 I also believe around that time
5 10:08:32 we started, although I can't be sure, we
6 10:08:35 started to get involved in light of the up
7 10:08:40 tick in repurchase activity, in interfacing
8 10:08:43 with lawyers, interfacing with
9 10:08:46 counterparties such as MBIA and other
10 10:08:51 stakeholders within Countrywide. Again, I'm
11 10:08:56 unclear as to when that actually happened in
12 10:08:59 2008.
13 10:09:01 Q. Is it fair to say your interest
14 10:09:03 in repurchases started to increase at least
15 10:09:05 as early as 2006?
17 10:09:10 A. I -- well my interest in
18 10:09:12 repurchases, again you have to, I feel like
19 10:09:17 differentiation is needed.
20 10:09:19 In 2006 I was Managing Director
21 10:09:23 overseeing Countrywide Capital Markets,
22 10:09:26 Countrywide -- and Countrywide Securities
23 10:09:30 Corporation's transaction management group.
24 10:09:31 In that capacity I dealt with
25 10:09:35 or I interacted with the repurchase space in
HIGHLY CONFIDENTIAL
5 (Pages 838 to 841)
Page 838
2 10:09:39 two respects. One, is the responsibility
3 10:09:45 for a limited number of repurchase or
4 10:09:50 limited repurchase activity related solely
5 10:09:53 to Countrywide Capital Markets, you know,
6 10:09:57 whole loan purchases from third parties.
7 10:10:02 And to be differentiated from Countrywide
8 10:10:06 Home Loans and its activities.
9 10:10:07 And the second was my role in
10 10:10:12 basically providing a voice for our investor
11 10:10:18 base in terms of what we were hearing in the
12 10:10:22 fixed income investor community. I was
13 10:10:25 involved in communicating those concerns as
14 10:10:32 well as trying to formulate or articulate,
15 10:10:35 you know, recommendations for consideration
16 10:10:37 of Countrywide Home Loans, although with
17 10:10:39 respect to that aspect I had no direct
18 10:10:42 responsibility in terms of decision-making
19 10:10:45 at that time.
20 10:10:47 Q. Starting with the first of
21 10:10:48 those two functions, you mentioned that you
22 10:10:51 had responsibility for repurchase activity
23 10:10:54 for the Countrywide Capital Markets whole
24 10:10:56 loan purchases.
25 10:10:58 Was that in connection with
Page 839
2 10:11:01 CCM's outbound repurchase demands?
3 10:11:05 MS. CONCANNON: Object to the
4 10:11:06 form.
5 10:11:06 Q. Is that fair?
6 10:11:07 A. In connection with that, that
7 10:11:10 is what I'm referring so. So we would buy
8 10:11:15 loans and the activity was predominantly
9 10:11:19 related to early payment defaults where we
10 10:11:24 had explicit contractual protection. So if
11 10:11:29 a loan went down within the contractually
12 10:11:32 covered period, we would have recourse back
13 10:11:34 to our sellers.
14 10:11:35 So as part of our
15 10:11:37 responsibility within the transaction
16 10:11:39 management group we would monitor and
17 10:11:43 prosecute those claims where contractually
18 10:11:47 appropriate.
19 10:11:47 Q. Do you call those outbound
20 10:11:50 repurchase demands versus inbound?
21 10:11:53 A. Yes.
22 10:11:54 Q. With respect to your valuation
23 10:11:56 of the outbound repurchases, were there
24 10:12:00 standard guidelines you had from entities
25 10:12:03 that sold whole loans to CCM?
Page 840
3 10:12:08 A. Can you be more specific around
4 10:12:10 guidelines?
5 10:12:11 Q. Right. How would you determine
6 10:12:12 whether or not to initiate repurchase
7 10:12:14 demands for the outbound repurchases?
8 10:12:20 A. It was, as I said earlier,
9 10:12:24 predominantly, if not entirely, early
10 10:12:27 payment default related. So it is an
11 10:12:31 entirely objective measure.
12 10:12:33 You would post purchase of a
13 10:12:34 loan or portfolio of loans, you would
14 10:12:39 monitor the performance such that if that
15 10:12:41 loan went delinquent or whatever the
16 10:12:43 specific triggering event was, you could
17 10:12:46 monitor that by querying the data, since we
18 10:12:51 would take on, in the vast majority of the
19 10:12:55 cases, the servicing as well.
20 10:12:56 And so, by monitoring the
21 10:12:59 performance, the early performance of those
22 10:13:02 loans during the contractually covered
23 10:13:04 period, we would then generate repurchase
24 10:13:10 demands based on those findings.
25 10:13:12 Q. And you referred to that as an
Page 841
2 10:13:14 objective basis for the repurchase demand?
3 10:13:17 A. I did use the word objective.
4 10:13:20 Q. Do you distinguish the inbound
5 10:13:21 repurchase demands as not being objective?
7 10:13:27 Q. Or not being evaluated on an
8 10:13:29 objective standard?
10 10:13:30 A. I would use the term object --
11 10:13:33 I wouldn't use the term objective
12 10:13:35 exclusively for outbound or inbound for that
13 10:13:39 matter.
14 10:13:42 It would come down to specific
15 10:13:43 contractual terms that were being implicated
16 10:13:46 in the activity. And looking at what the
17 10:13:50 standard was, and whether it required
18 10:13:52 subjective or judgmental input or whether it
19 10:13:55 was purely objective in describing an
20 10:14:01 inbound or outbound claim along those lines.
21 10:14:05 Q. And in your judgment did
22 10:14:07 Countrywide evaluate inbound repurchase
23 10:14:10 demands on an objective standard?
25 10:14:17 A. Did we evaluate? It would
HIGHLY CONFIDENTIAL
6 (Pages 842 to 845)
Page 842
2 10:14:19 depend entirely on each and every loan level
3 10:14:22 claim. Okay. And the contractual term that
4 10:14:27 was cited by a claimant in bringing such a
5 10:14:30 claim.
6 10:14:31 There are, I imagine specific
7 10:14:38 representations and warranties that are at
8 10:14:40 least relatively speaking more objective
9 10:14:42 than others. And, conversely, others that
10 10:14:44 are more subjective than others.
11 10:14:48 So I would hesitate to
12 10:14:50 characterize, you know, claims in a sort of
13 10:14:54 broad sweeping way that your question
14 10:14:57 suggests.
15 10:14:58 Q. How would you distinguish
16 10:15:00 between the objective and subjective claims
17 10:15:02 for inbound repurchases?
19 10:15:07 A. First of all, I don't, I don't
20 10:15:12 believe my description of objective or
21 10:15:15 subjective, there is no formality associated
22 10:15:19 with that. We don't bucket claims or
23 10:15:21 process claims by categorizing them as
24 10:15:24 objective or subjective.
25 10:15:26 I'm simply referring to the
Page 843
2 10:15:30 subjective quality or judgmental quality
3 10:15:34 required to assess the merits of a
4 10:15:38 particular claim.
5 10:15:39 Again, wholly dependent on what
6 10:15:42 that claim is, which rep and warrants is
7 10:15:44 cited, what factual base, evidentiary
8 10:15:47 support is provided by the claimant and so
9 10:15:52 forth.
10 10:15:52 Q. Let me show you an exhibit we
11 10:15:54 had previously introduced as Exhibit 260.
12 10:16:06 (Deposition Exhibit 260
13 10:16:06 for identification previously marked,
14 10:16:06 email string dated 5/17/06 production
15 10:16:06 numbers CWMBIA 0009882017 through 221.)
16 10:16:18 BY MR. SELENDY:
17 10:16:18 Q. As you will recall this is the
18 10:16:20 paper you wrote up in 2006; is that right?
19 10:16:30 A. I would like a minute just to
20 10:16:31 look at this.
21 10:16:32 Q. Sure.
22 10:16:39 A. Yes, I'm familiar with this
23 10:16:41 write-up, which is mine and which is from
24 10:16:43 2006, to answer your question.
25 10:16:45 Q. Right. In the paper you
Page 844
2 10:16:46 identified on the page ending in Bates
3 10:16:52 number 218, a problem which you described as
4 10:16:57 a course of discontent from buyers of
5 10:16:59 Countrywide bonds largely attributable to
6 10:17:02 the following two factors "The observed
7 10:17:04 performance, particularly in the early
8 10:17:07 stages of Countrywide's prime and Alt-A
9 10:17:10 deals is inferior to our peer group after
10 10:17:13 normalizing for collateral differences; and
11 10:17:16 two, Countrywide's unwillingness to
12 10:17:19 repurchase loans absent a clear showing of a
13 10:17:23 rep and warranty breach, irrespective of the
14 10:17:26 nature of default, e.g. fraud."
15 10:17:29 Then you go on to say, "While
16 10:17:31 all of these investors readily acknowledge
17 10:17:34 the inherent risk embedded in first loss and
18 10:17:37 other credit sensitive bonds and have paid a
19 10:17:42 significant risk premium in turn for
20 10:17:44 repurchasing the bonds, none of them accept
21 10:17:45 the premise they should have to price for
22 10:17:47 the fraud and other similar risks which they
23 10:17:50 believe are impossible to quantify."
24 10:17:54 Let me pause right there. What
25 10:17:56 did you mean when you said "they don't
Page 845
2 10:17:57 accept the premise they should have to price
3 10:17:59 for the fraud?"
5 10:18:05 A. I was trying to communicate
6 10:18:06 that which certain of our investors and I
7 10:18:11 can't remember with particularity which
8 10:18:15 ones, but that which certain of our
9 10:18:17 investors had communicated to me either
10 10:18:19 directly or most likely indirectly through
11 10:18:21 our sales force. And that basically
12 10:18:25 represented the position of at least one
13 10:18:28 fixed income investor, which is what I was
14 10:18:30 trying to communicate knowing that the
15 10:18:32 audience for this would be at Countrywide
16 10:18:35 Home Loans where the repurchase activity
17 10:18:39 responsibility resided.
18 10:18:41 Q. What does it mean to price for
19 10:18:42 the fraud?
21 10:18:46 A. What I was intending to
22 10:18:49 communicate, again, by virtue of what was
23 10:18:52 communicated to me is that you're pricing
24 10:18:59 these credit sensitive assets based on
25 10:19:02 expected performance.
HIGHLY CONFIDENTIAL
7 (Pages 846 to 849)
Page 846
2 10:19:03 So, therefore you are modeling
3 10:19:06 a number of attributes like expected default
4 10:19:09 rate, loss severity, things of that nature.
5 10:19:11 Prepay speeds.
6 10:19:14 And that certain risks, at
7 10:19:17 least based on what one or more investors
8 10:19:20 had communicated were not part of those
9 10:19:24 default rate assumptions. And therefore, to
10 10:19:28 the extent the assumptions are assisting
11 10:19:32 buyers in generating a price they are
12 10:19:35 willing to pay for their, for a bond, a
13 10:19:38 given bond, that that would not be built in
14 10:19:43 or incorporated into their pricing of the
15 10:19:45 bond.
16 10:19:46 Q. And specifically you singled
17 10:19:48 out fraud as not incorporated into the
18 10:19:50 investor's pricing of the bonds as an
19 10:19:53 example?
21 10:19:54 A. That's what my write-up
22 10:19:57 indicates, yes.
23 10:19:58 Q. And did you think that was a
24 10:20:01 fair objection on the part of the investors?
Page 847
2 10:20:05 A. Quite honestly I don't know
3 10:20:07 exactly what I thought. Again, my goal or
4 10:20:11 my role at this time was to ensure we gave
5 10:20:16 voice to what we were hearing from
6 10:20:18 investors. And to the extent that was
7 10:20:19 impacting our, you know, our pricing levels
8 10:20:24 that we were seeing on our securities, I
9 10:20:26 thought it was worthy of consideration.
10 10:20:30 And as I later advocate, or
11 10:20:34 asked for consideration of, I wanted people
12 10:20:36 to think about, you know, whether there was
13 10:20:38 a different way, a more pragmatic way of
14 10:20:42 addressing this, this issue.
15 10:20:46 Q. You clearly gave credit to the
16 10:20:47 concern you're proposing that Countrywide's
17 10:20:50 repurchase policy be changed; right?
19 10:20:55 A. I, again, my role here, okay,
20 10:20:58 is representing our fixed income investors
21 10:21:02 and providing CHL with market color.
22 10:21:06 So, we had an interest in
23 10:21:09 Countrywide Capital Markets of developing,
24 10:21:13 maintaining and enhancing customer
25 10:21:17 relationships. So, I viewed that as, you
Page 848
2 10:21:20 know, one of a large number of
3 10:21:23 responsibilities I had in my organization.
4 10:21:26 And, frankly, others in a customer facing
5 10:21:29 business, you know, had similar
6 10:21:32 responsibilities to, again, give voice to
7 10:21:35 our investors inside of Countrywide and give
8 10:21:39 them basically market color or market
9 10:21:41 commentary.
10 10:21:42 Q. And as reflected on page 220 of
11 10:21:45 the document you gave credit to the concern
12 10:21:50 about not pricing for fraud in proposing
13 10:21:53 specific modifications to the repurchase
14 10:21:57 policy. And you state -- isn't that right?
16 10:22:00 Q. Section sub C of your document.
18 10:22:13 A. I apologize, can you repeat the
19 10:22:14 question. I'm now looking at subsection C.
20 10:22:17 Q. You gave credit to the investor
21 10:22:19 concerns about repurchases including as to
22 10:22:23 not pricing for fraud in proposing a
23 10:22:26 modification of Countrywide's repurchase
24 10:22:29 policy as reflected in subsection C of your
25 10:22:32 white paper; correct?
Page 849
3 10:22:38 A. Not having restudied this, you
4 10:22:42 know, exhaustively, I think generally what I
5 10:22:46 am proposing for consideration is a, you
6 10:22:54 know, I don't know I would characterize it
7 10:22:56 as a change, that we ought to rethink our
8 10:23:00 repurchase process, in here -- I think,
9 10:23:06 again, as written, you know, the white
10 10:23:09 paper, if you want to call it that as
11 10:23:11 written is basically asking CHL to rethink
12 10:23:19 how it goes about repurchases.
13 10:23:24 Q. Is it fair to say that you
14 10:23:25 encouraged CHL to adopt a more reasonable
15 10:23:28 repurchase standard?
17 10:23:35 A. I think that's a, you know, not
18 10:23:38 unreasonable inference from this. I was
19 10:23:40 bringing investor concerns to the table. I
20 10:23:43 was articulating what it was doing in terms
21 10:23:46 of execution on our bonds at Countrywide.
22 10:23:52 And was suggesting that a more
23 10:23:55 accommodative policy that wasn't, you know,
24 10:24:01 built squarely on, you know, the contractual
25 10:24:04 obligations or at least interpretation,
HIGHLY CONFIDENTIAL
8 (Pages 850 to 853)
Page 850
2 10:24:08 strict interpretation of the contractual
3 10:24:11 obligations where there was flexibility to
4 10:24:13 do so that we ought to think about being
5 10:24:15 more accommodative to those investor
6 10:24:19 concerns.
7 10:24:21 Q. And you state, "The single most
8 10:24:24 important prerequisite to turning around
9 10:24:27 this problem is to adopt a more reasonable
10 10:24:30 repurchase standard, one that is better
11 10:24:31 aligned with that of our competition and the
12 10:24:34 reasonable expectations of our bondholders."
13 10:24:37 Is that fair?
15 10:24:40 A. You're reading that from where?
16 10:24:42 Q. It is the first sentence of
17 10:24:43 your paper under the heading Modify
18 10:24:46 Repurchase Policy.
19 10:24:51 A. Okay. That's what it says.
20 10:24:52 Q. That's what you were
21 10:24:53 recommending; right?
23 10:24:59 A. What I appear to be indicating
24 10:25:03 here is presuppose if you want to change the
25 10:25:08 course we were on, which I've articulated
Page 851
2 10:25:11 earlier in this write-up, then the single
3 10:25:16 most important prerequisite was to adopt a
4 10:25:21 more reasonable or accommodative repurchase
5 10:25:25 policy or standard.
6 10:25:29 Q. And you go on to say as an
7 10:25:31 example that "Certain loans with fraud or
8 10:25:33 substantial value discrepancies should be
9 10:25:36 considered for repurchase to a greater
10 10:25:38 extent than the current policy allows, even
11 10:25:42 absent specific fraud or value reps and
12 10:25:46 warrants."
13 10:25:47 Is that right?
14 10:25:50 A. Is it right that it says that?
15 10:25:51 Q. That was part of your
16 10:25:53 recommendation; correct?
18 10:25:56 A. I can't tell without sitting
19 10:25:58 here reading the whole thing what I'm
20 10:26:00 recommending and what I am putting up for
21 10:26:04 consideration. Whether or not it is
22 10:26:05 important or not, I don't know where you're
23 10:26:07 going with this. But, I wanted them to
24 10:26:12 consider the problem and possible solutions.
25 10:26:17 So I tried to, in an expansive
Page 852
2 10:26:21 way, tried to lay out what the issues were
3 10:26:25 and how we might go about addressing them if
4 10:26:31 Countrywide Home Loans was so inclined in
5 10:26:33 terms of doing a cost/benefit analysis.
6 10:26:39 Q. And in developing your
7 10:26:41 recommendations is it fair to say you had
8 10:26:43 reviewed conclusions on repurchase claims in
9 10:26:46 order to assess whether investors'
10 10:26:50 objections had merit?
12 10:26:55 A. I don't know if I reviewed any
13 10:26:58 repurchase claims in a context of this and
14 10:27:03 what was informing this write-up.
15 10:27:06 As I recall, many of the
16 10:27:12 concerns expressed were not based on actual
17 10:27:16 repurchase activity. Bondholders were
18 10:27:21 observing loans, for instance, that went
19 10:27:23 down or had some anomalous, you know, loss
20 10:27:28 severity relative to -- whatever their
21 10:27:32 concern they expressed it not necessarily
22 10:27:34 within the context or confines of a
23 10:27:36 repurchase demand, but just that, you know,
24 10:27:40 more in terms of inquiry what it was we were
25 10:27:43 going to do about, for instance, an early
Page 853
2 10:27:47 payment default.
3 10:27:50 Q. Well can I direct you to the
4 10:27:55 next page, page 221, you will notice under
5 10:27:57 subheading I in the middle paragraph that
6 10:28:01 you write "It is clear to me based on having
7 10:28:04 reviewed the LERC conclusions on countless
8 10:28:08 repurchase claims that in many, if not most
9 10:28:12 cases a reasonable argument can be proffered
10 10:28:15 in support of a repurchase claim based upon
11 10:28:18 this particular rep and warranty, even
12 10:28:22 though LERC may have come to the opposite,
13 10:28:24 but also not unreasonable conclusion."
14 10:28:24 Do you see that?
15 10:28:28 A. Yes, I do.
16 10:28:30 Q. So in fact you had reviewed the
17 10:28:31 conclusions on what you characterize as
18 10:28:33 countless repurchase claims?
20 10:28:35 A. That's what it indicates, yes.
21 10:28:37 Q. What was LERC?
22 10:28:41 A. LERC was Countrywide's Loss
23 10:28:46 Exposure Review Committee.
24 10:28:46 Q. It was after you had reviewed
25 10:28:49 these countless repurchase claims that you
HIGHLY CONFIDENTIAL
9 (Pages 854 to 857)
Page 854
2 10:28:51 developed your recommendations to
3 10:28:52 Countrywide Home Loans?
4 10:28:53 A. I don't know if -- well, I'm
5 10:28:58 not sure if you're suggesting one
6 10:29:00 precipitated the other.
7 10:29:01 I obviously stand by what I
8 10:29:07 indicated here. I said I reviewed countless
9 10:29:10 findings from the LERC materials, then I
10 10:29:15 reviewed countless findings. That was my
11 10:29:17 impression when I wrote this six years ago.
12 10:29:21 Q. Okay. And the rep and warranty
13 10:29:24 you were referring to states and this is the
14 10:29:26 sentence immediately preceding "The
15 10:29:29 origination, underwriting servicing and
16 10:29:34 collection practices used by Countrywide
17 10:29:36 with respect to each mortgage loan have been
18 10:29:38 in all respects legal, proper, prudent and
19 10:29:42 customary in the mortgage lending and
20 10:29:44 servicing business."
22 10:29:45 A. Yes.
23 10:29:48 Q. Why did you conclude based on
24 10:29:50 that rep and warranty a reasonable argument
25 10:29:52 could be proffered in support of a
Page 855
2 10:29:54 repurchase claim in many, if not most cases?
4 10:30:02 A. So, well in answering that I
5 10:30:03 will provide some contractually grounding.
6 10:30:07 We, nor any issuer for that
7 10:30:12 matter is at liberty of repurchasing loans
8 10:30:18 or otherwise depositing monies in a trust
9 10:30:20 that aren't specifically contemplated in the
10 10:30:24 governing contracts.
11 10:30:29 So in order to repurchase a
12 10:30:30 loan, you would have to cite or be able to
13 10:30:34 invoke one of, you know, one of several
14 10:30:38 enabling provisions, including repurchase
15 10:30:41 for breaches of representations and
16 10:30:44 warranties which materially and adversely
17 10:30:47 affects the interest of the bondholders, for
18 10:30:49 instance, is a fairly common standard in
19 10:30:52 many PSAs.
20 10:30:54 So, with that as a grounding,
21 10:30:57 what I was saying here is that given that
22 10:31:04 many, there would appear to be many of the,
23 10:31:06 you know, repurchase claim conclusions that
24 10:31:08 I am indicating here having reviewed were
25 10:31:11 predicated on notions of prudent
Page 856
2 10:31:13 underwriting, that that standard is
3 10:31:20 sufficiently subjective and judgmental that
4 10:31:23 you could have two reasonable people coming
5 10:31:27 to different conclusions on the same set of
6 10:31:31 facts.
7 10:31:32 And so, in fact I think I cite
8 10:31:35 here that LERC may have come to an opposite,
9 10:31:39 but also not unreasonable conclusion. So
10 10:31:41 suggesting that if we wanted to be more
11 10:31:46 accommodative, like some of our, or we were
12 10:31:49 lead to believe some of our competitors were
13 10:31:51 being, that we had the ability, in my
14 10:31:55 judgement to come to a different conclusion
15 10:32:00 around subjective issues like prudent
16 10:32:03 underwriting, even if it didn't call into
17 10:32:06 question the appropriateness of LERC's
18 10:32:09 conclusion, we still had the ability, again,
19 10:32:15 in my judgment at the time, to do that.
20 10:32:18 And that I wanted CHL to
21 10:32:20 consider doing that. And I didn't think the
22 10:32:24 fact that issues around true sale
23 10:32:28 accounting, which is very important, which
24 10:32:30 means we had to have enabling provisions to
25 10:32:34 do whatever it is we were doing, vis-a-vis
Page 857
2 10:32:37 the trust, we had what I believed to be the
3 10:32:41 latitude to rethink that or recalibrate
4 10:32:45 that.
5 10:32:47 Q. In what capacity did you
6 10:32:48 conduct the review of the repurchase claims
7 10:32:51 prior to writing up this paper?
8 10:32:56 A. I'm sorry, in what capacity?
9 10:32:58 Q. Right. What was your purpose in
10 10:33:01 reviewing the repurchase claims before you
11 10:33:02 wrote up this paper?
13 10:33:06 A. I, having testified earlier
14 10:33:08 today that I don't recall this white paper
15 10:33:11 being precipitated specifically by reviewing
16 10:33:14 these -- reviewing repurchase requests, I
17 10:33:18 have since refreshed my recollection reading
18 10:33:21 this, my understanding still to this day is
19 10:33:26 much of that, the impetus for this came from
20 10:33:31 investors, directly or indirectly to my
21 10:33:34 attention. And I felt in my role it was my
22 10:33:39 responsibility to bring that to the
23 10:33:40 attention of CHL.
24 10:33:42 Perhaps in developing this
25 10:33:45 write-up, which was not just a top of mind
HIGHLY CONFIDENTIAL
10 (Pages 858 to 861)
Page 858
2 10:33:49 stream of consciousness, I think I put a
3 10:33:51 considerable amount of thought into it, I
4 10:33:55 may have leveraged, right, I may have -- not
5 10:33:58 leveraged, but I may have wanted to see what
6 10:34:01 it was that we were observing in the
7 10:34:05 repurchase space. It could have been in
8 10:34:07 response to what CHL was communicating, you
9 10:34:12 know, back to us in terms of our inability
10 10:34:15 to just repurchase loans without showing a
11 10:34:19 contractual enabling provision.
12 10:34:23 Q. In the next subparagraph you
13 10:34:26 say, "Given the inherent subjectivity of the
14 10:34:32 aforementioned rep and warranty, the concern
15 10:34:35 about one string of repurchases requiring
16 10:34:38 another is easily overcome. The unique
17 10:34:42 facts and circumstances involved in each
18 10:34:44 individual repurchase claim should allow us
19 10:34:46 to make subjective judgment calls in favor
20 10:34:49 of repurchases for some loans and against
21 10:34:53 repurchase on others without it all being
22 10:34:55 inconsistent in our approach."
24 10:34:59 A. Yes.
25 10:34:59 Q. What did you mean by that?
Page 859
2 10:35:06 A. I think what you read, I am
3 10:35:12 trying to think how to expand on that. I
4 10:35:15 guess I would underscore the importance of
5 10:35:21 the fact that every single loan has its own
6 10:35:25 individual and unique facts and
7 10:35:26 circumstances. Right.
8 10:35:28 Yes, there are attributes
9 10:35:30 common to many a loan. But the combination
10 10:35:34 of attributes and specific borrower profile
11 10:35:36 and other facts around the origination or
12 10:35:40 the borrower's credit capacity, the, you
13 10:35:43 know, collateral being pledged against the
14 10:35:45 loan when taken together in totality,
15 10:35:48 present a unique profile on each and every
16 10:35:51 single loan.
17 10:35:52 And so, we were not, you know,
18 10:35:56 what I was suggesting to the extent, I think
19 10:35:58 I was responding to a concern or I'm going
20 10:36:02 to assume I put this in here to blunt any
21 10:36:06 concern that if we did this selectively and
22 10:36:11 accommodatively in the interest of
23 10:36:13 furthering our customer relationship. That
24 10:36:17 it was not going to necessarily bind us or
25 10:36:22 should not bind us on other loans.
Page 860
2 10:36:26 Q. Meaning you could favor one
3 10:36:28 investor without favoring another and in
4 10:36:30 your view not be subject to a charge of
5 10:36:33 inconsistency?
7 10:36:37 A. I don't know if it was favoring
8 10:36:38 one investor over another. It was trying to
9 10:36:41 address a specific issue brought to our
10 10:36:45 attention from investors.
11 10:36:48 So there is a natural tension
12 10:36:51 that exists in the relationship between
13 10:36:58 subsidiaries, in this case, you have
14 10:37:00 Countrywide Home Loans and, you know, the
15 10:37:03 parent company responsible for credit policy
16 10:37:05 and risk management for the broader
17 10:37:07 organization.
18 10:37:09 And then we had our, we being
19 10:37:11 Countrywide Capital Markets and Countrywide
20 10:37:13 Securities Corporation, had very specific
21 10:37:17 interests in furthering the client
22 10:37:20 relationship.
23 10:37:21 So, I am basically an advocate
24 10:37:26 for what we're seeing take place in the
25 10:37:29 marketplace. What we're hearing from
Page 861
2 10:37:31 investors. It was not as though, you know,
3 10:37:35 my recommendations, decisions, judgments,
4 10:37:38 were dispositive of this issue.
5 10:37:43 I think it was part of a
6 10:37:45 healthy tension that exists between, you
7 10:37:48 know, subsidiaries, as I said, to have, make
8 10:37:54 sure you are considering all the angles.
9 10:37:55 My job wasn't necessarily to
10 10:37:57 focus on a more top of the house view, but
11 10:38:02 rather, again, focus on the customer
12 10:38:04 relationship and what we were seeing happen
13 10:38:06 in the marketplace.
14 10:38:08 Q. Is it fair to say that you were
15 10:38:11 arguing that Countrywide Home Loans could be
16 10:38:14 more accommodative to one investor than to
17 10:38:17 another without being subject to a charge of
18 10:38:19 inconsistency?
20 10:38:23 A. I don't believe my thinking was
21 10:38:25 at all around favoring one investor over
22 10:38:28 another. In fact, it's not what I was
23 10:38:31 trying to communicate is just, you know,
24 10:38:37 because you buy back some loans, okay, maybe
25 10:38:43 it could be, for instance, the fraud that I
HIGHLY CONFIDENTIAL
11 (Pages 862 to 865)
Page 862
2 10:38:46 cited, right.
3 10:38:48 You know, that to the extent we
4 10:38:49 had the contractual flexibility for certain
5 10:38:53 kind of issues that were, you know, viewed
6 10:38:56 most problematic or as most problematic as
7 10:38:59 investors, that that didn't necessarily need
8 10:39:01 to be viewed as a slippery slope.
9 10:39:05 That was my view as the voice
10 10:39:07 of the investor, right, that I wanted the
11 10:39:10 top of the house to consider as part of it's
12 10:39:13 on going, you know, review and assessment of
13 10:39:18 its repurchase policies.
14 10:39:20 Q. And you said that "CHL could
15 10:39:22 make subjective judgment calls in favor of
16 10:39:24 repurchase for some loans and against
17 10:39:27 repurchase on others." Right?
18 10:39:32 MS. CONCANNON: Where are you?
19 10:39:33 Q. Same section. Second sentence
20 10:39:41 of your sub point 2. Isn't that what you
21 10:39:43 were arguing you could subjectively decide
22 10:39:45 to accept repurchases on some loans and not
23 10:39:48 others without it being inconsistent?
24 10:39:50 MS. CONCANNON: Objection to form.
25 10:39:51 A. Yes. I think that's, I think
Page 863
2 10:39:53 that's further to the point I just made.
3 10:39:56 That it's, you know, some loans, some fact
4 10:39:59 patterns, for instance, again, you know the
5 10:40:04 issues that borrowers -- that investors
6 10:40:07 found most problematic we could address
7 10:40:10 without necessarily consigning ourselves to
8 10:40:15 buy back every claim. Consign ourselves to
9 10:40:19 have to legitimately buy back every claim.
10 10:40:21 That doesn't, you know, so far
11 10:40:25 as I can tell suggest one investor versus
12 10:40:27 another.
13 10:40:27 Q. Well in fact Countrywide did
14 10:40:31 take into account the relationship with its
15 10:40:34 investors in determining whether to
16 10:40:36 implement repurchases; isn't that right?
18 10:40:41 A. When you say implement
19 10:40:42 repurchases, I don't follow.
20 10:40:45 Q. Countrywide did in fact take
21 10:40:46 into account the relationship with its
22 10:40:48 investors in determining whether to
23 10:40:50 repurchase loans that were the subject of
24 10:40:53 repurchase demands; correct?
Page 864
2 10:40:57 A. Are you asking did we factually
3 10:40:59 do that?
4 10:40:59 Q. Yes.
5 10:41:00 A. Am I recommending that we --
6 10:41:02 Q. Didn't Countrywide in fact do
7 10:41:03 that?
9 10:41:05 A. So in the period in question,
10 10:41:11 what I can say is not having been
11 10:41:13 responsible for the repurchase activity at
12 10:41:14 Countrywide, but having had conversations
13 10:41:18 implied by this note, that it was always
14 10:41:23 central to Countrywide's repurchase policy
15 10:41:29 that its activities be grounded upon the
16 10:41:33 contractual obligations that we undertook in
17 10:41:36 selling loans into the marketplace.
18 10:41:41 How Countrywide Home Loans at
19 10:41:43 the time went about repurchasing loans from
20 10:41:46 the variety of investors to whom Countrywide
21 10:41:49 sold loans, I can't recall and I wasn't, you
22 10:41:55 know, front and center in that, as I didn't
23 10:41:57 have responsibility for it. I clearly had
24 10:41:59 awareness as evidenced by this write-up.
25 10:42:04 Q. After the merger of Countrywide
Page 865
2 10:42:05 and Bank of America, is it fair to say that
3 10:42:10 Countrywide Home Loans did in fact take into
4 10:42:14 account the nature of its relationships with
5 10:42:17 counterparties in determining whether to
6 10:42:18 repurchase loans that were the subject of
7 10:42:20 repurchase demands?
9 10:42:29 A. Well I'm a little bit confused
10 10:42:30 by the reference after the purchase.
11 10:42:36 So, as I said, back in this
12 10:42:38 time it may or may not have influenced
13 10:42:40 Countrywide. I'm unaware of it. And I'm
14 10:42:44 unaware of it being untethered again from
15 10:42:47 what we thought our contractual obligations
16 10:42:49 were.
17 10:42:49 You know, post 2008, latter
18 10:42:51 part of it where I assumed an increasing
19 10:42:55 role I can speak of firsthand experience in
20 10:43:01 terms of what the standards were that we
21 10:43:05 established for repurchasing loans. And
22 10:43:11 those were with, again, always grounded upon
23 10:43:13 what our contractual obligations were.
24 10:43:15 Q. Sir, I guess I need to be a
25 10:43:20 little more specific. Is it fair to say
HIGHLY CONFIDENTIAL
12 (Pages 866 to 869)
Page 866
2 10:43:22 that for the past few years while you've had
3 10:43:26 direct responsibility for repurchases in the
4 10:43:30 Bank of America organization, that in fact
5 10:43:34 repurchases of Countrywide Home Loans have
6 10:43:38 taken into account the nature of the
7 10:43:40 relationship between Countrywide Home Loans
8 10:43:43 and its counterparties?
10 10:43:48 A. I think that is -- well, I'll
11 10:43:50 answer it this way: We, again, focus on the
12 10:43:55 specific contractual relationship we have
13 10:43:57 with a counterparty. We focus on the
14 10:44:03 specific and unique fact pattern associated
15 10:44:05 with each loan in the execution of our
16 10:44:13 repurchase activities.
17 10:44:14 Now, where we have issues that
18 10:44:15 arise, disputes, I think it's fair to say
19 10:44:19 that in sizing up those disputes and where,
20 10:44:25 you know, and how best to resolve those
21 10:44:26 disputes, I think it's fair to say that, you
22 10:44:30 know, that we, you know, there is
23 10:44:33 consideration given to okay, who is the
24 10:44:35 counterparty, what is our status with them.
25 10:44:38 Okay. By no means divorces the process from
Page 867
2 10:44:43 what I had just referenced, specific
3 10:44:45 contractual obligations, unique fact pattern
4 10:44:49 on each and every loan.
5 10:44:50 I do think that's -- I think
6 10:44:53 that's a fair assessment to say that we were
7 10:44:55 not unmindful of the fact that, you know,
8 10:45:01 for instance, a, you know, GSE investor,
9 10:45:03 right, what is our ongoing business, our
10 10:45:08 current business. But more as a means of
11 10:45:10 how do we resolve disputes. Not how do we
12 10:45:15 decision loan level or make loan level
13 10:45:18 decisions on repurchase claims.
14 10:45:21 Q. Your testimony is that that
15 10:45:22 does not relate to whether Countrywide
16 10:45:25 actually repurchases loans? You're saying it
17 10:45:29 is only with respect to the resolution of
18 10:45:32 disputes?
19 10:45:33 A. Well it's -- I want to make
20 10:45:37 sure I'm careful it is not misinterpreted.
21 10:45:40 We're going to review and respond to every
22 10:45:46 claim on a loan level basis based on the
23 10:45:50 specific contractual language.
24 10:45:53 It is not uncommon that we find
25 10:45:56 ourselves in disagreement with a
Page 868
2 10:45:58 counterparty who has asserted the claim.
3 10:46:00 We've done our review. Responded
4 10:46:03 thoughtfully and expansively typically to
5 10:46:05 those claims. And we're at an impasse.
6 10:46:10 And so, you know, recognizing I
7 10:46:13 think this also sort of underscores the
8 10:46:16 inherent subjectivity of some claims, right,
9 10:46:20 where you have two sides coming to different
10 10:46:22 conclusions.
11 10:46:23 And in terms of how we resolve
12 10:46:25 those, or do we resolve those, short of
13 10:46:29 litigation, for instance, I do think it is a
14 10:46:31 consideration to understand what the nature
15 10:46:34 of the relationship with a counterparty is.
16 10:46:36 And what, for instance, litigation might do
17 10:46:39 to that relationship.
18 10:46:43 Q. So let me go back to your 2006
19 10:46:44 paper. Do you know what use, if any, was
20 10:46:47 made of your paper?
21 10:46:51 A. I don't know specifically. I
22 10:46:52 know it went to CHL. David Spector, I
23 10:46:55 believe at the time was managing secondary
24 10:46:59 marketing for Countrywide Home Loans.
25 10:47:02 I sent this to David. I know
Page 869
2 10:47:04 it got some circulation around Countrywide.
3 10:47:12 I don't know exactly who saw this and
4 10:47:15 exactly what, if anything, was done in
5 10:47:17 response to it.
6 10:47:20 Q. Let me show you a document
7 10:47:21 that's previously has been marked as
8 10:47:22 Plaintiff's Exhibit 573.
11 10:47:22 Memo undated, production numbers CWMBIA
12 10:47:22 0009912977 through 80.)
14 10:47:37 Q. My question here is whether you
15 10:47:38 have seen this before? You will note at the
16 10:47:40 top it states "This memo is intended to be
17 10:47:45 read and evaluated with conjunction with the
18 10:47:48 white paper drafted by Michael Schloessmann
19 10:47:50 M.D. Countrywide Securities Corp. regarding
20 10:47:53 our current standing in the investor
21 10:47:55 community and the impact on liquidity that
22 10:47:57 our policies are having."
23 10:47:59 Have you seen this paper
24 10:48:00 before?
25 10:48:10 A. It does look familiar. I'm
HIGHLY CONFIDENTIAL
13 (Pages 870 to 873)
Page 870
2 10:48:12 thinking perhaps I saw this in connection
3 10:48:15 with earlier testimony with you back in
4 10:48:18 March, if memory serves me. But I don't
5 10:48:24 remember prior to that time if I saw this.
6 10:48:26 Perhaps I was on a distribution, I don't see
7 10:48:28 a distribution. I always welcome having my
8 10:48:32 recollection refreshed. But I'm not sure
9 10:48:37 sitting here right now.
10 10:48:39 Q. Are you aware of any steps that
11 10:48:40 were taken at Countrywide Financial or
12 10:48:46 Countrywide Home Loans to make the
13 10:48:48 repurchase policy more reasonable as of the
14 10:48:52 2006, 2007 period prior to the merger with
15 10:48:55 Bank of America?
18 10:49:00 A. Sorry, could you restate your
19 10:49:01 question.
20 10:49:01 Q. Yes. Let's take the entire
21 10:49:03 period after you wrote your white paper, up
22 10:49:07 until the merger with Bank of America.
23 10:49:09 Are you aware of any steps that
24 10:49:11 were taken during that period to make a
25 10:49:14 Countrywide repurchase policy more
Page 871
2 10:49:15 reasonable?
4 10:49:21 A. I think I just testified, I
5 10:49:25 don't know what steps were taken. If you're
6 10:49:26 talking about specifically in response to my
7 10:49:29 recommendation, I don't know.
8 10:49:31 Overall, I'm not really sure as
9 10:49:34 I didn't have responsibility for that. And
10 10:49:36 I don't have a specific recollection of what
11 10:49:39 might have actually been done.
12 10:49:42 Q. Did you seek to become more
13 10:49:43 involved with the repurchase process as --
14 10:49:48 after the merger had been announced, the
15 10:49:50 prospective merger had been announced?
17 10:49:54 A. Did I -- I am not sure if I
18 10:49:56 sought to be more involved. I had testified
19 10:49:59 earlier, although I couldn't remember
20 10:50:03 specifically when in 2008, but I, outside of
21 10:50:09 the realm we've just explored in terms of my
22 10:50:11 role in Countrywide Capital Markets, I don't
23 10:50:16 know when exactly in 2008, or whether,
24 10:50:18 frankly I, you know, affirmatively sought
25 10:50:21 out more responsibility in this realm.
Page 872
2 10:50:24 I think there was a tremendous
3 10:50:27 amount of change due to the market
4 10:50:28 conditions going on and, for instance,
5 10:50:32 securitization basically ceased, you know,
6 10:50:35 on and after August 2007.
7 10:50:41 And, you know, as we got into
8 10:50:43 2008, you know, including, you know, what we
9 10:50:45 saw from MBIA in the first half of 2008 it
10 10:50:49 obviously, you know, warranted, you know,
11 10:50:52 more attention because it was something
12 10:50:55 that, you know, heretofore we had not seen.
13 10:50:58 Q. And do you recall any specific
14 10:51:00 functions that you had before Bank of
15 10:51:03 America purchased Countrywide with respect
16 10:51:05 to repurchases in that 2008 period?
18 10:51:10 A. Other than as I just testified,
19 10:51:13 my recollection that I had been getting
20 10:51:18 increasingly involved, and I think it
21 10:51:22 predated, I don't think it was related to
22 10:51:25 the merger, but predated the merger, July 1,
23 10:51:30 I can't remember specifically what that
24 10:51:34 involvement was.
25 10:51:36 I -- well, full stop.
Page 873
2 10:51:56 MR. SELENDY: I am going to mark
3 10:51:57 as Exhibit 4051, BACMBIA-P 000092542 --
4 10:52:08 sorry Exhibit 4044. Excuse me.
5 10:52:19 BACMBIA-P 92542 through 543.
7 10:52:24 for identification, email string dated
8 10:52:19 11/20/08, production numbers BACMBIA-P
9 10:52:21 0000092542 through 543.)
10 10:52:28 MS. CONCANNON: I assume you
11 10:52:29 allocated numbers to Minton and to this
12 10:52:32 deposition so we are not duplicating?
13 10:52:35 MS. TROMBLEY: Yes.
15 10:52:37 Q. Just take a moment to look at
16 10:52:39 that document. Top of the second page
17 10:53:01 states this is the email from Len Clamp
18 10:53:04 entitled Secondary Marketing Repurchasing
19 10:53:08 and Claims Business Process Follow-Up dated
20 10:53:10 November 13, 2008.
21 10:53:12 "Net net, our team (LOB and
22 10:53:14 change) kicked off a process reengineering
23 10:53:17 effort for the repurchases/investor claims
24 10:53:21 area coming out of assessment. Mike
25 10:53:28 Schloessmann will head this group and they
HIGHLY CONFIDENTIAL
14 (Pages 874 to 877)
Page 874
2 10:53:30 are now moving into Brucker's world from
3 10:53:33 secondary from an organization perspective."
5 10:53:36 A. Yes.
6 10:53:36 Q. Do you know what that's
7 10:53:38 referring to?
9 10:53:39 A. I believe, it is my
10 10:53:40 understanding that as it involves change
11 10:53:49 management. I believe this was part of a
12 10:53:56 far more expansive undertaking to assess the
13 10:54:02 function, you know the various functions,
14 10:54:05 systems and the like within Countrywide in
15 10:54:06 figuring out what was to become those
16 10:54:11 functions. And people, process, systems as
17 10:54:16 a result of Bank of America's purchase of
18 10:54:18 Countrywide. Which is common place in any
19 10:54:22 sort of merger transaction.
20 10:54:25 One of those, in a small sort
21 10:54:27 of way, the repurchase world, this is
22 10:54:31 indicating that, as I testified earlier, I
23 10:54:34 had assumed responsibility some time in 2008
24 10:54:38 for a part of the repurchase activity.
25 10:54:45 Q. Were you involved in the Bank
Page 875
2 10:54:47 of America assessment?
3 10:54:50 A. I am not sure what Bank of
4 10:54:52 America assessment means, but inasmuch as it
5 10:54:56 was part of the multitude of discussions
6 10:55:00 that took place as far as transition in
7 10:55:05 terms of what the organization was going to
8 10:55:07 look like following the merger, I was
9 10:55:10 involved in some of those. As I said, there
10 10:55:14 were hundreds if not more that took place
11 10:55:17 across Countrywide as Bank of America was
12 10:55:19 assessing what it was they were, you know,
13 10:55:22 purchasing, I believe.
14 10:55:26 Q. Do you have any understanding
15 10:55:27 of the conclusions reached as part of the
16 10:55:29 transition assessment with respect to the
17 10:55:32 Countrywide repurchases?
19 10:55:36 Q. Or the repurchase process at
22 10:55:43 A. One conclusion or outcome,
23 10:55:44 rather, of that was in terms of my role,
24 10:55:54 that that role would include, among other
25 10:55:56 things, responsibility for part of the
Page 876
2 10:56:01 repurchase activity. By part of, I'm
3 10:56:03 differentiating, you know, the strategy and
4 10:56:06 related components from the, what was then
5 10:56:10 referred to as investor audit, basically the
6 10:56:14 team of underwriters that were actually
7 10:56:16 reviewing the loan level claims.
8 10:56:19 That was not directly in my
9 10:56:24 purview, although there was, you know,
10 10:56:25 interaction obviously in terms of the role
11 10:56:28 that is described in Len's email.
12 10:56:30 Q. Just to clarify that, you said
13 10:56:32 the investor audit function refers to the
14 10:56:34 team of underwriters that would review,
15 10:56:37 actually review the repurchase demands?
16 10:56:39 A. That's correct.
17 10:56:42 Q. And your function instead was
18 10:56:43 part of the strategy of how to deal with the
19 10:56:46 results of those reviews; is that fair?
20 10:56:48 A. Well, no. At that time my role
21 10:56:55 which was developing, was, you know,
22 10:56:56 recognizing the changing landscape, that we
23 10:57:03 needed more to address given the landscape
24 10:57:05 had changed and was changing considerably.
25 10:57:11 That we needed more focus
Page 877
2 10:57:13 around counterparty, among other things,
3 10:57:16 counterparty engagement. Consultation with
4 10:57:18 legal around, you know, governing contracts,
5 10:57:21 contractual interpretation and assorted
6 10:57:24 other issues to augment the underwriting
7 10:57:29 group, whose subject matter expertise was,
8 10:57:34 you know, limited to reviewing and
9 10:57:35 responding to loan level claims. But
10 10:57:37 certainly not interpreting legal contracts
11 10:57:41 and engaging in counterparty dialogue
12 10:57:44 outside of, again, a very limited, you know,
13 10:57:46 loan level -- I shouldn't say limited, but
14 10:57:49 aside from a loan level universe of
15 10:57:53 activities.
16 10:57:57 Q. Is it fair to say that one of
17 10:57:58 the outcomes of the BAC transition review
18 10:58:02 was that the reengineering effort -- sorry,
19 10:58:05 the repurchase effort had to be reengineered
20 10:58:09 as to process, as this email reflects?
22 10:58:16 A. Well, whether Len described it
23 10:58:19 as such, I would describe it as we were
24 10:58:23 developing, in response to again a changing
25 10:58:26 repurchase landscape, we were developing
HIGHLY CONFIDENTIAL
15 (Pages 878 to 881)
Page 878
2 10:58:29 greater functionality or more diverse
3 10:58:33 functionality that we thought the existing
4 10:58:38 landscape called for that at that time or
5 10:58:43 previous to that time we did not believe was
6 10:58:47 sufficient given, again, the changing
7 10:58:49 circumstances that we were observing.
8 10:58:52 Q. Other than adding functionality
9 10:58:55 to the process, do you recall specific
10 10:58:58 changes that were made to how Countrywide
11 10:59:01 evaluated repurchase demands?
13 10:59:07 A. I don't -- well, other than the
14 10:59:11 guidance of, you know, reviewing or guidance
15 10:59:17 stemming from review of the governing
16 10:59:20 contracts and what our obligations were in
17 10:59:22 providing guidance that could be
18 10:59:25 incorporated into loan level claim
19 10:59:29 decisioning parameters I'm not sure what
20 10:59:34 else you're -- or I'm not sure what else to
21 10:59:38 say about, you know, the repurchase claim
22 10:59:43 decisioning itself.
23 10:59:50 Q. Okay. So you said that one of
24 10:59:51 the changes was to ensure that the governing
25 10:59:53 contracts were reviewed in the process of
Page 879
2 10:59:58 deciding whether to repurchase loans; is
3 11:00:01 that fair?
5 11:00:06 A. Repeat that back, I'm sorry.
6 11:00:11 Q. You said that one of the
7 11:00:12 changes was to ensure the governing
8 11:00:14 contracts were reviewed in the process of
9 11:00:17 deciding whether to repurchase loans; is
10 11:00:19 that fair?
12 11:00:20 A. Let me -- I'm not sure that is
13 11:00:26 or not. What I said is we wanted to make
14 11:00:29 sure, given the increase in repurchase
15 11:00:34 claims that we had, particularly in the
16 11:00:39 non-GSE segments, including from MBIA, you
17 11:00:45 know, given that that process was less
18 11:00:48 mature, because we really had no historical
19 11:00:51 precedent or experience outside of the GSE
20 11:00:56 space in any meaningful numbers, that we
21 11:01:00 needed to ensure that each and every
22 11:01:03 contract governing a transaction and loans
23 11:01:07 included in that transaction was reviewed.
24 11:01:09 And we clearly understood and
25 11:01:12 the team understood what the contractual
Page 880
2 11:01:14 obligations were, which necessarily informs
3 11:01:16 how you would review and respond to a claim.
4 11:01:20 So I'm not sure if I was clear.
5 11:01:22 Q. I guess I'm trying to
6 11:01:23 understand what changed. How was that
7 11:01:26 different than the way in which the investor
8 11:01:31 audit team previously looked at repurchase
9 11:01:33 requests?
11 11:01:34 A. Well, I wasn't responsible for
12 11:01:37 that area beforehand. My understanding is
13 11:01:40 that that activity was limited predominantly
14 11:01:48 to GSE claims. It was an established
15 11:01:51 process, had been selling loans to the GSEs
16 11:01:56 for 20-some-odd years, if not more.
17 11:02:00 That there was, while nothing
18 11:02:02 of the magnitude that we have seen in the
19 11:02:04 last four years, we had a steady flow of
20 11:02:09 repurchase activity that investor audit was
21 11:02:13 established at least in part, it perhaps had
22 11:02:16 other duties to review and respond to
23 11:02:18 pursuant to those two unique contracts
24 11:02:22 within that case Fannie and Freddie.
25 11:02:25 So the introduction of
Page 881
2 11:02:26 repurchase claims in meaningful numbers from
3 11:02:31 non-GSE claimants implicated issues that I
4 11:02:38 don't know to what extent we would have had
5 11:02:40 occasion to review and study from a
6 11:02:43 contractual and other standpoints.
7 11:02:49 Q. Okay. I would like to show you
8 11:02:50 a document I marked as Exhibit 4045. It is
9 11:02:53 an email from 2008 attaching a draft
10 11:02:58 document entitled Investor Loan Claim
11 11:03:02 Process Target State And Action Plan for
12 11:03:05 Secondary Marketing Investor Relations,
13 11:03:08 Credit Risk Investor Audit, Investor Claim
14 11:03:12 Analytics and Reporting.
16 11:03:12 for identification, email string dated
17 11:03:12 7/21/08, production numbers CWMBIA-B
18 11:03:12 000009808 through 824.)
20 11:03:27 Q. In the middle of the first page
21 11:03:29 you'll see that you are one of the cc's on
22 11:03:31 the page.
23 11:03:38 My first question will be
24 11:03:39 whether you recall the document that's
25 11:03:40 attached to the email?
HIGHLY CONFIDENTIAL
16 (Pages 882 to 885)
Page 882
2 11:04:42 MS. CONCANNON: Do you have some
3 11:04:43 magnifying glasses floating around the
4 11:04:46 firm?
5 11:04:47 MR. SELENDY: I keep wishing you
6 11:04:48 would produce pages that can be better
7 11:04:50 read.
8 11:04:50 MS. CONCANNON: We produced them
9 11:04:51 in the best form available to us.
10 11:04:53 MR. SELENDY: You didn't produce
11 11:04:54 magnifying glasses with the document,
12 11:04:56 so.
13 11:04:57 MS. CONCANNON: No. But they
14 11:04:59 have been provided to us at prior
15 11:05:01 depositions in response to witness
16 11:05:02 requests. I know you have them
17 11:05:04 available.
18 11:05:04 MR. SELENDY: If that is a
19 11:05:05 serious request.
20 11:05:06 MS. CONCANNON: It is a serious
21 11:05:08 request, I am not being snide about the
22 11:05:10 document, but there are portions of it
23 11:05:11 I'm unable to read.
24 11:05:12 MR. SELENDY: I don't disagree
25 11:05:14 with you. We will see if we can get a
Page 883
2 11:05:15 glass.
3 11:05:21 A. Okay. I reviewed the email and
4 11:05:23 the attachment. I don't recall this deck
5 11:05:30 specifically, but it is consistent with my
6 11:05:34 general understanding during this period we
7 11:05:35 were evolving the repurchase process in
8 11:05:40 response to, you know, in response to again
9 11:05:44 the changing landscape insofar as
10 11:05:47 repurchases were concerned.
11 11:05:48 Q. On the first page in the email
12 11:05:52 from James Baker to Frank Aguilera, the
13 11:05:55 second sentence states, "Please keep Mike
14 11:05:58 and I posted as to the status of the
15 11:05:59 presentation so that Mike can review any
16 11:06:02 final deliverable prior to its presentation
17 11:06:04 to senior management."
19 11:06:06 A. Yes.
20 11:06:07 Q. And did you in fact make a
21 11:06:11 presentation of this deck to senior
22 11:06:12 management at Bank of America?
24 11:06:16 A. I, having made a number of
25 11:06:18 presentations, I don't remember specifically
Page 884
2 11:06:19 this one. But inasmuch as we had developed
3 11:06:22 the deck and James is indicating -- I think
4 11:06:29 it is James, where are we here -- yes, James
5 11:06:32 is indicating we are scheduled or expected
6 11:06:35 to present, I don't have any reason to think
7 11:06:37 that didn't happen. But I don't have
8 11:06:38 specific recollection of that presentation.
9 11:06:42 Q. If you would turn to the page
10 11:06:43 ending in 9814 there is a slide entitled
11 11:06:46 Executive Management Post LD 1. Do you see
12 11:06:53 that?
13 11:06:53 A. Yes.
14 11:06:54 Q. Were you put in charge of the
15 11:06:55 operations at this time for repurchasing?
17 11:06:58 A. I was not.
18 11:06:58 Q. I am noting your name Michael
19 11:07:04 Schloessmann operations in the second box.
21 11:07:06 A. Yes.
22 11:07:06 Q. So what does that signify to
23 11:07:09 you?
24 11:07:09 A. So that was, that was a
25 11:07:12 secondary marketing related role. My role
Page 885
2 11:07:15 was evolving through '08. I think in the
3 11:07:21 first part of '08 I was chief operations
4 11:07:24 officer or something along those lines for
5 11:07:27 secondary marketing.
6 11:07:29 The operations really referred
7 11:07:31 to, as I recall, managing the loan delivery
8 11:07:36 system, the GSE loan delivery system. That
9 11:07:38 is the front end business where we were, you
10 11:07:40 know, delivering newly originated loans to
11 11:07:43 the GSEs. And I recall specifically it was
12 11:07:46 not the repurchase operations at this time,
13 11:07:52 July 2008.
14 11:07:52 Q. Okay. So did you subsequently
15 11:07:54 assume responsibility for the operational
16 11:07:57 side of repurchases or no?
17 11:07:59 A. Yes.
18 11:08:00 Q. When was that?
19 11:08:00 A. I believe that was in the first
20 11:08:03 quarter of 2009.
21 11:08:09 Q. I do have a magnifying glass,
22 11:08:11 if that's helpful for you.
23 11:08:13 A. Okay.
24 11:08:13 Q. Just to keep handy.
25 11:08:15 MS. CONCANNON: Thank you.
HIGHLY CONFIDENTIAL
17 (Pages 886 to 889)
Page 886
2 11:08:19 Q. If you would turn please to the
3 11:08:20 page ending Bates number 9819 entitled
4 11:08:27 Target State Organizational Proposal. Do
5 11:08:27 you see that?
6 11:08:36 A. Yes.
7 11:08:37 Q. There is a the top bullet
8 11:08:39 refers to investor relations transaction
9 11:08:41 management. The second bullet refers to
10 11:08:42 investor audit group. What is the
11 11:08:48 distinction there drawn between those two
12 11:08:50 parts of the organization?
13 11:08:52 A. What is the operational
14 11:08:53 distinction?
15 11:08:54 Q. Yes.
16 11:08:55 A. So, as I testified to earlier,
17 11:08:59 the investor audit group had responsibility
18 11:09:04 for the review and response, review
19 11:09:09 assessment response to each loan level
20 11:09:11 claim.
21 11:09:11 So while we were plugged into
22 11:09:15 the process, obviously we had awareness, we
23 11:09:17 had engagement with the group, we had to
24 11:09:20 work, you know, in sync with one another
25 11:09:23 because we both owned different parts of the
Page 887
2 11:09:26 repurchase process, that group exclusively
3 11:09:30 reviewed loans and tendered responses.
4 11:09:38 Whereas investor relations and
5 11:09:41 transaction management, and -- I'm sorry, is
6 11:09:44 your question as it pertains, what is the
7 11:09:46 difference as it pertains only to repurchase
8 11:09:49 activity because there were other activities
9 11:09:51 and responsibilities within my portfolio
10 11:09:52 that didn't necessarily have anything to do
11 11:09:54 with repurchases?
12 11:09:55 Q. So let's first start with the
13 11:09:59 distinction as it pertains to repurchases.
15 11:10:09 A. Sorry, is this -- I'm confusing
16 11:10:11 myself -- is this, you're asking what this
17 11:10:14 is contemplating or what actually existed at
18 11:10:17 the time? I'm sorry.
19 11:10:22 Q. We can again break that down as
20 11:10:24 of July 2008 what was the structure that
21 11:10:26 existed in the immediate aftermath of LD 1?
23 11:10:34 A. I continue to testify to lack
24 11:10:35 of total clarity around when each of these,
25 11:10:40 other than, you know, the exhibits you're
Page 888
2 11:10:44 putting in front of me which is in part
3 11:10:46 refreshing my recollection. I had
4 11:10:49 repurchase responsibility at some point in
5 11:10:52 2008 that continued to develop as we were
6 11:10:54 developing a process for managing the
7 11:10:59 changed repurchase landscape, which included
8 11:11:01 what's referred to as the strategy
9 11:11:05 component, counterparty engagement, you
10 11:11:07 know, legal engagement.
11 11:11:09 Those kind of things I believe
12 11:11:12 resided, if not in July it was to my
13 11:11:18 recollection some time shortly after that.
14 11:11:23 Again, it was an evolving process. Just as
15 11:11:26 the repurchase activity we were observing
16 11:11:28 was evolving.
17 11:11:29 Q. And what was the proposal with
18 11:11:30 respect to the development of the target
19 11:11:34 state organization?
20 11:11:36 A. So I'm going to need to refresh
21 11:11:38 my memory because -- we did not, as I
22 11:11:41 testified to prior to '09 we, my group did
23 11:11:44 not have ownership for the loan level
24 11:11:47 claims. I want to read what this target
25 11:11:52 state is contemplating.
Page 889
2 11:11:53 Q. Yes.
3 11:11:54 A. I can tell you when and if this
4 11:11:55 actually came to pass.
5 11:12:48 Okay. So this, this was not
6 11:12:55 the state that existed in July, clearly
7 11:12:59 investor audit managed that. This
8 11:13:01 contemplated target state references
9 11:13:06 investor relations transaction management
10 11:13:09 which was the organization I managed,
11 11:13:11 logging in all incoming claims, you know,
12 11:13:14 subjecting claims to a review to ensure, you
13 11:13:19 know, a number of things like proper
14 11:13:22 standing and things of that nature. And
15 11:13:27 making definitive decisions on resolution
16 11:13:29 outcome of all claims.
17 11:13:33 That was, you know, the
18 11:13:35 decisioning parameters contemplated here, I
19 11:13:38 don't know when exactly we took
20 11:13:41 responsibility for those. I believe it's my
21 11:13:46 understanding those, you know, became
22 11:13:50 basically joint responsibilities between the
23 11:13:52 two groups, because we were obviously
24 11:13:55 reliant on investor audit to do the loan
25 11:14:00 level claim and report out its findings.
HIGHLY CONFIDENTIAL
18 (Pages 890 to 893)
Page 890
2 11:14:02 We also had an interest in
3 11:14:03 ensuring those findings were consistent with
4 11:14:07 contractual standards and other relative
5 11:14:11 criteria, but contractual standards being
6 11:14:16 first and foremost. As they are generally
7 11:14:18 consistent across the board.
8 11:14:21 As I think back to that time my
9 11:14:23 desire to involve my organization which
10 11:14:24 wasn't doing loan level reviews was an
11 11:14:27 effort to provide basically a check and
12 11:14:29 balance to what the investor audit group was
13 11:14:31 doing.
14 11:14:33 Q. What criteria did the investor
15 11:14:37 relations transaction management group look
16 11:14:39 at other than contractual standards with
17 11:14:42 respect to the review of the findings from
18 11:14:45 investor audit?
20 11:14:47 A. Sorry, what did they -- at this
21 11:14:53 time they didn't.
22 11:14:54 Q. Right. Once this target state
23 11:14:56 was implemented. So as of first quarter
24 11:14:59 2009, thereafter you indicated that the
25 11:15:04 transaction management group looked at
Page 891
2 11:15:08 contractual standards as well as other
3 11:15:10 criteria to evaluate the findings from
4 11:15:13 investor audit. My question is what other
5 11:15:15 criteria did you use?
7 11:15:21 A. So we, the involvement outside
8 11:15:23 of loan audit -- or investor audit would
9 11:15:28 have been around, as you said, contract,
10 11:15:34 consistency, applicable guidelines, you
11 11:15:42 know, since these were again outside of the
12 11:15:45 GSE context it was very limited experience
13 11:15:50 in managing repurchase activity since we
14 11:15:53 hadn't seen any meaningful activity prior to
15 11:15:57 '08.
16 11:15:59 I don't know if that's an
17 11:16:01 exhaustive list. Those are top of mind
18 11:16:03 things that were of interest in order to
19 11:16:07 ensure we were getting to the right answer
20 11:16:10 on the repurchase claims.
21 11:16:11 Q. How would you ensure
22 11:16:13 consistency with respect to subjective
23 11:16:16 determinations made on a loan by loan basis?
25 11:16:26 A. It is not a perfect and precise
Page 892
2 11:16:28 assessment obviously, just inherently. If
3 11:16:30 there is subjectivity. But generally the
4 11:16:35 idea that evolved, which also explains why,
5 11:16:47 why also explains why we wanted to involve
6 11:16:49 others and have those checks and balances is
7 11:16:51 if outside of the front line underwriters
8 11:16:55 who had their own, you know, portfolio of
9 11:16:57 loans they were doing, by making sure that
10 11:17:00 those responses percolated up to different
11 11:17:04 levels more seasoned people, we were better
12 11:17:06 able to understand what was going on, you
13 11:17:10 know, across the broader spectrum of
14 11:17:12 repurchase activity.
15 11:17:14 That would not be achievable if
16 11:17:16 loan level auditors were reviewing the claim
17 11:17:20 and, you know, sending their appeals without
18 11:17:23 review.
19 11:17:26 MR. SELENDY: I'm told the tape
20 11:17:27 has run out. So we can have him change
21 11:17:29 it or if you want to take a break, take
22 11:17:31 a break. Whatever you like.
23 11:17:33 MS. CONCANNON: Let's take a
24 11:17:33 break. We've been going an hour 20.
25 11:17:36 THE VIDEOGRAPHER: The time is
Page 893
2 11:17:37 11:18 a.m. This ends volume 3, tape 13
3 11:17:41 in the videotaped deposition of Mike
4 11:17:44 Schloessmann. We are off the record.
5 11:17:50 (Recess taken.)
7 11:30:14 11:30 a.m. This begins volume 3, tape 14
8 11:30:20 in the videotaped deposition of Mike
9 11:30:22 Schloessmann. We are on the record.
10 11:30:28 EXAMINATION CONDUCTED BY MR. SELENDY:
11 11:30:28 Q. If you could turn please in
12 11:30:29 Exhibit 4045 to page 13 of the deck, which
13 11:30:34 is Bates number ending 9822. You see the
14 11:30:44 slide that says Management Action Plan?
15 11:30:46 A. I do.
16 11:30:47 Q. One of the tasks at the bottom
17 11:30:50 is to merge BAC, CFC secondary. Do you see
18 11:30:54 that?
19 11:30:54 A. Yes, I do. At the bottom.
20 11:31:02 Q. What was the purpose of that --
22 11:31:06 Q. -- of that merger?
24 11:31:12 A. So it was part of the process I
25 11:31:14 had described or tried to describe earlier
HIGHLY CONFIDENTIAL
19 (Pages 894 to 897)
Page 894
2 11:31:16 where in connection with the bank's purchase
3 11:31:21 of Countrywide Financial there was a
4 11:31:25 transition process, transition and
5 11:31:28 assessment process for evaluating, you know,
6 11:31:31 people, process, systems at Countrywide.
7 11:31:38 Comparing them with what BAC
8 11:31:41 had organically then making decisions on
9 11:31:45 what the state or target state was going to
10 11:31:47 be based on the respective strengths,
11 11:31:52 weaknesses and other criteria the bank used
12 11:31:56 to determination what it wanted its target
13 11:31:58 state to look like.
14 11:32:00 Q. Is there any relationship
15 11:32:01 between the merger of the BAC CFC secondary
16 11:32:04 organizations and the process of repurchases
17 11:32:09 with respect to those organizations?
19 11:32:18 A. What's referenced there in
20 11:32:20 terms of the merger or whatever, however it
21 11:32:22 is described merge BAC and CFC secondary, I
22 11:32:29 don't believe that, or I'm not sure whether
23 11:32:31 that contemplated BAC's, you know,
24 11:32:33 repurchase area.
25 11:32:38 I'm aware of a relatively
Page 895
2 11:32:39 nominal group at BAC. I don't think there
3 11:32:43 was consideration in terms of its size and
4 11:32:48 presence. Actually I can't speak to that
5 11:32:51 because I didn't make the decision, I just
6 11:32:53 know what the decision was in terms of
7 11:32:54 housing the responsibility in my
8 11:32:58 organization.
9 11:32:58 Q. Was there a point in time in
10 11:33:00 which the repurchase functions for
11 11:33:03 Countrywide and Bank of America were
12 11:33:05 integrated together?
14 11:33:10 A. As I testified to I am trying
15 11:33:14 to think if there was any meaningful
16 11:33:16 repurchase infrastructure at BAC to actually
17 11:33:21 merge or however you described it.
18 11:33:24 What I can say is that
19 11:33:28 ultimately keep in mind this is an evolving,
20 11:33:31 you know, process that we're standing up in
21 11:33:34 order to confront, you know, the changing
22 11:33:38 landscape, that CHL, where this activity
23 11:33:42 resided and the people resided, did
24 11:33:46 repurchase reviews for its own as principal.
25 11:33:52 That they had obligations for.
Page 896
2 11:33:54 The group also ultimately
3 11:33:56 assumed operational ownership pursuant to
4 11:33:58 various service level agreements for other
5 11:34:00 parts or other legacy origination entities
6 11:34:04 within the overall bank.
7 11:34:08 Q. Okay. Meaning all of the
8 11:34:09 repurchase activity was consolidated within
9 11:34:12 CHL whether it was a legacy Countrywide
10 11:34:15 entity or legacy Bank of America entity?
12 11:34:19 A. That's generally true, yes.
13 11:34:22 MR. SELENDY: So I'd like to mark
14 11:34:24 as Exhibit 4046 another version of this
15 11:34:31 presentation CWMBIA-B 9596 through 9623.
16 11:34:50 (Deposition Schloessmann
17 11:34:50 Exhibit 4046 for identification, email
18 11:34:35 string dated 7/21/08, production numbers
19 11:34:35 CWMBIA-B 0000009596 through 9623.)
21 11:35:22 Q. Do you recall whether you saw
22 11:35:23 this version of the presentation?
23 11:35:24 A. Just give me a chance to review
24 11:35:26 the email string.
25 11:35:27 Q. Yes.
Page 897
2 11:35:28 A. Okay.
3 11:37:00 Q. Do you recall whether you have
4 11:37:02 seen this version of the presentation?
5 11:37:06 A. I don't recall, no.
6 11:37:07 Q. Is it fair to say it is another
7 11:37:08 version of the same presentation?
9 11:37:13 A. I would have to go back.
10 11:37:28 They're one day a part. A different title
11 11:37:30 on the cover. The fact that we, you know,
12 11:37:35 have general recollection of doing a number
13 11:37:36 of these presentations. I'm not sure, but
14 11:37:44 you can compare the document and draw, I
15 11:37:46 think, your own conclusion.
16 11:37:47 Q. Okay. On the first page of the
17 11:37:49 draft which is ending in Bates number 9599
18 11:37:53 it states Investor Repurchase Process Target
19 11:37:55 State and Action Plan. Do you see that?
20 11:38:05 A. Sorry, I was looking at the
21 11:38:07 wrong number. Yes, I do.
22 11:38:10 Q. Then the next page contains a
23 11:38:13 Mission Statement. What is that Mission
24 11:38:14 Statement of, is that of the repurchase
25 11:38:16 organization?
HIGHLY CONFIDENTIAL
20 (Pages 898 to 901)
Page 898
3 11:38:23 A. I don't know what -- look, I
4 11:38:30 can infer, having not recollected
5 11:38:33 specifically this deck, just looking at what
6 11:38:37 it says, it seems to be referencing RE
7 11:38:40 purchase and MI claim denials. I see that
8 11:38:44 comment or reference to Mission Statement.
9 11:38:49 Q. As of July 2008 is it fair to
10 11:38:50 say this was the Mission Statement for the
11 11:38:53 repurchase function, namely to respond to
12 11:38:55 investor repurchase requests and MI claim
13 11:38:58 denials in a timely manner, protecting the
14 11:39:02 bank's financial interests while maintaining
15 11:39:05 investor MI relationships?
17 11:39:11 A. I don't know whether that was
18 11:39:12 the Mission Statement at the time. I don't
19 11:39:13 know if this is something that those
20 11:39:15 involved in the production of this draft
21 11:39:17 were putting forth for consideration, I
22 11:39:22 really don't know.
23 11:39:22 Q. As of the time you took over
24 11:39:24 responsibility for the function, would this
25 11:39:27 be a fair description of the Mission
Page 899
2 11:39:29 Statement for that function?
4 11:39:35 A. This would not be what, again,
5 11:39:37 sitting here today and knowing what, you
6 11:39:39 know, what had been communicated over the
7 11:39:44 last, you know, four years, you know, while
8 11:39:47 directionally appropriate, it would not be,
9 11:39:53 you know, you know, my exact choice of
10 11:39:54 words.
11 11:39:56 Q. It is not your exact choice of
12 11:39:57 words because it says nothing about
13 11:39:59 fulfilling contractual obligations; right?
15 11:40:03 A. Every -- yes, in part that's
16 11:40:05 correct.
17 11:40:07 Q. And yet that is the choice of
18 11:40:08 words that was used in the Mission Statement
19 11:40:10 back in July 2008; right?
21 11:40:14 A. As I testified to, I don't know
22 11:40:15 if this is the first time this appears
23 11:40:19 anywhere, if it is the existing Mission
24 11:40:22 Statement that, you know, those previously
25 11:40:25 responsible, say in investor audit had, I
Page 900
2 11:40:29 really don't know.
3 11:40:32 Q. Okay. Turn ahead, please, to
4 11:40:34 the slide 8 Bates number ending in 9606.
5 11:40:47 Top of the page says Rep and Warranty Claim
6 11:40:50 Process, Loan Repurchase Management Flow.
8 11:40:56 A. Yes.
9 11:40:57 Q. Do you know whether this was
10 11:40:57 referring to the target state as then
11 11:41:01 contemplated for the organization?
13 11:41:06 A. I don't. Just looking at this,
14 11:41:10 I have to, I mean -- let me review it and
15 11:41:13 see if it gives an indication of whether it
16 11:41:16 is target or current.
17 11:41:47 Q. It may help to look at the
18 11:41:49 first subparagraph under note underneath the
19 11:41:51 chart.
20 11:41:59 A. Yeah. I saw that it says it
21 11:42:02 represents "typical process flow of each
22 11:42:04 claim request and proposed target state with
23 11:42:07 IR and IA working relationship."
24 11:42:10 I'm not entirely clear on
25 11:42:13 whether that is then or now. Obviously
Page 901
2 11:42:17 target implies something in the future. But
3 11:42:21 I can't be sure.
4 11:42:22 Q. Is it a fair description of the
5 11:42:24 process that was implemented as 2009?
7 11:42:31 A. As of 2009?
8 11:42:32 Q. Correct.
9 11:42:54 A. It's hard for me to say. It's
10 11:42:59 not how our process flows evolved over time
11 11:43:02 as we were standing up the process and
12 11:43:05 continuing to improve, expand and enhance
13 11:43:08 the process. So, you know, it is probably
14 11:43:10 more general or lacks specificity of future
15 11:43:17 work flows. But, I mean in general, you
16 11:43:23 know, I would say roughly captures that.
17 11:43:25 I'm not sure about settlement
18 11:43:27 determination what was intended there.
19 11:43:32 Q. How would you describe the
20 11:43:33 process as it exists today?
22 11:43:41 A. Can --
23 11:43:42 Q. Okay. You indicated the
24 11:43:43 process evolved beyond the description
25 11:43:46 that's set forth on this chart. And I'm
HIGHLY CONFIDENTIAL
21 (Pages 902 to 905)
Page 902
2 11:43:49 asking you could you describe what it
3 11:43:51 evolved to?
4 11:43:54 A. You want a sort of an end to
5 11:43:56 end?
6 11:43:56 Q. If you could, yes. What is the
7 11:44:00 process?
8 11:44:00 A. Well, the process, I'll try to
9 11:44:04 be general, but I will try to cover end to
10 11:44:07 end. And note that the process in part is
11 11:44:15 determined by again governing contracts,
12 11:44:20 right. Also extent of -- let me just say
13 11:44:26 governing contracts. I'm trying to make
14 11:44:28 this a generic response. I can go specific,
15 11:44:31 as needed if you ask.
16 11:44:33 A loan claim comes in. It's
17 11:44:37 logged into the system or let me even take a
18 11:44:40 step backwards. As contemplated in the work
19 11:44:44 flow. Typically we get a file request, a
20 11:44:46 request from a prospective claimant for the
21 11:44:50 loan origination file. We do a review to
22 11:44:54 ensure a party has the contractual right to
23 11:44:58 the file.
24 11:44:58 If so, we provide the loan
25 11:45:00 file. Ostensibly prospective claimant
Page 903
2 11:45:06 reviews loan files or the loan files
3 11:45:09 requested and submits repurchase demands
4 11:45:12 where they think it appropriate.
5 11:45:15 We log those repurchase demands
6 11:45:18 in, capturing, you know, letter receipt date
7 11:45:22 and various other information as part of the
8 11:45:25 claim. There is a review in terms of the
9 11:45:36 underlying contracts.
10 11:45:37 So we have -- and this by the
11 11:45:38 way may not be perfectly sequential, but it
12 11:45:41 is part of the process. So a review by
13 11:45:48 appropriate legal counsel to assess reps and
14 11:45:57 warrants in terms of what reps and warrants
15 11:45:59 are included in a specific contract
16 11:46:01 governing a single deal and the loans
17 11:46:05 included in that deal.
18 11:46:06 And there is an effort to
19 11:46:10 populate a database with those provisions to
20 11:46:15 assist the loan claim reviewers in assessing
21 11:46:19 the claim.
22 11:46:19 The loans get assigned to an
23 11:46:26 or, excuse me, the claims get assigned to a
24 11:46:30 loan reviewer or loan auditor who will look
25 11:46:34 at the claim and the findings cited. Then
Page 904
2 11:46:40 do a re-underwriting of the loan based on
3 11:46:42 what is alleged in order to form an initial
4 11:46:47 assessment as to the merits of the claim and
5 11:46:51 related findings. As well as draft a
6 11:46:58 response to the extent they believe an
7 11:47:03 appeal or rejection of the claim is
8 11:47:04 appropriate.
9 11:47:07 And then from there is
10 11:47:11 different levels of review from the front
11 11:47:14 line underwriter to ensure the, you know,
12 11:47:19 appropriateness of the decisioning or
13 11:47:22 proposed decisioning based on a lower level
14 11:47:27 underwriter.
15 11:47:28 And I can't speak with
16 11:47:30 particularity around what that process looks
17 11:47:33 like in terms of the, you know, who's
18 11:47:36 reviewing the work other than in general
19 11:47:38 that structure exists for the review.
20 11:47:45 If after, you know, any
21 11:47:47 escalation to others to review it's
22 11:47:51 ultimately determined whether we appeal or
23 11:47:55 accept the repurchase claim, with respect to
24 11:47:59 those that we believe the claimant has
25 11:48:02 sustained their burden of proving a
Page 905
2 11:48:04 contractual breach and otherwise satisfying
3 11:48:06 the terms of the contract we would then
4 11:48:08 process that for payment or repurchase from,
5 11:48:13 in the case of, you know, the GSEs, directly
6 11:48:18 from them. In the case of, you know,
7 11:48:21 private label securities, for instance, we
8 11:48:22 would be repurchasing loans out of the
9 11:48:26 trust.
10 11:48:28 Sort of overlaying all of that
11 11:48:32 is quality assurance and quality control
12 11:48:35 process to ensure decisioning consistent
13 11:48:39 with protocol, consistent with our
14 11:48:42 contractual obligations. And I believe just
15 11:48:45 consistency in decisioning across a broader
16 11:48:49 array of claims as well.
17 11:48:53 Q. Okay. So if an underwriter in
18 11:48:57 investor audit determines the repurchase
19 11:49:00 demands in his or her view lacks merit, what
20 11:49:04 is the process for subsequent review?
22 11:49:07 Q. If any.
23 11:49:08 A. I don't, as I testified to
24 11:49:11 earlier, I can't speak specifically about
25 11:49:14 exactly what that escalation, if you will
HIGHLY CONFIDENTIAL
22 (Pages 906 to 909)
Page 906
2 11:49:20 involves in terms of exactly who and when
3 11:49:23 that gets reviewed.
4 11:49:25 My understanding is that the
5 11:49:27 front line underwriters are -- excuse me,
6 11:49:32 work beyond the front line underwriters is
7 11:49:34 done both on appeal and repurchase
8 11:49:38 recommendations. At least for some portion
9 11:49:41 of what the underwriter is doing. But,
10 11:49:45 again, I can't say specifically, because I
11 11:49:48 don't know.
12 11:49:48 Q. Do you know how that subsequent
13 11:49:51 review differs depending upon whether the
14 11:49:54 front line underwriter recommends that the
15 11:49:57 repurchase demand be accepted or instead
16 11:50:01 decides that it should be rejected?
18 11:50:05 A. Same, same comment. I don't
19 11:50:08 know specifically how or if and if so, how
20 11:50:11 those two vary.
21 11:50:15 Q. Are you ever involved
22 11:50:15 personally in any part of a process of
23 11:50:19 appeal?
25 11:50:20 Q. With respect to loans, do you
Page 907
2 11:50:22 ever review yourself any loan
3 11:50:24 determinations?
4 11:50:26 A. We -- yes, I have. And I do.
5 11:50:31 A very small number. I'll stop there, yes,
6 11:50:37 I do.
7 11:50:37 Q. Is that only with respect to
8 11:50:39 situations where the underwriter has
9 11:50:40 recommended the loan be repurchased?
11 11:50:42 A. No. It's both.
12 11:50:44 Q. Okay. And in what
13 11:50:46 circumstances have you personally reviewed
14 11:50:48 loans with respect to that decision?
16 11:50:51 A. To be clear, when we talk about
17 11:50:52 personally reviewing loans I'm not going
18 11:50:54 into the loan file. But we have, and I am
19 11:50:59 involved and participate in routines where
20 11:51:02 underwriters bring their findings to a group
21 11:51:07 to review both claims for which they
22 11:51:10 recommend or have recommended approval and
23 11:51:13 those for which they've recommended appeal.
24 11:51:16 And it is in an effort to
25 11:51:19 understand the calibration of the
Page 908
2 11:51:22 decisioning and appropriateness so that we
3 11:51:27 can ensure compliance with contractual
4 11:51:29 obligations and consistency across a broader
5 11:51:32 array of claim analysts.
6 11:51:35 Q. Do you rely upon any form of
7 11:51:38 sampling as part of your internal
8 11:51:40 decision-making in repurchasing?
10 11:51:44 A. In terms of what I've just
11 11:51:46 described?
12 11:51:46 Q. Just generally.
13 11:51:50 A. Every -- no, we don't. We
14 11:51:52 review every claim that comes into us or is
15 11:51:58 submitted to us. I should say is properly
16 11:52:00 submitted, you know, by a party withstanding
17 11:52:02 and that kind of thing. We do a loan level
18 11:52:04 review on each and every claim. And respond
19 11:52:08 accordingly.
20 11:52:09 Q. And there is no circumstance
21 11:52:10 under which you will take a sample of
22 11:52:12 repurchase demands in order to evaluate a
23 11:52:18 percentage of which those demands may be
24 11:52:21 legitimate or in your view not legitimate?
Page 909
2 11:52:24 A. We -- well, I'm not sure if
3 11:52:28 you're asking do we use any sort of sampling
4 11:52:30 technique in order to render a decision on
5 11:52:36 loans. And the answer is no. As I said, we
6 11:52:39 review each and every repurchase claim
7 11:52:41 that's properly submitted.
8 11:52:44 Not to suggest that we haven't
9 11:52:47 employed, you know, a number of means to
10 11:52:51 achieve settlements with those
11 11:52:54 counterparties that have expressed an
12 11:52:56 interest and willingness to settle, as
13 11:52:59 opposed to, you know, going loan level.
14 11:53:01 Which is really the only, you know, path
15 11:53:03 that's contemplated in the governing
16 11:53:06 contracts typically.
17 11:53:07 Q. So you made a reference earlier
18 11:53:10 to quality control process. Do you not make
19 11:53:14 any use of sampling with respect to quality
20 11:53:16 control of the re-underwriting process at
23 11:53:21 A. I can't speak to or I don't
24 11:53:25 know what exactly our quality control group
25 11:53:29 within representations and warranties
HIGHLY CONFIDENTIAL
23 (Pages 910 to 913)
Page 910
2 11:53:32 actually does and how they or whether they
3 11:53:35 use samples or not.
4 11:53:37 Q. You just don't know?
5 11:53:38 A. I don't know.
6 11:53:40 Q. Okay. Staying on the same page
7 11:53:42 you made a reference to the note at the
8 11:53:44 bottom of the page on settlement
9 11:53:45 determination. I'd like to just talk about
10 11:53:50 that for a second.
11 11:53:51 The document states,
12 11:53:52 "Settlement determination evaluates
13 11:53:56 assessment and determine Corp. position and
14 11:54:01 settlement course of action based level of
15 11:54:05 claim support loss expectation and investor
16 11:54:08 relation." There are a couple prepositions
17 11:54:12 missing.
18 11:54:18 As of July 2008 is that a fair
19 11:54:20 description of how the settlement
20 11:54:21 determination was to work?
22 11:54:27 A. Sorry, are you pointing me to
23 11:54:28 the large box in that work flow?
24 11:54:30 Q. At the very bottom of the page
25 11:54:32 there is a reference to settlement
Page 911
2 11:54:33 determination. This is the page ending
3 11:54:43 9606. Do you see that?
4 11:54:45 A. Yes, I do.
5 11:54:46 Q. Do you know that it states that
6 11:54:47 the course of action is based on level of
7 11:54:50 claim support, loss expectation and investor
8 11:54:53 relation; do you see that?
9 11:54:55 A. Yes, I do.
10 11:54:56 Q. And by investor relation that
11 11:54:58 refers to the nature of the relationship
12 11:54:59 between the investor and Countrywide;
13 11:55:02 correct?
15 11:55:06 A. I didn't write this. And I
16 11:55:10 don't know what was intended. I'm reading
17 11:55:13 it like you are. You know, I sitting here
18 11:55:15 today am unsure of what was contemplated,
19 11:55:21 you know, with this motion of settlement
20 11:55:23 determination.
21 11:55:28 Q. In your view, doesn't it refer
22 11:55:30 to the determination how to resolve a
23 11:55:32 repurchase demand?
25 11:55:38 A. I naturally think of
Page 912
2 11:55:39 settlements as more broadly encompassing,
3 11:55:43 sort of a resolution alternative. Not
4 11:55:46 suggesting that this is what is meant by
5 11:55:48 that. So I think that's why I'm a little
6 11:55:51 bit confused. As opposed to a loan level
7 11:55:55 determination. But I'm not sure.
8 11:56:04 Q. Would you turn ahead to page
9 11:56:05 ending 9613 here there is actually a
10 11:56:10 separate slide for negotiation and
11 11:56:12 settlement. It states, "The loss exposure
12 11:56:14 review working group oversees the repurchase
13 11:56:17 process."
14 11:56:22 Is that correct as of July 2008
15 11:56:25 it was the loss exposure review working
16 11:56:27 group?
17 11:56:27 A. I don't recall that group or a
18 11:56:33 group by that name. I testified this is a
19 11:56:35 draft. I don't believe I had a hand in
20 11:56:39 preparing it, although it wouldn't surprise
21 11:56:42 me there were component parts to it I
22 11:56:44 provided input on.
23 11:56:45 I don't know whether loss
24 11:56:47 exposure review working group is what
25 11:56:49 existed at the time.
Page 913
2 11:56:52 Q. Do you know whether that became
3 11:56:53 the repurchase oversight group?
5 11:56:58 A. I don't know.
6 11:56:59 Q. Is it fair to say that the
7 11:57:00 repurchase oversight group at one point took
8 11:57:05 responsibility for overseeing the repurchase
9 11:57:07 process?
11 11:57:13 A. Yes. The repurchase oversight
12 11:57:15 group came into existence as a management
13 11:57:19 routine to basically inform key
14 11:57:24 stakeholders, as well as solicit input. I
15 11:57:27 believe that happened in the latter half
16 11:57:31 2008.
17 11:57:33 It wasn't -- it's role was not
18 11:57:36 to manage the group. Again, it was a
19 11:57:41 management routine that was established to
20 11:57:43 inform and solicit input from key
21 11:57:46 stakeholders.
22 11:57:48 Q. If we look at the purpose
23 11:57:49 described in this chart for the loss
24 11:57:52 exposure working group, there are four
25 11:57:54 sub-bullets. Would that description of
HIGHLY CONFIDENTIAL
24 (Pages 914 to 917)
Page 914
2 11:57:57 purpose apply equally to the repurchase
3 11:57:59 oversight group?
5 11:58:08 Q. And just for the record it
6 11:58:09 states "The purpose was to limit exposure to
7 11:58:13 credit exposure and credit losses, to
8 11:58:15 operational risk resulting from failure to
9 11:58:18 adhere to the repurchase protocol, to market
10 11:58:21 liquidity risk created by having greater
11 11:58:25 than projected repurchases that are
12 11:58:28 unsalable or unpledgeable and to reputation
13 11:58:32 risk from excess write-downs affecting
14 11:58:36 analyst and shareholder expectations. As
15 11:58:39 well as inconsistent handling of the
16 11:58:41 repurchase process."
18 11:58:44 A. I don't believe this very well
19 11:58:49 captures what we were focused on. Not that
20 11:58:54 others in the organization weren't, but this
21 11:58:56 would not be something I would have expected
22 11:58:59 to see, for instance, in a description of
23 11:59:04 the repurchase oversight group.
24 11:59:05 So, again, I don't know what
25 11:59:08 the loss exposure review working group is,
Page 915
2 11:59:12 who is a member or who participates. About
3 11:59:17 the only thing, to your answer question does
4 11:59:20 this describe, I think you asked what we
5 11:59:26 would be doing in ROG and really the only
6 11:59:31 thing I can say is perhaps, you know, bullet
7 11:59:37 point 2, that would be part of, not
8 11:59:41 specifically, but certainly operational risk
9 11:59:44 and what we were seeing in the operational
10 11:59:47 environment would have been reported on.
11 11:59:51 I wouldn't have characterized
12 11:59:53 it this way and the other bullets I don't
13 11:59:55 think would have found their way into what
14 12:00:01 the purpose of the repurchase oversight
15 12:00:03 group was.
16 12:00:03 Q. Does it surprise you this
17 12:00:05 presentation was prepared and sent to you
18 12:00:07 for your in turn presentation to senior
19 12:00:10 management?
21 12:00:24 A. I'm just going back to the note
22 12:00:26 history to see if --
23 12:00:28 Q. If you're copied on this
24 12:00:30 version.
Page 916
2 12:00:34 A. So, look, I don't know who
3 12:00:38 provided the input to this, when and at what
4 12:00:43 point I would have reviewed and offered my
5 12:00:44 own input.
6 12:00:47 All I can tell you sitting here
7 12:00:49 four years later, I don't know of the loss
8 12:00:54 exposure review working group. The purpose
9 12:01:00 as captured in the four bullet points was
10 12:01:02 not something that I was involved in and
11 12:01:08 beyond July of '08 as the process was stood
12 12:01:11 up and my involvement, you know, increased,
13 12:01:15 this does not describe I think adequately
14 12:01:20 what it is we were doing, charged with
15 12:01:22 doing.
16 12:01:22 Q. In what respects do you
17 12:01:24 disagree with the description?
19 12:01:28 A. Our -- well, I can go bullet
20 12:01:31 point by bullet point.
21 12:01:32 First bullet point credit
22 12:01:34 exposure and credit losses exceeding what
23 12:01:38 was anticipated in the pricing of the
24 12:01:41 originations.
25 12:01:42 So, our, you know, what we
Page 917
2 12:01:44 assume when we originate and sell loans in
3 12:01:50 terms of any residual exposure including rep
4 12:01:52 and warrants exposure has nothing to do with
5 12:01:57 my group's mandate in terms of managing the
6 12:02:00 repurchase activities as I've described both
7 12:02:04 pre '09 and '09 and beyond when we combined
8 12:02:09 the investor audit group with what had been
9 12:02:11 my group.
10 12:02:14 That is not within our purview.
11 12:02:18 Not that it is not important and somebody
12 12:02:20 else isn't thinking about it. It just
13 12:02:23 because not within our scope of
14 12:02:24 responsibilities.
15 12:02:24 Q. Because you are so far beyond
16 12:02:26 that original expectation; right?
18 12:02:28 Q. It is not even meaningful to
19 12:02:30 try to use it as a benchmark today?
21 12:02:34 A. I'm not sure -- I don't know
22 12:02:39 how to answer that. It's not within my
23 12:02:42 purview. I suggest -- I simply can suggest
24 12:02:46 perhaps somebody in the bank was charged
25 12:02:49 with looking at this and considering that,
HIGHLY CONFIDENTIAL
25 (Pages 918 to 921)
Page 918
2 12:02:53 but it wasn't me or anything that I was
3 12:02:56 directly involved in or recall being
4 12:02:58 involved in.
5 12:03:00 Operational risk I've talked
6 12:03:02 about that, you know. Issues around claim
7 12:03:05 volumes and that kind of thing would
8 12:03:07 certainly have been part of our management
9 12:03:10 routines we reported out on. I wouldn't
10 12:03:15 phrase it exactly like failure, operational
11 12:03:18 risk failure to adhere to repurchase
12 12:03:21 protocol.
13 12:03:22 You know, the group was set up
14 12:03:26 specifically to ensure that we adhere to
15 12:03:29 repurchase protocols or we establish
16 12:03:32 repurchase protocols and that our process
17 12:03:34 was consistent with those protocols as well
18 12:03:37 as our, you know, contractual obligations.
19 12:03:40 So that's how I would word it. But
20 12:03:42 operational risk was a part of ROG.
21 12:03:45 Market liquidity risk having
22 12:03:48 greater than projected repurchases, again,
23 12:03:53 not an area that we were charged with
24 12:03:55 monitoring and it really didn't impact at
25 12:03:58 all what we did. So I would not describe
Page 919
2 12:04:03 ROG as including that.
3 12:04:05 Reputational risk from excess
4 12:04:08 write-downs affecting analyst and
5 12:04:10 shareholder expectations. Again, not our
6 12:04:15 purview.
7 12:04:16 Repurchase activity gets
8 12:04:19 reported out and consumed by a variety of
9 12:04:23 stakeholders who have different areas of
10 12:04:27 interest and responsibilities in their own
11 12:04:29 right. But it wasn't, you know, our issue or
12 12:04:32 within our purview.
13 12:04:39 Q. Okay. Thank you. Would you
14 12:04:41 turn ahead to slide 17 Legal Day 1
15 12:04:43 Transition Plan. Bates number ending 9615.
16 12:04:49 A. Right. -- sorry, 9615?
17 12:04:52 Q. 9615.
18 12:04:53 A. I keep looking at the number
19 12:04:54 the a the bottom of the page, sorry okay.
20 12:04:59 Q. This states "Effective LD 1,
21 12:05:01 management of all CFC investor loan claims
22 12:05:04 will transition to Michael Schloessmann."
23 12:05:08 Did that happen?
25 12:05:13 A. Yes, it did. Now, again, with
Page 920
2 12:05:18 the understanding that, you know, the role I
3 12:05:20 described as having assumed, you know,
4 12:05:23 during '08 responsibility for, not
5 12:05:25 necessarily the investor audit component,
6 12:05:29 but generally that's correct, yes.
7 12:05:32 Q. Then it states, "BAC claims
8 12:05:34 will be managed by Stephen Cummings matrixed
9 12:05:37 to Schloessmann in the post LD 1 MSG
10 12:05:41 secondary marketing organization."
12 12:05:43 A. Yes.
13 12:05:44 Q. Do you know what that is
14 12:05:45 referring to with respect to BAC claims?
16 12:05:49 A. My recollection is BAC had a
17 12:05:58 small repurchase group charged with managing
18 12:06:01 their repurchase claims on loans that Bank
19 12:06:06 of America sold into the marketplace. And
20 12:06:15 that Steve was going to be, just based on
21 12:06:17 this diagram, Steve was going to be
22 12:06:19 continuing to manage that with oversight
23 12:06:22 from our group.
24 12:06:23 I testified earlier today that
25 12:06:26 at some point, and I can't say exactly when,
Page 921
2 12:06:32 my group would have assumed, my group in
3 12:06:35 conjunction with investor audit, would have
4 12:06:38 assumed operational responsibility for those
5 12:06:42 claims as well.
6 12:06:46 It doesn't appear that's the
7 12:06:47 case as of this point in time. Although it
8 12:06:50 does suggest some involvement from my area.
9 12:06:57 Q. I'd like to show you a document
10 12:06:58 I marked as Exhibit 4047. It is an August
11 12:07:03 2008 --
12 12:07:04 A. Actually, can I correct that
13 12:07:07 or just expand on that?
14 12:07:09 Q. Yes.
15 12:07:11 A. I recall Steve Cummings
16 12:07:14 actually reporting to me, I believe at this
17 12:07:20 time. So that activity could have been
18 12:07:22 under my purview at that time. Just based
19 12:07:27 on that reporting relationship.
20 12:07:31 Q. Okay. So you took charge of
21 12:07:34 the BAC claims process as well?
24 12:07:37 A. A portion. Well I can say that
25 12:07:40 Steve Cummings for a time reported to me. I
HIGHLY CONFIDENTIAL
26 (Pages 922 to 925)
Page 922
2 12:07:45 believe it was around this time. And to the
3 12:07:47 extent this is suggesting he has ongoing
4 12:07:51 responsibility for that area and, if in fact
5 12:07:55 he did report to me at this time, then I
6 12:07:58 would have had ultimate responsibility for
7 12:08:01 that area.
8 12:08:02 And I can't recall what part
9 12:08:07 of -- what role investor audit had in
10 12:08:10 actually the loan file review at this time.
11 12:08:13 I don't think any at this time.
12 12:08:14 So it would have been possible
13 12:08:16 that it was entirely under my group.
17 12:08:21 CWMBIA-B0000010889 through 924.)
19 12:08:21 Q. Okay. I would like to show you
20 12:08:22 Exhibit 4047 which attaches an August 2008
21 12:08:25 version of the presentation.
22 12:09:10 You will note on the second
23 12:09:11 page of the document this was sent to you;
24 12:09:15 do you see that?
Page 923
2 12:09:20 A. It is a little difficult to
3 12:09:21 make out, but it appears it was.
4 12:09:24 Q. I would like to glow to the
5 12:09:31 third slide entitled Investor Claims Process
6 12:09:34 Summary where your presentation states,
7 12:09:40 "Primary objective identify, monitor and
8 12:09:43 resolve in timely competent and otherwise
9 12:09:46 professional manner, all investor claims and
10 12:09:49 MI claim denials while giving appropriate
11 12:09:52 consideration to all legitimate company
12 12:09:54 interests, including the economic, legal and
13 12:09:59 reputation risk management imperative and
14 12:10:01 the effective management of client
15 12:10:04 relationships."
18 12:10:06 A. Yes.
19 12:10:07 Q. Was that the primary objective
20 12:10:08 at this point in time for the investor
21 12:10:10 claims process?
23 12:10:18 A. Similar comment to what I made
24 12:10:20 on another draft, I'm not sure, let me see
25 12:10:23 if this is a final or purports to be the
Page 924
2 12:10:30 final version. It says most updated draft.
3 12:10:32 So this could be another draft.
4 12:10:35 I don't know if this was the first time this
5 12:10:36 appeared. So it was being proposed as a
6 12:10:42 primary objective. But, so I'm basically,
7 12:10:47 you know, looking at this at face value.
8 12:10:50 Obviously it is in here and it
9 12:10:53 indicates our primary objective is how you
10 12:10:55 described it and how it described on the
11 12:10:57 page.
12 12:10:57 Q. What does it mean to say all
13 12:10:59 legitimate company interests?
15 12:11:08 A. I don't know specifically why
16 12:11:12 legitimate is in there.
17 12:11:13 Q. I will note the primary
18 12:11:21 objective here also doesn't say the primary
19 12:11:23 objective is to honor the contractual
20 12:11:26 obligations; right?
22 12:11:30 A. No, it does not.
23 12:11:31 Q. Do you know what the economic,
24 12:11:33 legal and reputation risk concerns were that
25 12:11:36 are identified in the primary objective?
Page 925
3 12:11:48 A. I don't know what was being
4 12:11:51 thought of specifically in that realm.
5 12:11:56 Q. Do you have any general
6 12:11:57 understanding?
8 12:12:00 A. My general understanding in
9 12:12:02 reading this is, you know, in describing
10 12:12:07 legitimate company interests including
11 12:12:09 economic, legal and reputation risk is that
12 12:12:12 we were to execute responsibilities, again,
13 12:12:20 timely, competent and otherwise professional
14 12:12:22 manner all claims and MI claim denials and
15 12:12:26 giving consideration to legitimate company
16 12:12:28 interests.
17 12:12:28 As I reflect on that,
18 12:12:32 legitimate company interests would be
19 12:12:34 interests that could be legitimately, you
20 12:12:36 know, considered. At the end of the day we
21 12:12:38 have contractual obligations. I acknowledge
22 12:12:41 there is not, consistent with contractual
23 12:12:43 obligations, expressly or explicitly cited
24 12:12:47 here, but that's my inference is that's the
25 12:12:49 reference to legitimate.
HIGHLY CONFIDENTIAL
27 (Pages 926 to 929)
Page 926
2 12:12:51 Trying to think economic,
3 12:12:54 legal, reputation risk, I don't know
4 12:12:58 specifically. I'm generally familiar with,
5 12:13:02 you know, that part, the fact that we would,
6 12:13:07 you know, consider economic, legal and
7 12:13:10 reputation risk issues. We and others
8 12:13:17 around the organization. But I don't know
9 12:13:20 specifically what we were thinking at this
10 12:13:24 point in time.
11 12:13:24 Q. Isn't it fair to say the
12 12:13:25 reference to consider all legitimate company
13 12:13:29 interests was a statement to try and reduce
14 12:13:33 as much as possible payments out from the
15 12:13:36 company consistent with economic, legal and
16 12:13:40 reputation risk concerns?
18 12:13:43 Q. Wasn't that the primary
19 12:13:44 objective, sir?
21 12:13:47 A. No. Well, I would, I would
22 12:13:50 make, you know, the following comment, that
23 12:13:53 in assessing economic, legal and reputation
24 12:13:56 risk, I think squarely within that is our
25 12:14:00 contractual obligations. When you think
Page 927
2 12:14:03 about legal risks and so I think that is
3 12:14:07 picked up.
4 12:14:07 You can certainly say, yeah,
5 12:14:10 the more loans you buy back, the greater the
6 12:14:13 economic impact. Obviously.
7 12:14:17 But in considering those in
8 12:14:19 total, to me, what I can recollect at the
9 12:14:23 time is we were and have always been
10 12:14:27 concerned with satisfying contractual
11 12:14:29 obligations and, you know, being mindful of
12 12:14:34 the operating environment we were in.
13 12:14:37 So by citing legal and
14 12:14:39 reputation risk to shirk contractual
15 12:14:42 obligations I would think negatively impacts
16 12:14:44 legal and reputation risk concerns.
17 12:14:47 Q. Of course because it invites
18 12:14:48 litigation; right?
20 12:14:50 A. Well among other things. So
21 12:14:55 hence the continuous focus on satisfying our
22 12:14:58 contractual obligations which, so long as
23 12:15:02 I've been involved in the process that has
24 12:15:05 always been central to what we were trying
25 12:15:07 to accomplish.
Page 928
2 12:15:12 Q. Would you please flip ahead a
3 12:15:15 few pages to slide 5. Under the heading
4 12:15:17 Bank of America Investor Claimant
5 12:15:19 Relationships, there is a series of
6 12:15:23 different types of counterparties, GSEs,
7 12:15:25 private investors, monoline bond insurers,
8 12:15:28 and then a category listed as MI denials.
10 12:15:34 A. Yes.
11 12:15:34 Q. Under monoline bond insurers
12 12:15:37 the presentation states, "The monolines
13 12:15:41 effectively assume a first loss position in
14 12:15:43 these securities and thus have the greatest
15 12:15:46 interest in ensuring that reps and
16 12:15:49 warranties are enforced, including filing
17 12:15:51 claims against BAC as both a direct and
18 12:15:57 indirect (i.e., subrogation rights)
19 12:16:00 beneficiary of the reps and warranties."
21 12:16:03 A. Let me digest it if I may,
22 12:16:07 please. Okay.
23 12:16:16 Q. That is a fair description of
24 12:16:18 the monoline insurer position on these
25 12:16:20 transactions; right?
Page 929
3 12:16:22 A. Actually I don't think it is.
4 12:16:24 That is why I was scratching my head. On
5 12:16:26 the second lien transactions generally
6 12:16:28 Countrywide, generally I think almost
7 12:16:34 universally retained a first loss position
8 12:16:37 in all of these in the context or in
9 12:16:42 connection with its residual interests it
10 12:16:44 held.
11 12:16:45 So dollar one loss would have
12 12:16:47 hit the residual. Ultimately once that form
13 12:16:50 of credit enhancement was exhausted, then
14 12:16:55 the monolines would be or there would be
15 12:16:59 draws on those policies so I mean --
16 12:17:03 Q. I take it you would agree with
17 12:17:05 me it is fair to say the monolines have
18 12:17:07 greatest interest in enforcing reps and
19 12:17:09 warranties against Countrywide?
21 12:17:16 A. Greatest interest if we are
22 12:17:18 talking about comparison between the
23 12:17:19 monolines and the investors in the private
24 12:17:23 label by virtue of the fact that a monoline
25 12:17:27 was making investors whole I would generally
HIGHLY CONFIDENTIAL
28 (Pages 930 to 933)
Page 930
2 12:17:29 agree with that. Again, vis-a-vis
3 12:17:33 investors.
4 12:17:37 Q. Under Established Reserves do
5 12:17:39 you see it states, "There is no specific
6 12:17:41 monoline reserve."
7 12:17:42 Again this is as of August
8 12:17:45 2008?
10 12:17:52 A. I am trying to read the rest of
11 12:17:54 the sentence. Okay. I see that first
12 12:18:08 clause, yes.
13 12:18:09 Q. Was that correct as of August
14 12:18:10 2008?
16 12:18:13 A. I don't know specifically.
17 12:18:15 Q. Did you ever have any
18 12:18:16 involvement in setting reserves for the
19 12:18:18 transactions involving monolines?
20 12:18:21 A. No, I did not have
21 12:18:23 responsibility for setting reserves.
22 12:18:28 Q. Did you ever have any input
23 12:18:29 into the setting of reserves on the monoline
24 12:18:32 claims?
25 12:18:32 A. Yes, I had input in, really in
Page 931
2 12:18:36 terms of conveying to those responsible for
3 12:18:42 establishing and maintaining the reserve,
4 12:18:45 providing input as to what we were observing
5 12:18:50 in the repurchase area.
6 12:18:51 So could include claim volumes,
7 12:18:54 repurchase rates and perhaps other factors
8 12:18:58 that those responsible would then consider
9 12:19:01 in managing the reserve.
10 12:19:04 Q. And at what point in time did
11 12:19:06 you provide input into the reserve process
12 12:19:09 for Bank of America relating to the monoline
13 12:19:12 claims?
16 12:19:16 A. I don't remember when it would
17 12:19:17 have started, but I believe, you know, that
18 12:19:21 we had provided, you know, the type of
19 12:19:26 information I just described to those.
20 12:19:29 Either we provide them in terms of data push
21 12:19:32 or they pulled the data from the data source
22 12:19:36 in order to evaluate the rep and warrants
23 12:19:38 reserve. That happened in 2008. I can't
24 12:19:41 recall explicitly or, you know, or
25 12:19:46 specifically rather, when we actually were
Page 932
2 12:19:50 directly interacting with our partners who
3 12:19:53 would have established a reserve.
4 12:19:55 Q. Which group established the
5 12:19:57 reserve?
6 12:20:00 A. It was a group, in 2008 I know
7 12:20:06 those that were involved, but I don't know,
8 12:20:10 just thinking now, where that rolled up. I
9 12:20:12 know where it rolled up later once post
10 12:20:15 legacy asset servicing formation. But I'm
11 12:20:19 not sure.
12 12:20:22 Q. Was there a name for the group?
13 12:20:25 A. I don't recall specifically the
14 12:20:26 name.
15 12:20:28 Q. Okay. You say you know where
16 12:20:29 it rolled up post legacy asset servicing
17 12:20:32 formation. First of all, what time period
18 12:20:38 are you referring to?
19 12:20:41 A. That, actually I recall even
20 12:20:43 before that, post legacy asset servicing
21 12:20:46 formation is when we basically bifurcated
22 12:20:49 the business. The front end mortgage
23 12:20:50 business from the legacy issues. I think
24 12:20:53 that was around February of 2010, I can't
25 12:21:03 remember now, 2010, 2011. I should know
Page 933
2 12:21:07 that. I have lost track of time.
3 12:21:09 Even before then, that group I
4 12:21:15 think reported up to Shiva Iyer who then
5 12:21:20 reported up to Jack Schakett. That would
6 12:21:23 have been in as early as '09.
7 12:21:26 I also, beginning in early '09
8 12:21:29 reported to Jack Schakett. So I remember if
9 12:21:33 Shiva was a peer of mine and his group had
10 12:21:36 responsibility for the, you know, the
11 12:21:41 setting of the rep and warrants reserve.
12 12:21:43 Q. Let's turn to the last --
13 12:21:45 sorry, to the slide 8 Special Situations
14 12:21:49 Group Overview. Was the special situations
15 12:21:56 group established?
16 12:22:03 A. The short answer is I don't
17 12:22:05 know. It was, as I can recall we were, you
18 12:22:12 know, during this formative stage trying to,
19 12:22:16 I think determine among many other things
20 12:22:18 what, you know, what to refer to the group
21 12:22:22 as. Because I think the transaction
22 12:22:26 management and I forgot whether it was exact
23 12:22:30 transaction management, operations did not,
24 12:22:32 you know, was not viewed as descriptive
25 12:22:33 enough.
HIGHLY CONFIDENTIAL
29 (Pages 934 to 937)
Page 934
2 12:22:34 So we were trying to figure out
3 12:22:36 an appropriate name or label, if you will
4 12:22:39 for the organization that was going to be
5 12:22:41 responsible for, you know, the repurchase
6 12:22:44 activity that is described as residing in my
7 12:22:46 group during this time period.
8 12:22:51 Q. Okay. So was the function for
9 12:22:53 the special situations group a function that
10 12:22:55 your group ultimately took over?
12 12:23:00 A. I don't know if that group ever
13 12:23:01 existed. I recall going through, thinking
14 12:23:04 about whether -- I recall somebody
15 12:23:08 suggesting, I think even Kevin Bartlett
16 12:23:11 suggested special situations group to manage
17 12:23:13 the repurchase.
18 12:23:15 So it wasn't an organization
19 12:23:17 restructuring. I think it was more about
20 12:23:19 nomenclature and what we were going to refer
21 12:23:22 to this group given, you know, the prior
22 12:23:25 labels really didn't offer, you know, an
23 12:23:27 appropriate description.
24 12:23:31 Q. Okay. The last bullet on the
25 12:23:32 page says, "Incentive plan outcome based
Page 935
2 12:23:35 incentive plan is recommended in order to
3 12:23:37 optimally align associate and corporate
4 12:23:40 interests and to further objective of
5 12:23:42 achieving the lowest cost resolution for the
6 12:23:44 company."
8 12:23:46 A. Where are you looking?
9 12:23:47 Q. It's the last bullet on the
10 12:23:51 page.
11 12:23:51 A. Yes, I see it.
12 12:23:52 Q. Did Bank of America adopt an
13 12:23:54 incentive plan for persons in your group
14 12:23:57 that would key compensation based upon lower
15 12:24:03 cost resolutions for the company?
17 12:24:08 A. No. Not to my knowledge.
18 12:24:09 Q. Okay. So you're not aware of
19 12:24:13 whether underwriters or others have some
20 12:24:18 kind of incentive compensation related to
21 12:24:23 the denial of repurchase demands?
23 12:24:26 A. Well, I know that to be or not
24 12:24:30 to be the case, I forgot whether you said
25 12:24:32 that.
Page 936
2 12:24:32 No underwriter has, as part of
3 12:24:34 their compensation during my tenure and to
4 12:24:38 my knowledge subsequent to my tenure, late
5 12:24:43 '11 up to today has any incentive based
6 12:24:47 compensation related to claim decisioning.
7 12:24:53 Q. So this incentive claim just
8 12:24:54 wasn't adopted?
9 12:24:56 A. Claim outcome. Obviously
10 12:24:58 quality somebody -- just general performance
11 12:25:00 issues. But there is no outcome based
12 12:25:04 metric that dictates compensation.
13 12:25:07 Q. Thank you. Let's turn back to
14 12:25:10 page ending on 899 this has investor claim
15 12:25:18 process flow. If you can read it the two
16 12:25:20 bottom rows in the chart refer to custom
17 12:25:23 contracts and standard contracts. Do you
18 12:25:25 see that?
19 12:25:28 A. Yes.
20 12:25:28 Q. Are the standard contracts --
21 12:25:30 well how do you distinguish between the two?
23 12:25:35 A. As I can generally recollect,
24 12:25:39 custom and standard, standard contracts
25 12:25:41 would refer to the GSEs, you know, the
Page 937
2 12:25:46 contracts that governed our sale of loans
3 12:25:48 and our ultimate liability, typically Fannie
4 12:25:52 and Freddie selling and/or servicing guides.
5 12:25:58 Basically industry standard. They govern
6 12:26:01 the totality of loans we sold over years.
7 12:26:08 And those would be
8 12:26:09 differentiated from the so-called custom
9 12:26:12 contracts which, as I alluded to earlier,
10 12:26:15 would cover, among other segments, private
11 12:26:18 label securitizations where there is a
12 12:26:20 governing contract, a separate governing
13 12:26:22 contract for each and every private label
14 12:26:25 securitization that needed to be reviewed as
15 12:26:29 it related to the claims we were getting.
16 12:26:33 And therefore was classified as custom.
17 12:26:37 Q. And the monoline agreements
18 12:26:39 would be the custom contracts in this
19 12:26:41 nomenclature?
20 12:26:42 A. Yes. As part of the private
21 12:26:43 label universe.
22 12:26:44 Q. Okay. So as part of the
23 12:26:46 process if it is a monoline repurchase
24 12:26:51 demand the files will go first to investor
25 12:26:53 relations rather than to investor audit; is
HIGHLY CONFIDENTIAL
30 (Pages 938 to 941)
Page 938
2 12:26:55 that correct?
4 12:26:57 A. Where are you?
5 12:26:59 Q. Under Custom Contracts.
6 12:27:01 A. Right.
7 12:27:02 Q. Then the next column states
8 12:27:04 investor relations. Whereas if you look
9 12:27:08 under standard contracts, it states investor
10 12:27:11 audit.
11 12:27:11 A. Yes. Sorry. I couldn't make
12 12:27:14 out the shaded boxes, but I see them now.
13 12:27:16 Q. All right. So is that fair to
14 12:27:18 say that the monoline repurchase demands
15 12:27:20 went first to investor relations rather than
16 12:27:23 to the underwriting team in investor audit?
18 12:27:26 A. So I think you're referring to
19 12:27:28 file requests, is that not how you started
20 12:27:31 the question?
21 12:27:31 Q. Yes.
22 12:27:31 A. So file requests should be
23 12:27:33 understood to mean something different than
25 12:27:36 Q. Okay. Yes, let me clarify. If
Page 939
2 12:27:39 you also look two columns ahead it says
3 12:27:44 claims submission repurchase, it also refers
4 12:27:47 to investor relations, customer contracts
5 12:27:50 and to investor audit for the standard
6 12:27:52 contracts. Do you see that?
7 12:27:54 A. Yes.
8 12:27:54 Q. So is it fair to say both as to
9 12:27:57 file requests and as to repurchase demands,
10 12:28:00 if it is a monoline contract it goes to
11 12:28:02 investor relations rather than to investor
12 12:28:05 audit?
14 12:28:07 A. So this work flow suggests
15 12:28:12 that, yes -- I'll stop there, the work flow
16 12:28:17 does suggest that it does go to investor
17 12:28:19 relations initially.
18 12:28:25 Q. And why was that?
19 12:28:25 A. So my general recollection of
20 12:28:33 the claims that fall under the custom
21 12:28:34 contract, you're correct in referencing the
22 12:28:39 monolines, other private label, whole loan
23 12:28:43 investors. So basically any non-GSE or, you
24 12:28:48 know, government outlets. I think even MI
25 12:28:50 we classified just because there was a
Page 940
2 12:28:52 single MI policy governing all the loans
3 12:28:55 typically would be under standard contract.
4 12:28:59 So all the deals and claims
5 12:29:01 related to the custom contracts, because
6 12:29:04 there was a unique contract for each and
7 12:29:08 every deal, that we wanted to make sure
8 12:29:11 whether it was a file request or repurchase
9 12:29:13 demand, that the party that we were hearing
10 12:29:17 from had standing to make whatever request,
11 12:29:20 whether it was a file request or repurchase
12 12:29:22 demand, that we understood the unique and
13 12:29:25 specific contractual, you know, terms of
14 12:29:31 that deal for purposes of assessing file
15 12:29:34 request and the repurchase demand.
16 12:29:39 And as I indicate the earlier,
17 12:29:42 investor audit was not -- didn't possess the
18 12:29:47 expertise and skill set to be doing that.
19 12:29:50 These are underwriters, by and large.
20 12:29:53 And so investor relations was
21 12:29:56 our way of making sure we had the
22 12:29:59 appropriate legal touch points and were
23 12:30:03 appropriately reviewing, you know, the
24 12:30:05 claims before we had somebody open up a file
25 12:30:08 and expend significant amount of time
Page 941
2 12:30:11 reviewing and responding to those claims.
3 12:30:13 Q. So is it fair to say you had a
4 12:30:15 filter process for the monoline claims you
5 12:30:17 did not have for the GSE claims?
7 12:30:20 A. Look, I would describe it there
8 12:30:24 was an intermediate step that we felt we
9 12:30:26 needed in place to ensure we were acting in
10 12:30:30 a manner consistent -- actually I should say
11 12:30:33 we and our counterparty were both acting in
12 12:30:37 a manner consistent with our contractual
13 12:30:40 rights and obligations.
14 12:30:50 Q. Do you have any sense of how
15 12:30:54 much longer it would take then for a
16 12:30:57 monoline claim to be processed than a GSE
17 12:31:01 claim --
19 12:31:01 Q. -- as a result of having to go
20 12:31:03 through the extra steps?
22 12:31:09 A. I don't.
23 12:31:13 Q. Were there any concerns that
24 12:31:15 Bank of America was taking too long to
25 12:31:18 process the monoline claims during the
HIGHLY CONFIDENTIAL
31 (Pages 942 to 945)
Page 942
2 12:31:22 period that you had oversight of the
3 12:31:22 process?
5 12:31:29 A. Would you repeat the question,
6 12:31:30 please.
7 12:31:30 Q. Yes. Were there concerns
8 12:31:31 expressed from time to time during the
9 12:31:33 period you had oversight of the process that
10 12:31:37 the processing of monoline claims was simply
11 12:31:40 taking too long?
13 12:31:41 A. Concerns expressed by the
14 12:31:43 monoline insurers?
15 12:31:44 Q. Concerns expressed within BAC.
17 12:31:53 A. I don't recall specific
18 12:31:53 instances, but it would not surprise me if,
19 12:32:00 I wouldn't characterize as taking too long,
20 12:32:04 but it was part of our -- well, it was a
21 12:32:10 concern that we had with respect to
22 12:32:12 monolines and any other claims we were
23 12:32:15 receiving is were we managing and processing
24 12:32:19 those claims in a manner consistent with the
25 12:32:22 contract. And what other standards we might
Page 943
2 12:32:27 have had in place, including, you know,
3 12:32:30 commercial reasonableness and the like.
4 12:32:47 Q. So is your testimony you just
5 12:32:49 don't recall any instances in which concerns
6 12:32:52 were expressed as to how long it was taking
7 12:32:54 to process the monoline claims?
9 12:32:57 Q. Or perhaps you don't recall
10 12:32:59 specific instances, but it was a general
11 12:33:01 problem?
13 12:33:03 A. I didn't say problem. I meant
14 12:33:08 to say, or I specifically said I don't
15 12:33:11 specifically recall individual
16 12:33:13 communications.
17 12:33:14 But in general, what I can
18 12:33:16 testify to, and what I recollect is of
19 12:33:20 course in the course of managing this
20 12:33:24 increasing volume of claims from monolines
21 12:33:27 and other counterparties we were interested
22 12:33:30 in ensuring that we stood up a process that
23 12:33:33 allowed us to effectively manage and process
24 12:33:38 and respond to those claims consistent with
25 12:33:41 our contractual obligations and what we
Page 944
2 12:33:44 thought was, you know, commercially
3 12:33:47 reasonable, you know, based in part on the
4 12:33:49 behavior of the counterparties.
5 12:33:50 By behavior I mean the manner
6 12:33:53 in which claims would come through the door.
7 12:33:55 Their quality, whether they were aggregated
8 12:33:58 in large numbers. As opposed to, you know,
9 12:34:02 provided to us in a more, you know,
10 12:34:05 continuous flow. Those are things that
11 12:34:07 informed how we thought about, you know,
12 12:34:10 claim response time lines.
15 12:34:18 email string dated 3/3/09, production
16 12:34:18 numbers BACMBIA-X 0000006465 through
17 12:34:18 506.)
19 12:34:19 Q. I would like to show you an
20 12:34:21 exhibit previously marked as Exhibit 3896.
21 12:34:45 The cover email is from James
22 12:34:47 Baker to you among others, it is dated March
23 12:34:49 3, 2009. The attachment is entitled
24 12:34:55 Mortgage Investor Services, the first
25 12:34:58 attachment Mortgage Investor Services
Page 945
2 12:35:00 Workout Strategies Update Rep and Warrants
3 12:35:03 Monoline Discussion.
4 12:35:09 A. I'm sorry. I thought I was on
5 12:35:10 the right page. What page are you on?
6 12:35:13 Q. That is the first attachment to
7 12:35:14 the document.
8 12:35:14 A. Okay.
9 12:35:15 Q. Do you have that starting at
10 12:35:16 6466?
11 12:35:17 A. Yes.
12 12:35:18 Q. First, do you recall this
13 12:35:19 document?
14 12:36:00 A. I do recall it in preparing for
15 12:36:01 this. I don't recall specifically the
16 12:36:04 document, you know, at the time March 4,
17 12:36:08 2009.
18 12:36:11 Q. There is no doubt in your mind
19 12:36:13 you received it though?
21 12:36:17 A. I don't question whether I did.
22 12:36:19 It indicates I was part of the email
23 12:36:21 distribution. I would have expected to
24 12:36:22 receive a proposal from a group that I was
25 12:36:25 managing.
HIGHLY CONFIDENTIAL
32 (Pages 946 to 949)
Page 946
2 12:36:29 Q. If you turn to page 6468 under
3 12:36:35 the heading Mortgage Investor Services/Work
4 12:36:39 Out Strategies Organizational Overview. The
5 12:36:42 mission is described as "The MHEIS mortgage
6 12:36:47 investor services and workout strategies
7 12:36:50 group (WSG) has been tasked with the
8 12:36:55 enterprise wide risk management consolidated
9 12:36:57 reporting and loss mitigation strategies for
10 12:37:01 all inbound and outbound mortgage and
11 12:37:04 mortgage related contract based claims in
12 12:37:07 order to manage, mitigate as effectively as
13 12:37:10 possible all losses related thereto."
15 12:37:13 A. Yes.
16 12:37:15 Q. The inbound claims again would
17 12:37:17 be repurchase demands coming to Bank of
18 12:37:19 America, whereas outbound claims would be
19 12:37:22 claims that it made to other parties; is
20 12:37:25 that right?
23 12:37:28 A. In general the inbound would be
24 12:37:30 depending on what legal entity was getting
25 12:37:32 claimed, but Bank of America, Countrywide or
Page 947
2 12:37:35 some other entity, but, yes, that's
3 12:37:37 generally correct.
4 12:37:40 Q. What was the workout strategies
5 12:37:42 group?
6 12:37:46 A. Workout strategies group was
7 12:37:48 part of my organization. This goes back to
8 12:37:53 the earlier testimony around special
9 12:37:54 situations group. We ultimately ended up
10 12:37:59 using the workout strategies group as the
11 12:38:02 name for the group within the repurchase
12 12:38:04 world.
13 12:38:06 Since my portfolio was broader
14 12:38:07 than just repurchases at this time, that is
15 12:38:12 where the mortgage investor services come
16 12:38:14 in.
17 12:38:14 My organization I believe at
18 12:38:16 this time was referred to as mortgage
19 12:38:17 investor services and workout strategies
20 12:38:20 group with the latter of which was charged
21 12:38:23 with the repurchase activities I've
22 12:38:25 described.
23 12:38:28 Q. What was the function of the
24 12:38:30 mortgage investor services group?
25 12:38:37 A. I believe at the time that was
Page 948
2 12:38:38 our mortgage investor relations team that
3 12:38:43 basically managed the relations and
4 12:38:47 interactions with investors.
5 12:38:51 Q. Okay. The document states that
6 12:38:52 "WSG reports repurchase decisions and
7 12:38:56 production results to the repurchase
8 12:38:57 oversight group."
11 12:39:05 Q. Who was responsible for the
12 12:39:06 repurchase oversight group?
14 12:39:11 A. I don't think anybody was
15 12:39:13 responsible for the group. The group was
16 12:39:16 established as a regular management routine,
17 12:39:18 as I testified to earlier. With key
18 12:39:22 participants or key stakeholders as
19 12:39:25 participants.
20 12:39:26 It was a form as we were, as
21 12:39:28 the document indicates, providing updates
22 12:39:32 around operational activity. As I also
23 12:39:35 testified to, you know, soliciting input
24 12:39:37 from those key stakeholders.
25 12:39:39 Q. Were you a member of the ROG
Page 949
2 12:39:42 organization?
3 12:39:43 A. I am not sure there was actual
4 12:39:44 membership in this group. Again, I would
5 12:39:47 characterize it as a regular management
6 12:39:49 routine that was established to discuss
7 12:39:53 those activities we talked about. But, yes,
8 12:39:57 as the manager of this group I was a key
9 12:40:02 part of ROG.
10 12:40:04 Q. In the document it states that
11 12:40:05 ROG includes senior representatives, a group
12 12:40:08 of different organizations including
13 12:40:10 finance, accounting, legal, second line risk
14 12:40:13 and secondary marketing; do you see that?
16 12:40:16 Q. I would like to flip ahead to
17 12:40:23 slide 9, Bates number ending 6474. This is
18 12:40:29 entitled Production Update Monoline Segment.
20 12:40:33 A. Yes, I do.
21 12:40:34 Q. This reports on a new process
22 12:40:35 that was established as of November 2008 as
23 12:40:41 reflected in the second bullet under heading
24 12:40:44 New Process Established. Do you see that?
HIGHLY CONFIDENTIAL
33 (Pages 950 to 953)
Page 950
2 12:40:55 A. Yes.
3 12:40:56 Q. The process states, "Loans are
4 12:40:58 reviewed by three levels before repurchase.
5 12:41:04 Only repurchasing those loans considered red
6 12:41:06 faced."
8 12:41:08 A. Yes.
10 12:41:14 Q. To begin with, the new process
11 12:41:16 of only considering loans considered red
12 12:41:20 face was to limit repurchases to the most
13 12:41:23 egregious errors or breaches; correct?
15 12:41:26 A. Look, that's not my -- this
16 12:41:31 isn't my wording. I would not have worded
17 12:41:35 it that way. All I can tell you is given my
18 12:41:38 role and, you know, my awareness of what was
19 12:41:44 happening, you know, what I believe and,
20 12:41:47 again, not my words, but red faced, I
21 12:41:50 interpret that to mean where we don't, if we
22 12:41:54 don't have a credible basis on which to
23 12:41:56 appeal we shouldn't appeal the loans.
24 12:41:58 That's my understanding of that term.
25 12:42:01 Q. In other words --
Page 951
2 12:42:02 A. By the way, which is consistent
3 12:42:04 with the guidance we have always provided
4 12:42:06 the loan reviewers.
5 12:42:08 Q. In other words, you would only
6 12:42:09 repurchase the loans where you would have
7 12:42:13 to -- you can't pass the red face test in
8 12:42:16 denying the repurchase; right?
10 12:42:20 A. Again, not my words. Okay. I
11 12:42:23 can only tell you as the manager of this
12 12:42:27 group what, you know, guiding principles and
13 12:42:31 other guidance were passed down from me and
14 12:42:35 others in senior management roles.
15 12:42:39 Q. What was James Baker's
16 12:42:41 responsibility as of March 2009?
17 12:42:42 A. I recall James as being a part
18 12:42:47 of an operations group. I think at the time
19 12:42:51 managed by Jordan Cohen who in turn reported
20 12:42:54 to me.
21 12:42:58 And that group was responsible
22 12:42:59 for assisting in developing, enhancing and
23 12:43:05 furthering the processes that we either were
24 12:43:08 putting in place or expanding upon in this
25 12:43:11 area.
Page 952
2 12:43:12 Q. Do you know who was responsible
3 12:43:12 for drafting this slide, Production Update
4 12:43:16 Monoline Segment?
5 12:43:18 A. I do not.
6 12:43:19 Q. Do you recall expressing any
7 12:43:20 disagreement saying, look, it's not fair to
8 12:43:22 categorize our process as only repurchasing
9 12:43:26 loans considered red faced?
11 12:43:30 A. I don't recall. I don't recall
12 12:43:32 that, no.
13 12:43:34 Q. And I take it you agree that
14 12:43:36 the new process did require loans to be
15 12:43:38 reviewed by three different levels before
16 12:43:42 Bank of America would agree to repurchase
17 12:43:44 the loan?
19 12:43:47 A. I testified earlier that it is
20 12:43:49 my understanding we had multiple levels of
21 12:43:52 review for appeals and approvals. I didn't
22 12:43:57 know whether they were identical or not.
23 12:44:04 But I'll stop there.
24 12:44:07 Q. In terms of the three levels of
25 12:44:09 review, the first level would be the
Page 953
2 12:44:12 internal audit underwriter review; right?
4 12:44:20 A. Yes.
5 12:44:20 Q. And do you know what the second
6 12:44:22 level would be?
7 12:44:25 A. It would be some, you know,
8 12:44:27 management or more senior level review. But
9 12:44:32 I can't say specifically.
10 12:44:34 Q. That would include an approval
11 12:44:36 from the workout strategy group; right?
13 12:44:43 A. Sorry, for which claims are we
14 12:44:45 talking about specifically? I assume we're
15 12:44:47 talking, you know --
16 12:44:48 Q. Monoline claims.
17 12:44:51 A. Yes. My understanding was that
18 12:44:54 the workout strategies group would also
19 12:44:59 participate in that review of loan approvals
20 12:45:02 or claim approvals.
21 12:45:06 MR. SELENDY: I'm told we have
22 12:45:07 five minutes for the tape. So if you
23 12:45:09 want, we can stop for lunch.
24 12:45:18 MS. TROMBLEY: Lunch is supposed
25 12:45:20 to be at 1, but I can check.
HIGHLY CONFIDENTIAL
34 (Pages 954 to 957)
Page 954
2 12:45:23 MR. SELENDY: If you want we can
3 12:45:23 change the tape and continue on for
4 12:45:26 another 15 minutes.
5 12:45:26 MS. CONCANNON: Okay with another
6 12:45:26 15 minutes?
7 12:45:26 THE WITNESS: I'm fine.
9 12:45:28 12:45 p.m. This ends volume 3, tape 14
10 12:45:31 in the videotaped deposition of Michael
14 12:51:08 Exhibit 4048 for identification,
15 12:51:28 Monoline Strategy Presentation, November
16 12:51:30 2008, production numbers BACMBIA-G
17 12:51:09 000001458 through 490.)
19 12:51:11 12:51 p.m. This begins volume 3, tape
20 12:51:18 15, in the videotaped deposition of
21 12:51:20 Michael Schloessmann. We are on the
22 12:51:22 record. EXAMINATION CONDUCTED BY MR.
23 12:51:23 SELENDY:
24 12:51:23 Q. I would like to show you a
25 12:51:25 document I marked as Exhibit 4048 entitled
Page 955
2 12:51:27 Monoline Strategy Presentation, November
3 12:51:30 2008.
4 12:52:06 I'd like to focus your
5 12:52:08 attention on slide 20 which is the Bates
6 12:52:10 number ending in 1477. This states under
7 12:52:24 the heading Suggested Path to Resolution,
8 12:52:27 first bullet point, "Convince monolines to
9 12:52:29 forego litigation for negotiated resolution
10 12:52:31 process."
11 12:52:34 And below that "Undertake
12 12:52:36 critical and reasonable internal review of
13 12:52:38 issues raised by monolines. Quickly
14 12:52:42 repurchase loans where position is weakest
15 12:52:44 to build credibility and eliminate 'poster
16 12:52:48 children.'"
18 12:52:52 A. Yes.
19 12:52:56 Q. That refers essentially to
20 12:52:58 repurchasing the red faced loans, the poster
21 12:53:00 children of bad underwriting; doesn't it?
23 12:53:05 A. This was not my work product.
24 12:53:06 So, I don't know what was actually meant by
25 12:53:10 it.
Page 956
2 12:53:12 Q. Do you recall having a
3 12:53:12 discussion where this presentation was
4 12:53:14 delivered?
5 12:53:20 A. I don't recall a specific
6 12:53:21 discussion as to the presentation. I have a
7 12:53:29 general sort of familiarity, you know,
8 12:53:32 general recollection. But, again, nothing
9 12:53:36 specific that I can recall anyway.
10 12:53:37 Q. Do you recall whether this
11 12:53:40 strategy in fact was adopted to quickly
12 12:53:42 repurchase loans where the position is
13 12:53:45 weakest in order to eliminate poster
14 12:53:48 children --
16 12:53:49 Q. -- for bad underwriting?
18 12:53:55 A. Does this particular tactic or
19 12:53:57 the strategy in terms of resolution?
20 12:53:58 Q. The general strategy of buying
21 12:54:01 back the red faced loans or poster children
22 12:54:03 of bad underwriting.
24 12:54:09 A. I recall and know that it was
25 12:54:13 our practice to buy back loans that we felt
Page 957
2 12:54:18 we had no contractual basis, credible
3 12:54:22 contractual basis on which to appeal, as I
4 12:54:25 stated earlier.
5 12:54:26 So, I believe that that was
6 12:54:31 being done all along.
7 12:54:35 Q. And was it the strategy, as the
8 12:54:38 prior exhibit suggested, to only repurchase
9 12:54:41 the loans considered red faced?
11 12:54:50 A. The strategy was to, you know,
12 12:54:52 the overall strategy that so long as I
13 12:54:56 managed the group or recollect providing
14 12:54:59 guidance to the group has always been, you
15 12:55:03 know, the vigorous, yet credible defense of
16 12:55:07 claims consistent with our contractual
17 12:55:09 obligations.
18 12:55:11 That is the mantra that is most
19 12:55:13 familiar to me and as the leader of the
20 12:55:14 group recall providing that guidance, you
21 12:55:22 know, basically since inception.
22 12:55:27 Q. With respect to MBIA, isn't it
23 12:55:29 fair to say that the strategy you adopted
24 12:55:31 was to cease repurchases virtually all
25 12:55:36 together?
HIGHLY CONFIDENTIAL
35 (Pages 958 to 961)
Page 958
3 12:55:41 A. That's not my understanding at
4 12:55:43 all.
5 12:55:45 Q. Do you have an understanding of
6 12:55:46 the number of repurchases that Bank of
7 12:55:48 America has made with respect to the MBIA
8 12:55:50 demands?
10 12:55:55 A. I don't know the number.
11 12:56:02 Q. Is it fair to say the only
12 12:56:04 loans that BofA repurchased with respect to
13 12:56:07 the MBIA repurchase demands were those that
14 12:56:10 it felt it had no possible basis of
15 12:56:14 rebutting?
17 12:56:18 A. I think you're
18 12:56:19 mischaracterizing what I said. We do not --
19 12:56:24 we would buy back certainly loans where we
20 12:56:26 did not have a credible basis for appeal.
21 12:56:30 I know that is the guidance
22 12:56:32 that I know has existed as far back as I can
23 12:56:36 remember. But I wouldn't, you know, I
24 12:56:41 wouldn't necessarily limit all repurchases
25 12:56:46 to that standard. But I would consider and
Page 959
2 12:56:49 do consider that standard to be, you know, a
3 12:56:55 line, if you will below which we weren't,
4 12:56:58 you know, conducting activities. We are not
5 12:57:01 appealing anything we didn't have a credible
6 12:57:03 basis for appeal.
7 12:57:04 Q. Did Scott Kurzban set the
8 12:57:06 standard for how investor audit would review
9 12:57:09 the loans that were submitted for repurchase
10 12:57:11 demands?
12 12:57:14 A. I don't know exactly what
13 12:57:16 Scott's role was in establishing standard.
14 12:57:20 I've tried to articulate, you know, the
15 12:57:22 standard in terms of, you know, that we used
16 12:57:25 and the broader group used to make a
17 12:57:28 decision whether to approve or appeal a
18 12:57:33 loan.
19 12:57:34 Q. Do you know what Mr. Kurzban's
20 12:57:36 responsibility was as of November 2009?
21 12:57:42 A. I think at that time Scott
22 12:57:44 managed the operations group I had alluded
23 12:57:48 to earlier as part of the question regarding
24 12:57:53 James Baker.
25 12:57:54 Scott replaced or moved into
Page 960
2 12:57:56 Jordan Cohen's role when Jordan left. So
3 12:57:59 Scott was responsible for the operational
4 12:58:03 function, not the investor audit, you know,
5 12:58:05 the claims management piece of it, but
6 12:58:08 building and enhancing the processes we
7 12:58:10 needed in place to execute our
9 12:58:13 Q. How do you distinguish between
10 12:58:15 Mr. Kurzban's responsibilities for the
11 12:58:18 operational function from responsibilities
12 12:58:20 for internal audit?
13 12:58:24 A. Investor audit?
14 12:58:25 Q. Investor audit, excuse me.
15 12:58:27 Yes.
16 12:58:29 A. As I said, investor audit
17 12:58:32 specifically was charged with reviewing and
18 12:58:35 responding to loan level claims that we
19 12:58:37 received.
20 12:58:39 Scott's group was responsible
21 12:58:41 for devising, building, enhancing, you know,
22 12:58:49 the various processes we needed both in
23 12:58:54 investor audit, but also elsewhere in our
24 12:58:57 organization to execute our
Page 961
2 12:59:01 Q. Right. So Mr. Kurzban had
3 12:59:03 responsibility across the organization,
4 12:59:06 including as to processes in internal audit;
5 12:59:08 correct?
7 12:59:12 A. As to, yeah, we would have a
8 12:59:13 role in any work flow, redesigns, process
9 12:59:19 improvements, that kind of thing, it could
10 12:59:22 be investor audit, it could be outside of
11 12:59:25 investor audit still within the broader
12 12:59:28 organization that I managed.
16 12:59:28 CWMBIA 0018629284 through 302.)
19 12:59:31 document I've marked as Exhibit 4049 which
20 12:59:34 is a November 3rd, 2009 email from Mr.
21 12:59:38 Kurzban to yourself, among others, attaching
22 12:59:42 a draft presentation for investor audit.
23 13:00:14 And if you look at the first
24 13:00:16 page of the presentation, the main paragraph
25 13:00:21 states, after the "good morning and
HIGHLY CONFIDENTIAL
36 (Pages 962 to 965)
Page 962
2 13:00:23 welcome," states, "I am Michael Schloessmann
3 13:00:26 and I am the executive in charge of the
4 13:00:28 workout strategies group."
6 13:00:31 A. I do.
7 13:00:32 Q. Is this a presentation that you
8 13:00:33 delivered?
9 13:00:37 A. I don't know -- I have specific
10 13:00:38 recollection of doing a so called town hall
11 13:00:42 meeting with the investor audit team in West
12 13:00:47 Lake around this time. I don't know what
13 13:00:51 was the final, you know, version of the
14 13:00:54 presentation that we used, if any.
15 13:01:00 I don't recall using a script,
16 13:01:03 it would have been my natural inclination
17 13:01:05 not to have something this scripted. So I'm
18 13:01:08 not really sure whether this ended up being
19 13:01:11 the presentation.
20 13:01:15 Q. Do you recall whether you
21 13:01:15 developed the points in this presentation
22 13:01:17 with Mr. Kurzban?
23 13:01:21 A. I have general recollection of
24 13:01:22 charging Scott with overseeing the putting
25 13:01:28 together of the town hall and would have
Page 963
2 13:01:30 expected Scott in his role to at least take
3 13:01:34 a first crack at coming up with the agenda
4 13:01:37 he thought was appropriate. And this could
5 13:01:43 very well be that.
6 13:01:44 Again, I don't know where this
7 13:01:46 ultimately ended up and what, if anything,
8 13:01:49 we actually presented.
9 13:01:52 Q. If you turn to page 292, slide
10 13:02:02 8 of the presentation. There is a box
11 13:02:03 entitled The Importance and Role of Investor
12 13:02:06 Audit. Do you see that?
13 13:02:07 A. Yes.
14 13:02:09 Q. Here in your presentation it
15 13:02:11 states, under the second point, the role of
16 13:02:13 investor audit, that "The underwriter's role
17 13:02:18 is an advocacy role. With underwriting only
18 13:02:21 being one aspect of the job duties. We must
19 13:02:24 defend BAC vigorously as an advocate while
20 13:02:27 working with the facts and doing the right
21 13:02:29 thing. Good loan/bad loan not the issue."
23 13:02:36 A. Yes.
24 13:02:40 Q. What was the meant by the
25 13:02:41 statement that the underwriter's role is an
Page 964
2 13:02:43 advocacy role?
4 13:02:45 A. So, again, this was not my work
5 13:02:50 product. It was, you know, ostensibly
6 13:02:53 prepared for me. So I can tell you what my
7 13:02:58 underwriting of investor audit's role and
8 13:03:01 what I would have tried to communicated then
9 13:03:04 during the town hall and elsewhere.
10 13:03:07 And that is they have a very
11 13:03:09 specific function. Again, taking us back to
12 13:03:15 acting in a manner consistent with our
13 13:03:17 contractual obligations, the underwriter's
14 13:03:21 job specifically is to review the claims
15 13:03:25 that come in against the applicable
16 13:03:30 contractual standard and render a decision
17 13:03:33 based on that.
18 13:03:36 We are not required to do a
19 13:03:38 full re-underwriting of a loan or other
20 13:03:42 loans, right. And so we were trying to
21 13:03:47 ground underwriters, many of whom came from
22 13:03:50 the origination side of the business where
23 13:03:52 they were accustom to one process, we were
24 13:03:55 trying to ground them in the practice of
25 13:03:58 this particular area, which is entirely
Page 965
2 13:04:01 different. And that is a process that
3 13:04:06 results in trying to make assessments based
4 13:04:08 on what the claimant is providing and what
5 13:04:13 the contracts require.
6 13:04:16 So that is my understanding of
7 13:04:18 what Scott is trying to get at here. We
8 13:04:21 were not interested necessarily in -- we
9 13:04:26 didn't want underwriters to, for instance,
10 13:04:29 you know, they may have their own opinions
11 13:04:30 about the liberalizing of credit
12 13:04:35 industry-wide that everybody signed onto in
13 13:04:37 buying loans with higher LTVs, more limited
14 13:04:40 documentation. That wasn't the point of the
15 13:04:42 exercise.
16 13:04:43 The exercise was very specific.
17 13:04:45 Is that there is a burden that claimants
18 13:04:48 have to sustain, having bought the loan,
19 13:04:50 assumed the risk when they wanted to put a
20 13:04:52 loan back. And we wanted to make very clear
21 13:04:54 that underwriters understood what that
22 13:04:58 specific role and responsibility was.
23 13:04:59 So, that is what I -- that is
24 13:05:03 clearly my understanding of the process,
25 13:05:05 what I have tried to communicate, you know,
HIGHLY CONFIDENTIAL
37 (Pages 966 to 969)
Page 966
2 13:05:08 without exception or variation for any
3 13:05:11 number of years and what I think is what
4 13:05:14 Scott is trying to convey, although again I
5 13:05:17 can't be sure because this is his work
6 13:05:19 product, or appears to be.
7 13:05:22 Q. So the investor audit function
8 13:05:24 is not to re-underwrite a loan, but to rebut
9 13:05:27 the repurchase demand, if possible?
11 13:05:30 Q. Is that fair?
12 13:05:31 A. I think generally, yes.
13 13:05:35 Q. And is that why the
14 13:05:37 underwriter's role in investor audit is an
15 13:05:39 advocacy role?
17 13:05:42 A. I would -- so my understanding
18 13:05:45 of what Scott is getting at is that what we
19 13:05:52 wanted underwriters and we expect
20 13:05:53 underwriters and the rest of the team to
21 13:05:56 vigorously, yet credibly review and respond
22 13:06:00 to every claim.
23 13:06:00 As part of that vigorous, yet
24 13:06:02 credible defense we viewed it as important
25 13:06:05 given that we were often times responding
Page 967
2 13:06:10 expansively based on our findings so that
3 13:06:12 the claimant understood why we were
4 13:06:15 appealing the loan, if in fact we were
5 13:06:17 appealing the loan is that we needed to
6 13:06:21 write those responses in a competent, you
7 13:06:25 know, persuasive way so that somebody
8 13:06:27 sitting on the other end would understand
9 13:06:29 where we were coming from.
10 13:06:31 And so, whether you want to
11 13:06:33 call it an advocacy role or just, I would
12 13:06:36 look at it more as, you know, writing a
13 13:06:40 competent, yet persuasive response
14 13:06:45 consistent with what facts we had discovered
15 13:06:47 in our review of the claim.
16 13:06:51 Q. Why is good loan/bad loan not
17 13:06:53 the issue?
19 13:06:59 A. Well I wouldn't characterize it
20 13:07:00 as good loan, bad loan. Again, I tried to
21 13:07:04 offer what I think Scott is getting at based
22 13:07:06 on the guidance that I provided, my
23 13:07:08 understanding of the process and what we
24 13:07:10 were trying to inculcate to the group in
25 13:07:12 terms of an approach to their jobs.
Page 968
2 13:07:15 Okay. It wasn't to be viewed,
3 13:07:18 again, many of these underwriters having
4 13:07:21 come from the origination side that were
5 13:07:23 accustom to doing a soup to nuts
6 13:07:27 underwriting of a loan prior to origination,
7 13:07:29 okay.
8 13:07:32 We were trying to make sure
9 13:07:33 they understood this role and our
10 13:07:35 responsibilities were very different. And
11 13:07:39 that the goal was to, again, address
12 13:07:41 specifically what was being claimed,
13 13:07:46 specifically thought fully, credibly what
14 13:07:48 was being claimed and respond appropriately.
15 13:07:50 Q. So you were telling the
16 13:07:54 underwriters in investor audit that even if
17 13:07:56 they never would have underwritten the loan,
18 13:07:58 that doesn't mean that BAC should repurchase
19 13:08:01 the loan?
22 13:08:03 Q. Right?
23 13:08:05 A. Well, I would choose to
24 13:08:08 describe it the way I think already did. We
25 13:08:12 didn't want underwriters to be applying
Page 969
2 13:08:16 the -- applying hindsight to their
3 13:08:23 assessments as many in the industry are
4 13:08:26 doing.
5 13:08:26 Okay. So it is not a matter
6 13:08:28 of, again, would an underwriter have made a
7 13:08:31 90 percent CLTV loan to a borrower with a
8 13:08:35 FICO score of X. That wasn't part of the
9 13:08:38 assessment. Right.
10 13:08:41 The industry signed up to
11 13:08:44 broader credit parameters. So knowing what
12 13:08:46 we know now today right, is not an
13 13:08:55 appropriate source of calibration for what
14 13:08:56 existed back then.
15 13:08:57 We were trying to, you know,
16 13:09:00 ensure that the process was not infused with
17 13:09:03 people making judgments two, three, four,
18 13:09:07 five years after the fact, inappropriately
19 13:09:10 so.
20 13:09:10 Q. How could a loan that the
21 13:09:13 underwriter never would have underwritten be
22 13:09:15 regarded as originated consistently with
23 13:09:19 prudent underwriting standards?
25 13:09:23 A. Again, I'll restate that I
HIGHLY CONFIDENTIAL
38 (Pages 970 to 973)
Page 970
2 13:09:25 would not have, I would not have described
3 13:09:30 this as good loan/bad loan, not important.
4 13:09:33 I've tried to describe what I
5 13:09:38 interpret that as meaning, both based on,
6 13:09:41 based principally on what our guidance,
7 13:09:45 prevailing guidance was at the time. And
8 13:09:47 really throughout the process.
9 13:09:49 That's all I can offer given
10 13:09:51 this isn't, you know, a document I prepared.
11 13:09:54 Q. So you're not able to answer my
12 13:09:56 question?
14 13:09:57 A. I thought I answered it the
15 13:09:59 best I could.
16 13:10:02 Q. Your head of operations, Mr.
17 13:10:04 Kurzban in preparing the points for you said
18 13:10:07 "good loan/bad loan not the issue" right?
19 13:10:09 A. He appears to have written
20 13:10:11 that, correct.
21 13:10:12 Q. Also if you look further down
22 13:10:14 the page he asks the question "How many
23 13:10:16 people have seen a loan that they would
24 13:10:18 never underwrite?"
25 13:10:21 Then further down "does that
Page 971
2 13:10:22 mean that we repurchase the loan?
3 13:10:25 "The answer is simply, no."
5 13:10:28 A. Yes.
6 13:10:29 Q. So, again, sir, isn't it
7 13:10:35 correct the message coming from operations
8 13:10:37 and your group to the underwriters in
9 13:10:38 investor audit was that even if they see
10 13:10:43 loans they never would have underwritten
11 13:10:45 they should not agree to repurchase it
12 13:10:47 despite the fact, as you stated earlier
13 13:10:50 today that virtually all of these agreements
14 13:10:52 have a prudent underwriting standard?
16 13:10:55 Q. Isn't that right?
18 13:10:59 A. I don't -- so, first of all, I
19 13:11:01 see this written as you've described. I
20 13:11:03 testified earlier that this was -- that I
21 13:11:08 view it as doubtful that I would have used
22 13:11:11 this version or would have been scripted
23 13:11:14 like this. I myself would not have
24 13:11:17 described it exactly that way. I tried to
25 13:11:24 offer up what I think Scott is getting at
Page 972
2 13:11:28 based on what the prevailing guidance was at
3 13:11:30 that time and for the duration.
4 13:11:34 So it's -- I feel like I am
5 13:11:37 going to give the same answer for the third
6 13:11:38 time and I don't want to do that. So --
7 13:11:40 Q. I understand you're saying Mr.
8 13:11:42 Kurzban was inartful in his words here.
9 13:11:45 Isn't it the case effectively the message
10 13:11:47 that was being delivered to the underwriters
11 13:11:49 in investor audit notwithstanding the
12 13:11:53 prudent underwriting representation and
13 13:11:56 warranty, they should not feel that BAC
14 13:11:58 would repurchase or should repurchase loans
15 13:12:02 that the underwriter never would have
16 13:12:04 underwritten?
18 13:12:05 A. Look, so I'll say this, we have
19 13:12:10 unquestionably repurchased many loans where
20 13:12:15 a claimant has demonstrated that we did not
21 13:12:21 follow prudent underwriting. And where
22 13:12:22 there is a prudent underwriting
23 13:12:24 representation and warranty. It is
24 13:12:26 unquestionably true with respect to many
25 13:12:28 loans.
Page 973
2 13:12:31 The other thing that comes to
3 13:12:32 mind that I didn't allude to earlier, part
4 13:12:35 of this, perhaps a good part of this was
5 13:12:37 also to ground underwriters in the
6 13:12:43 appropriate scope of their responsibilities.
7 13:12:45 Which again keeps going back to the
8 13:12:47 contract. It doesn't matter whether you
9 13:12:49 would have made a loan, okay. Could or
10 13:12:51 could not.
11 13:12:52 Basically it's saying, look,
12 13:12:54 don't judge it with all that hindsight and
13 13:12:57 everything you think you know about whether
14 13:13:00 lenders should have been doing the kind of
15 13:13:02 loans they were doing.
16 13:13:03 Look at the unique facts and
17 13:13:05 circumstances on a given loan, right.
18 13:13:09 Juxtaposed with the contractual obligations
19 13:13:12 and make a good faith determination as to
20 13:13:15 whether we should buy that loan back or
21 13:13:17 whether we have a credible basis in which to
22 13:13:19 appeal. And when we do, do so
23 13:13:24 appropriately, competently and persuasively,
24 13:13:27 to my earlier testimony.
25 13:13:28 That's, when I consume what
HIGHLY CONFIDENTIAL
39 (Pages 974 to 977)
Page 974
2 13:13:31 Scott has put on this page, that's what it
3 13:13:36 means to me. That's how I believe I would
4 13:13:38 have described it.
5 13:13:42 Q. So you were telling the
6 13:13:43 underwriters to ignore their experience in
7 13:13:44 prudent underwriting and instead to look at
8 13:13:48 the contracts somehow without that?
10 13:13:51 A. No. Well, I am most definitely
11 13:13:54 not suggesting that. Where you have a
12 13:13:59 contractual representation and warranty that
13 13:14:01 goes to whether a loan was prudently
14 13:14:03 underwritten, obviously that would be an
15 13:14:08 appropriate consideration for an underwriter
16 13:14:13 to use their judgment and experience in
17 13:14:15 trying to assess whether that loan and facts
18 13:14:19 claimed to have occurred on that loan was in
19 13:14:21 fact prudent or imprudent.
20 13:14:24 I think in the scenario I just
21 13:14:26 described it would have been very much
22 13:14:29 appropriate to consider that.
23 13:14:30 Q. Okay. So do you think Mr.
24 13:14:32 Kurzban was simply wrong to say that BAC
25 13:14:35 should not repurchase a loan just because
Page 975
2 13:14:38 the underwriter never would have
3 13:14:40 underwritten the loan?
5 13:14:43 A. Inasmuch as one interpret that
6 13:14:46 as meaning prudent underwriting doesn't
7 13:14:48 matter in the face of a prudent underwriting
8 13:14:50 rep and warrant, I would say most definitely
9 13:14:53 it was wrong.
10 13:14:53 I am not suggesting, however,
11 13:14:55 that that's what it means or that's what
12 13:14:58 Scott meant.
13 13:15:00 MR. SELENDY: I think the food
14 13:15:01 may be here, so we can take a break for
15 13:15:03 lunch.
17 13:15:04 1:15 p.m. This ends tape 15, volume 3 in
18 13:15:09 the videotaped deposition of Michael
20
21 (Luncheon Recess: 1:15 p.m.)
22
23
24
25
Page 976
2 A F T E R N O O N S E S S I O N
3 2:15 p.m.
4
5 MICHAEL SCHLOESSMANN,
6 resumed, having been previously duly
7 sworn, was examined and testified
8 14:04:57 further as follows:
10 14:05:01 2:05 p.m. This begins tape 16, volume 3
15 14:05:19 Repurchase Oversight Group April 14th,
16 14:05:23 2009, production numbers BACMBIA-X
17 14:05:23 0000427844 through 866.)
18 14:05:13 CONTINUED EXAMINATION BY MR. SELENDY:
19 14:05:13 Q. Mr. Schloessmann, I am going to
20 14:05:15 show you Exhibit 4050 which is a
21 14:05:18 presentation entitled Repurchase Oversight
22 14:05:20 Group April 14th, 2009.
23 14:06:30 Have you seen this document
24 14:06:31 before?
25 14:06:32 A. If this was a ROG deck, as I
Page 977
2 14:06:40 mentioned, I would have in all likelihood
3 14:06:42 participated, as I regularly did. And I
4 14:06:45 would have expected to have seen this.
5 14:06:47 Q. Do you have any knowledge of
6 14:06:48 who prepared this deck?
7 14:06:53 A. I can't recall who in my
8 14:06:56 organization. It was definitely someone in
9 14:06:59 my organization that would have prepped
10 14:07:01 these or prepared the decks for each ROG
11 14:07:04 meeting.
12 14:07:04 I think those ROG meetings were
13 14:07:06 monthly. I can't remember who would have
14 14:07:10 done it at this time.
15 14:07:10 Q. What was the purpose of the
16 14:07:12 deck?
17 14:07:12 A. The purpose of the deck, I
18 14:07:15 would go back to my prior testimony in terms
19 14:07:16 of the purpose of ROG was a regular
20 14:07:21 management routine we established to inform
21 14:07:23 key stakeholders in the line of business and
22 14:07:29 solicit input on activities that were taking
23 14:07:33 place in our organization.
24 14:07:36 Q. Okay. Would you --
25 14:07:40 A. My organization, rather.
HIGHLY CONFIDENTIAL
40 (Pages 978 to 981)
Page 978
2 14:07:41 Q. Would you please turn to slide
3 14:07:43 10 of the deck it is the Bates number ending
4 14:07:51 427853. Here under the heading Policy
5 14:07:58 Considerations there is first a bullet that
6 14:08:00 says, "Monoline strategy."
7 14:08:03 Then a bullet that says,
8 14:08:04 "Approval matrix/decisioning calibration."
10 14:08:09 A. Yes.
11 14:08:11 Q. And under that the second
12 14:08:14 subpoint is "What should the red face
13 14:08:17 standard be?"
14 14:08:18 Do you see that? Was that a
15 14:08:20 yes?
16 14:08:21 A. Yes, I do see that.
17 14:08:24 Q. Okay. Do you recall the
18 14:08:24 discussion of how BAC should define the red
19 14:08:27 face standard for those loans that it would
20 14:08:31 agree to repurchase?
22 14:08:38 A. I don't recall any discussion
23 14:08:40 taking place in the context of what the red
24 14:08:41 face standard should be. And I can't recall
25 14:08:47 specifically discussions that happened
Page 979
2 14:08:51 around, you know, claim decisioning
3 14:08:54 calibration. It was not unusual.
4 14:08:57 And as I testified earlier, we
5 14:08:59 continued to do that to this day, assess and
6 14:09:03 evaluate claim decisioning. Calibration in
7 14:09:06 the terms of contractual obligations,
8 14:09:08 consistency across organization, things of
9 14:09:11 that nature.
10 14:09:12 So there is nothing special in
11 14:09:13 seeing decisioning calibration that makes me
12 14:09:16 recollect something, some particular
13 14:09:19 conversation.
14 14:09:19 Q. What does decisioning
15 14:09:21 calibration mean?
16 14:09:22 A. The manner in which, manner and
17 14:09:28 standards, you know, in which we basically
18 14:09:30 make assessment of whether to, you know,
19 14:09:35 whether basically a claim or claimant has
20 14:09:38 demonstrated a material breach inconsistent
21 14:09:41 with contractual obligations.
22 14:09:45 Q. Does BAC use different
23 14:09:48 decisioning calibration criteria for
24 14:09:52 different monoline insurers?
Page 980
3 14:09:57 A. We would use -- decisioning
4 14:10:01 calibration would be based principally on
5 14:10:03 the specific contract governing each
6 14:10:07 transaction that a monoline would have
7 14:10:09 wrapped. And to the extent those
8 14:10:12 contractual standards or contractual terms,
9 14:10:16 rather, were the same, then I would expect
10 14:10:19 the calibration to be likewise similar or
11 14:10:22 the same.
12 14:10:24 Q. Did BAC adopt different red
13 14:10:26 face standards for the repurchase of loans
14 14:10:28 from MBIA as opposed to other monoline
15 14:10:31 insurers?
17 14:10:34 A. I previously testified that I
18 14:10:35 don't recall specifically conversations
19 14:10:38 about what the red face standard should be.
20 14:10:41 I can only talk about ongoing
21 14:10:44 discussions that have been had around claim
22 14:10:47 decisioning calibration. And it is my
23 14:10:49 understanding that matters of claim
24 14:10:53 decisioning calibration were largely, if not
25 14:10:57 entirely, predicated on the contractual
Page 981
2 14:11:01 terms and our interpretation of those terms.
3 14:11:03 Q. Is it fair to say BAC
4 14:11:05 determined it would only repurchase the most
5 14:11:08 egregious loans from the MBIA repurchase
6 14:11:10 demands?
8 14:11:13 A. I don't recall that, a decision
9 14:11:15 of that type being made.
10 14:11:17 Q. Who would be responsible for a
11 14:11:18 decision of that type?
14 14:11:24 A. It would be our, my
15 14:11:26 organization that, in terms of matters of
16 14:11:30 policy would either formulate policy,
17 14:11:33 socialize that policy with key stakeholders
18 14:11:35 to ensure the appropriate buy-in or we would
19 14:11:39 be recipients of guidance perhaps from those
20 14:11:43 same key stakeholders basically in the, you
21 14:11:47 know, reverse direction.
22 14:11:48 It could be either/or. I would
23 14:11:52 assume in both cases I would during this
24 14:11:55 period of time have had awareness of any
25 14:11:59 such decision.
HIGHLY CONFIDENTIAL
41 (Pages 982 to 985)
Page 982
2 14:12:01 Q. Are you aware of any policy in
3 14:12:03 place at BAC with respect to repurchases of
4 14:12:06 loans from MBIA?
6 14:12:13 A. As in an MBIA specific
7 14:12:14 repurchase policy?
8 14:12:15 Q. Any policy that is effective as
9 14:12:17 to the processing of repurchase demands from
10 14:12:20 MBIA.
12 14:12:23 Q. That may or may not be
13 14:12:25 specific, I don't know.
14 14:12:26 A. I'm confused. We have policies
15 14:12:32 in place today and back then that would
16 14:12:34 clearly implicate MBIA loans as well as
17 14:12:38 other monoline loans, other private
18 14:12:42 investor, private investor loans, GSE loans.
19 14:12:45 So I'm not understanding what you're getting
20 14:12:47 at.
21 14:12:47 Q. Okay. I appreciate that. Are
22 14:12:49 you aware of any policy specifically in
23 14:12:51 place with respect to the repurchase of
24 14:12:53 loans from MBIA?
25 14:12:55 A. No, I'm not.
Page 983
2 14:12:56 Q. Are you aware of any criteria
3 14:12:58 that govern BAC's consideration of whether
4 14:13:01 to repurchase loans submitted by MBIA?
7 14:13:07 A. My awareness relates solely to
8 14:13:14 the need to review every claim on a loan
9 14:13:17 level basis in conjunction with contractual
10 14:13:20 terms and make a decision as to whether
11 14:13:23 claimant has demonstrated a breach. And to
12 14:13:26 respond accordingly.
13 14:13:27 I am not aware of any MBIA
14 14:13:31 specific policies around how we would
15 14:13:34 decision loans. Not contrary to what
16 14:13:38 standard I just laid out generally.
17 14:13:41 Q. Okay. Are you aware of any
18 14:13:42 review by the workout strategy group of
19 14:13:45 repurchase demands submitted by MBIA?
21 14:13:49 A. Am I aware of repurchase
22 14:13:50 demands submitted by?
23 14:13:52 Q. Any review by the workout
24 14:13:54 strategy group of repurchase demands
25 14:13:56 submitted by MBIA?
Page 984
2 14:14:00 A. Yes, I'm aware. By the way,
3 14:14:02 just for sake of clarity, you know, we have
4 14:14:06 multiple groups working on repurchase
5 14:14:10 demands, investor audit, claims management,
6 14:14:13 you know, work out strategies.
7 14:14:17 And the Jacksonville team that
8 14:14:19 we have used to assist us in the review and
9 14:14:25 response and overall engagement with the
10 14:14:27 monolines.
11 14:14:28 Q. What is the name of the
12 14:14:29 Jacksonville team?
13 14:14:30 A. I believe that is the special
14 14:14:32 assets group.
15 14:14:36 Q. Okay. So which groups had
16 14:14:37 responsibility for the review of the
17 14:14:39 repurchase demands submitted by MBIA?
19 14:14:44 A. So the responsibility resided
20 14:14:48 within my organization, you know, the
21 14:14:51 workout strategies group, subsequently
22 14:14:53 renamed, representations and warranties.
23 14:14:56 We did work very closely with
24 14:15:00 the special assets group in Jacksonville.
25 14:15:04 But they were doing that as part of our
Page 985
2 14:15:09 overall or basically assisting us with the
3 14:15:12 review of claims. But it was under the rep
4 14:15:14 and warrant or workout strategies group
5 14:15:17 auspices.
6 14:15:18 Q. Did other groups within BAC
7 14:15:20 have involvement?
10 14:15:26 A. In a particular form?
11 14:15:29 Q. In the processing of the
12 14:15:31 repurchase demands submitted by MBIA.
13 14:15:35 A. I don't believe so.
14 14:15:38 Q. What role was taken by the
15 14:15:40 special assets group as opposed to the
16 14:15:44 general function under the rep and warrant
17 14:15:47 or workout strategies group?
19 14:15:49 A. I view it as a part of the
20 14:15:55 workout strategies or workout strategies is
21 14:15:58 all encompassing, you know, post early 2009.
22 14:16:01 So looking at the strategy side
23 14:16:06 of things versus the actual loan level
24 14:16:08 review I would characterize Jacksonville's
25 14:16:14 involvement as part of that strategy, that
HIGHLY CONFIDENTIAL
42 (Pages 986 to 989)
Page 986
2 14:16:18 check and balance I had mentioned earlier
3 14:16:20 where we wanted a team in terms of these
4 14:16:23 processes that were not as mature or fully
5 14:16:27 developed as say the GSEs which went back
6 14:16:30 many years to have that check and balance in
7 14:16:32 place between internal audit and workout or
8 14:16:35 the strategy component of workout
9 14:16:38 strategies.
10 14:16:38 I viewed Jacksonville as a
11 14:16:41 component part of that strategy piece. Even
12 14:16:44 though it wasn't a formal reporting
13 14:16:48 relationship.
14 14:16:49 Q. So, are you able to spell out
15 14:16:50 what parts of the strategy function were
16 14:16:52 performed by the Jacksonville group with
17 14:16:54 respect to the MBIA repurchase demands?
19 14:16:59 A. I can speak in general.
20 14:17:01 Q. Okay.
21 14:17:02 A. I'm not aware of any specific
22 14:17:05 variations, you know, monoline by monoline.
23 14:17:08 In general as it pertains to the monolines
24 14:17:10 which was the counterparty segment that we
25 14:17:14 sought to utilize Jacksonville's assistance,
Page 987
2 14:17:18 they would have done the activities I had
3 14:17:24 previously mentioned in connection with my
4 14:17:27 organization's role before we merged with
5 14:17:29 investor audit.
6 14:17:31 And that would be the
7 14:17:32 contractual vetting, consultation with legal
8 14:17:35 over, you know, all matters relating to
9 14:17:39 contractual obligations and other issues
10 14:17:41 implicating legal. It would be the
11 14:17:45 counterparty interaction and engagement. So
12 14:17:50 the day-to-day dialogue with those
13 14:17:52 counterparties.
14 14:17:54 It would also have a component
15 14:17:56 that related to the aforementioned review of
16 14:18:00 internal audit's claim review and
17 14:18:05 assessment, right. Along the lines what I
18 14:18:07 had suggested earlier the check and balance,
19 14:18:10 insuring compliance with contractual
20 14:18:13 standards, those were being properly
21 14:18:15 interpreted and operationalized in the form
22 14:18:18 of the claims. And also ensuring
23 14:18:20 consistency across a broad array of
24 14:18:23 underwriter or reviewers, rather, and
25 14:18:27 claims.
Page 988
2 14:18:31 Q. Did the special assets group
3 14:18:33 interface with the internal audit group with
4 14:18:35 respect to how those loans should be
5 14:18:37 re-underwritten?
7 14:18:39 A. The investor audit group?
8 14:18:42 Q. Yes.
9 14:18:43 A. Yes.
10 14:18:45 Q. Excuse me, let me just restate
11 14:18:46 the question. Did the special assets group
12 14:18:49 interface with the investor audit group in
13 14:18:53 determining how the loans that were the
14 14:18:55 subject of the MBIA repurchase demands
15 14:18:58 should be re-underwritten?
17 14:19:02 A. Yes. They did so with respect
18 14:19:04 to all of the monoline insurer claims.
19 14:19:06 Q. Who was in charge of the
20 14:19:07 special assets group?
21 14:19:08 A. Susan Welsh.
22 14:19:10 Q. For what period of time was she
23 14:19:12 in charge of that group?
24 14:19:19 A. For the duration of my
25 14:19:20 involvement beginning in August or September
Page 989
2 14:19:26 of '80 or thereabouts. All the way up to
3 14:19:30 today.
4 14:19:32 Q. Okay. Do you know how it was
5 14:19:34 decided that the special assets group should
6 14:19:36 have the responsibilities you described in
7 14:19:39 connection with the monoline loans?
8 14:19:42 A. Yes.
9 14:19:42 Q. How was that decided?
10 14:19:45 A. It occurred, as I said earlier
11 14:19:47 in 2008, as we were, you know, faced with
12 14:19:54 rising claim volumes and we were trying to
13 14:19:58 stand up a process to address those claims
14 14:20:04 and all the assorted activities that I
15 14:20:06 already testified to.
16 14:20:09 It came to my attention, from
17 14:20:12 whom I don't recall specifically, that Susan
18 14:20:15 Welsh's team might be able to assist, you
19 14:20:19 know, given we were trying to react as
20 14:20:21 quickly as we could in a commercially
21 14:20:25 reasonable way. And the fact she might have
22 14:20:28 had relevant experience.
23 14:20:30 So, I began a dialogue with
24 14:20:31 Susan. And it was later determined by me
25 14:20:35 and perhaps others it would be in our best
HIGHLY CONFIDENTIAL
43 (Pages 990 to 993)
Page 990
2 14:20:40 interest to leverage that experience and
3 14:20:45 bandwidth in the monoline segment given what
4 14:20:48 we were seeing in terms of our claim
5 14:20:51 experience.
6 14:20:53 Q. What was the relevant
7 14:20:54 experience that Ms. Welsh had?
8 14:21:01 A. I believe she had -- I know she
9 14:21:04 had prior experience with at least one
10 14:21:10 monoline. This would have been I believe a
11 14:21:13 legacy bank issue with a monoline years
12 14:21:16 prior to when I began to, you know, speak
13 14:21:20 with Susan about a role for her group.
14 14:21:26 And I think just part of her
15 14:21:28 normal day-to-day responsibilities even at
16 14:21:30 that time, 2008 was such that, I can't
17 14:21:34 remember the particulars, but that the
18 14:21:36 experience that she had in her scope of
19 14:21:38 responsibilities seemed to have some
20 14:21:42 relevant common component to what we were
21 14:21:45 trying to accomplish.
Page 991
3 12:34:19 Q. I am going to show you
4 14:21:50 Exhibit 3979, previously marked.
5 14:22:12 This is an email that attaches
6 14:22:14 a document described as Approval Matrix
7 14:22:16 Procedures. Also a separate attachment that
8 14:22:19 is Repurchase Approval Process.
9 14:22:25 First of all, do you know the
10 14:22:27 function of Kathryn Martin who sent the
11 14:22:29 document?
13 14:22:35 A. Yes.
14 14:22:35 Q. What was her responsibility
15 14:22:37 back in April of 2009?
16 14:22:42 A. Kathryn was in my organization,
17 14:22:45 she was a direct report of mine. She
18 14:22:47 managed the, what I think we referred to as
19 14:22:51 the private investor segment. So those
20 14:22:55 would be managing claims we received from
21 14:22:59 whole loan investors and I believe at the
22 14:23:02 time private label securitization investors.
23 14:23:04 Then she was also responsible
24 14:23:07 for what we referred to I think at the time
25 14:23:09 as general services. So transaction
Page 992
2 14:23:11 related, transaction management related
3 14:23:14 functions associated with repurchase
4 14:23:16 activity.
5 14:23:17 The different segments would
6 14:23:18 leverage off of Kathryn's team that had the
7 14:23:23 core skill set along the lines of contract
8 14:23:26 finance and basically that was of a
9 14:23:29 transactional nature.
10 14:23:30 So in anything we were doing
11 14:23:32 that involved, you know, contracts or signed
12 14:23:35 contracts could be settlements or something
13 14:23:37 else, as well as sort of the operational
14 14:23:39 detail around transactions would reside in
15 14:23:42 Kathryn's group.
16 14:23:44 Q. Do you know what the approval
17 14:23:46 matrix procedures are?
18 14:23:50 A. I know what the purpose of the
19 14:23:52 approval matrix is and was at this time.
20 14:23:55 Q. What was the purpose?
21 14:23:59 A. It was to basically codify
22 14:24:02 governance standards for how repurchase
23 14:24:07 claims individually and in the aggregate
24 14:24:08 could be approved to ensure we had the
25 14:24:13 proper oversight before we transacted any
Page 993
2 14:24:22 settlements or loan level decisioning.
3 14:24:25 Q. Okay. That's reflected in the
4 14:24:26 heading Purpose at the top of the memo;
5 14:24:28 right? Saying "The purpose of the approval
6 14:24:31 matrix is to ensure repurchase
7 14:24:33 decision-making authority is granted to the
8 14:24:35 proper level of the organization based on
9 14:24:38 set authority limits that aim to contain
10 14:24:40 risk and ensure adequate management review
11 14:24:43 commensurate with exposure."
13 14:24:46 Q. That's part of it?
14 14:24:47 A. Yes. That's even better,
15 14:24:50 better said.
16 14:24:51 Q. In the third subheading,
17 14:24:57 Approval Authority Limits, it states, "Loans
18 14:25:00 recommended for approval as a result of an
19 14:25:02 underwriting review will be screened based
20 14:25:04 on the characteristics of the loan (Actual
21 14:25:08 or projected loss, number of borrower
22 14:25:11 payments made and delinquent status), the
23 14:25:15 characteristics of the counterparty
24 14:25:17 relationship (Whether active litigation is
25 14:25:19 underway and what internal segment the
HIGHLY CONFIDENTIAL
44 (Pages 994 to 997)
Page 994
2 14:25:22 claimant resides in) and the rep and
3 14:25:25 warranty repurchase history month-to-date to
4 14:25:29 determine the tier and employees authorized
5 14:25:33 to approval the repurchase."
7 14:25:38 A. Yes.
8 14:25:39 Q. So let's start with the first
9 14:25:40 point. She states "There is screening based
10 14:25:42 on loan characteristics, characteristics of
11 14:25:47 the counterparty relationship and the rep
12 14:25:49 and warranty repurchase history."
13 14:25:51 Starting with the first, the
14 14:25:52 loan characteristics, what is your
15 14:25:55 understanding of the screening based on
16 14:25:57 actual or projected loss of the loan?
18 14:26:08 A. My understanding of the -- I am
19 14:26:11 not sure I'd call it screening, even if
20 14:26:13 somebody else did, really just that we
21 14:26:19 would -- our repurchase approval framework
22 14:26:22 and levels required to approve a particular
23 14:26:24 transaction was influenced in part or
24 14:26:29 dictated in part by the magnitude of
25 14:26:32 exposure.
Page 995
2 14:26:32 So, understandably the greater
3 14:26:38 the financial exposure, the more likely it
4 14:26:42 is you'd want a higher level employee or
5 14:26:45 employees reviewing that decision since once
6 14:26:50 done it cannot be undone.
7 14:26:54 Q. What would the projected loss
8 14:26:55 refer to, by contrast to actual loss?
9 14:26:59 A. Just a point in time in a
10 14:27:01 loan's life-cycle. If it was a liquidated
11 14:27:04 loan, so it had gone through foreclosure,
12 14:27:07 the property disposed of and the trust
13 14:27:09 having realized the inactual loss it would
14 14:27:13 be actual. If it were at some stage of
15 14:27:15 default, for instance, where it has been
16 14:27:17 foreclosed, but the property hasn't been
17 14:27:19 sold and liquidation proceeds had not been
18 14:27:21 passed through, we would be making a
19 14:27:25 projection based on internal model of what
20 14:27:27 that loss would be.
21 14:27:28 Q. That would also apply to loans
22 14:27:30 that had not yet defaulted; right?
24 14:27:33 A. Yes. If they were, if they
25 14:27:36 were up for consideration for a repurchase
Page 996
2 14:27:39 transaction, that is correct.
3 14:27:41 Q. Then with respect to the second
4 14:27:44 screening that she refers to,
5 14:27:47 characteristics of the counterparty
6 14:27:48 relationship, she states, "Whether active
7 14:27:52 litigation is underway."
8 14:27:55 Let me just pause right there.
9 14:27:57 How did that affect the approval authority
10 14:28:01 whether there was active litigation underway
11 14:28:03 or not?
13 14:28:05 A. I'm not really sure the exact
14 14:28:08 manner it would have at this time, in '09.
15 14:28:11 Generally I recall the concern
16 14:28:17 being we wanted to ensure appropriate
17 14:28:19 awareness at a potentially more senior level
18 14:28:24 before doing certain types of transactions.
19 14:28:26 It could be settlement transactions and the
20 14:28:28 fact we are in litigation with a party, you
21 14:28:34 know, was one reason we would want again a
22 14:28:37 more senior or seasoned set of eyes or sets
23 14:28:41 of eyes reviewing that. Because it had
24 14:28:44 potential implications for elsewhere outside
25 14:28:47 of the group, including our internal and
Page 997
2 14:28:52 external legal that might be, you know,
3 14:28:54 charged with managing such litigation.
4 14:28:58 Q. Do you know what it means to
5 14:29:00 say that "the internal segment of the
6 14:29:04 claimant" would be relevant to the
7 14:29:06 counterparty relationship?
9 14:29:10 A. That was a separate --
10 14:29:11 Q. That is in that same
11 14:29:13 parenthetical "what internal segment the
12 14:29:15 claimant resides in."
13 14:29:20 A. Well the reference to internal
14 14:29:21 segment speaks to the four segments that we
15 14:29:25 divided the counterparty universe into.
16 14:29:28 What it means in the context of
17 14:29:33 characteristics of counterparty
18 14:29:36 relationship, I'm not really sure. Although
19 14:29:39 I would expect if we were in litigation,
20 14:29:44 actually I'm not even sure those should be
21 14:29:47 conflated now that I read it, yeah, actually
22 14:29:53 I made the assumption perhaps based on your
23 14:29:56 question. So it may or may not have
24 14:29:58 anything to do with the litigation.
25 14:29:59 We were looking, each segment
HIGHLY CONFIDENTIAL
45 (Pages 998 to 1001)
Page 998
2 14:30:01 at a number of things in common. There were
3 14:30:05 some things that were dissimilar across
4 14:30:08 segments.
5 14:30:11
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HIGHLY CONFIDENTIAL
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Page 1003
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16 14:36:20 Q. And as you testified earlier,
17 14:36:22 Kathryn Martin who prepared this document
18 14:36:25 had authority to codify the governance
19 14:36:28 standards for the repurchase which was the
20 14:36:30 purpose of this procedural document; right?
22 14:36:32 A. Well, I did not testify that
23 14:36:33 she had the authority to codify. I said the
24 14:36:36 approval matrix was an attempt to codify
25 14:36:40 governance that we wanted to have around the
Page 1004
2 14:36:44 approval of repurchases and other related
3 14:36:48 type of transactions like settlements.
4 14:36:50 So it was clearly not within
5 14:36:53 her authority to approve it. It appears she
6 14:36:57 prepared this for consumption of others.
7 14:37:01 And at the time I'm not sure exactly what
8 14:37:04 our governance routine was in terms of who
9 14:37:06 had to approve it. But it would have been
10 14:37:09 socialized with a, I believe a group of
11 14:37:12 stakeholders and approved on that basis and
12 14:37:16 not solely by Kathryn Martin.
13 14:37:20 Q. Right. If you look at the last
14 14:37:21 exhibit, which is attached to this, there is
15 14:37:25 repurchase approval process showing three
16 14:37:27 different tiers of approval that are
17 14:37:31 required ultimately to make a repurchase
18 14:37:34 from a monoline insurer or investor; right?
19 14:37:41 A. Sorry, which page?
20 14:37:43 Q. This is page Bates number
21 14:37:46 ending in 280.
23 14:38:02 Q. Do you see the three levels of
24 14:38:04 approval that are required before a monoline
25 14:38:06 repurchase demand could be accepted?
Page 1005
3 14:38:13 A. This doesn't speak to any
4 14:38:16 particular investor or segment. Other than
5 14:38:22 the reference to GSE claim, so far as I can
6 14:38:25 tell, I'm still reviewing the document.
7 14:38:27 So this would be more general
8 14:38:31 than what you characterize I am trying to
9 14:38:34 figure out I should know what TL is. I
10 14:38:37 don't know what TL is. I'm sorry, what is
11 14:38:40 the question.
12 14:38:40 Q. TL is team leader as reflected
13 14:38:43 on the first page of the document under --
14 14:38:44 A. Thank you.
15 14:38:45 Q. -- loan approvals.
17 14:38:47 A. Thank you.
18 14:38:48 Q. Does that sound right to you,
19 14:38:49 TL?
20 14:38:50 A. Yes, it does.
21 14:38:54 Q. So if we look at the chart as
22 14:38:55 you said it singles out GSE claims. For GSE
23 14:38:59 claims if there is approval by the
24 14:39:01 underwriter then approval at the PAT level,
25 14:39:07 then the loan will be repurchased.
HIGHLY CONFIDENTIAL
47 (Pages 1006 to 1009)
Page 1006
2 14:39:08 But if it is not a GSE claim,
3 14:39:13 in other words, if it is a monoline claim or
4 14:39:15 private investor claim then there is a
5 14:39:17 further tier of approval that is required by
6 14:39:19 WSG; right?
8 14:39:25 Q. Right?
9 14:39:25 A. Yes. That is my understanding
10 14:39:26 of the process as it existed then.
11 14:39:28 Q. So there are three levels of
12 14:39:30 approval if it is a monoline claim, two
13 14:39:32 levels of approval if it is a GSE claim;
14 14:39:34 right?
16 14:39:39 A. That is what this suggests,
17 14:39:40 although, again, it is not just the
18 14:39:43 monoline, it is not an individual monoline.
19 14:39:45 Basically what we are trying to accomplish
20 14:39:47 here is, as I testified earlier, the GSE
21 14:39:50 process was far more mature and developed at
22 14:39:54 this point in time having had long-standing
23 14:39:56 relationships and long-standing repurchase
24 14:39:58 activities albeit lower volumes.
25 14:40:03 We had an infrastructure long
Page 1007
2 14:40:06 since established. We had basically long
3 14:40:09 understood rules of engagement with both
4 14:40:11 GSEs. It was believed that, you know, we
5 14:40:13 had sufficient maturity in that process and
6 14:40:17 understanding of that process that did not
7 14:40:21 require that added step for -- relative to
8 14:40:26 some of the, you know, newer or less mature
9 14:40:30 segments. That is all this was intended to
10 14:40:33 do.
11 14:40:33 Q. Earlier today we talked about
12 14:40:35 the fact you had claims coming from monoline
13 14:40:38 insurers or private investors first going to
14 14:40:43 the IR function as opposed to IA, precisely
15 14:40:47 because it wasn't as established as the GSE
16 14:40:49 claims; right?
18 14:40:52 Q. Is that right?
19 14:40:55 A. Well, yes in part. But also
20 14:40:57 functionally speaking, what we wanted IR to
21 14:41:00 do was different than the decisioning or at
22 14:41:06 least the so called check and balance I had
23 14:41:08 referred to earlier in terms of the ultimate
24 14:41:10 decision.
25 14:41:10 That was a more front end
Page 1008
2 14:41:13 approach around contractual vetting,
3 14:41:16 appropriate standing of the parties, those
4 14:41:18 kind of things that we wanted on the front
5 14:41:21 of the process.
6 14:41:21 This is more toward the back
7 14:41:25 end of the repurchase process.
8 14:41:26 Q. So with respect to the monoline
9 14:41:28 claims again relative to the GSE claims, you
10 14:41:31 added both investor review function at the
11 14:41:35 front end involving contractual vetting and
12 14:41:39 other parameters before investor audit
13 14:41:43 underwrote the loans.
14 14:41:45 And then, in addition, you
15 14:41:46 added a further level of approval that was
16 14:41:49 required before BAC would actually
17 14:41:52 repurchase a monoline loan; right?
20 14:41:59 A. I wouldn't -- well if your
21 14:42:02 question is suggesting we were imposing or
22 14:42:05 injecting impediments to the process --
23 14:42:09 Q. I am just asking for the facts.
24 14:42:11 A. I would say that's absolutely
25 14:42:13 untrue.
Page 1009
2 14:42:14 What we were trying to do,
3 14:42:17 okay, ultimately is get to the right answer.
4 14:42:20 Okay. So we can't, once we repurchase the
5 14:42:24 loan there is no going back. There is no
6 14:42:26 unwinding. There is no do-overs.
7 14:42:29 It was very important at a
8 14:42:31 relatively formative stage, by relatively,
9 14:42:34 relative to the GSEs, a more mature process
10 14:42:37 that we satisfied ourselves, consistent with
11 14:42:41 responsible governance, we satisfied
12 14:42:43 ourselves that the claims were worthy of
13 14:42:48 repurchase. That they were consistent with
14 14:42:50 our contractual obligations.
15 14:42:54 So as I sit here today and as I
16 14:42:58 sat in my seat, you know, three years ago,
17 14:43:00 it would seem entirely appropriate you'd
18 14:43:04 want to have this kind of check and balance
19 14:43:06 in place at this stage of the process given,
20 14:43:10 you know, everything that was going on and,
21 14:43:13 again, the lack of maturity in this process.
22 14:43:16 And I think, frankly, it works
23 14:43:19 to the benefit of all parties to the
24 14:43:22 transaction that we get to the right answer,
25 14:43:25 that we are applying standards as
HIGHLY CONFIDENTIAL
48 (Pages 1010 to 1013)
Page 1010
2 14:43:27 consistently as the facts dictate right. So
3 14:43:33 that was the sole purpose of what you see
4 14:43:37 diagrammed on this page.
5 14:43:38 Q. Now my question gave you a
6 14:43:40 proposition that basically repeated your
7 14:43:42 testimony from earlier today. And you've
8 14:43:45 now said that was absolutely untrue. So I
9 14:43:47 want to break that apart, okay.
10 14:43:49 The first part of the question
11 14:43:52 I had isn't it correct that you adopted an
12 14:43:55 investor review protocol before investor
13 14:44:00 audit underwrote the loans coming from
14 14:44:03 monoline insurers? Earlier today you said
15 14:44:06 yes that's the case. Is that the case or
16 14:44:08 not, sir?
18 14:44:10 A. I was testifying about a
19 14:44:11 specific exhibit that, as I recall was a
20 14:44:17 work flow that showed both file requests and
21 14:44:20 repurchase requests going through IR before
22 14:44:26 they go to IA. Whereas the GSEs went
23 14:44:29 straight to IA.
24 14:44:30 Q. Right.
25 14:44:31 A. I tried to testify about what
Page 1011
2 14:44:34 the purpose for having that intermediate
3 14:44:38 level hand off was. And it was to ensure
4 14:44:43 that, you know, the contract was reviewed,
5 14:44:45 the party making the request, repurchase or
6 14:44:47 file had the standing and related other
7 14:44:51 issues, okay.
8 14:44:53 I also testified that the
9 14:44:56 reason we needed to do that is because we
10 14:44:58 had a unique contract for each and every
11 14:45:02 deal.
12 14:45:06 And, secondly, that we did not
13 14:45:08 have an established mature process where we
14 14:45:10 already knew the answers without having to
15 14:45:12 go look at each individual contract. Okay.
16 14:45:15 So at some point if you were to
17 14:45:17 project this activity out over some period
18 14:45:20 of time where the process became more
19 14:45:22 mature, my business judgment you would
20 14:45:24 expect there to be less need of that once
21 14:45:26 you established, you know, the template for
22 14:45:29 each of these deal documents.
23 14:45:30 At that time that sort of
24 14:45:33 protocol was not established and we were
25 14:45:36 working to develop it.
Page 1012
2 14:45:37 Q. So the short answer is yes, you
3 14:45:39 adopted an initial step through investor
4 14:45:43 review before the monoline loans went to
5 14:45:45 investor audit; correct?
7 14:45:48 A. That -- yes.
8 14:45:50 Q. And then in addition, in
9 14:45:52 addition to this step at the front end,
10 14:45:56 there was a further step of approval that
11 14:45:58 was required at the back end where the
12 14:46:02 workout strategies group had to approve
13 14:46:05 loans submitted by monoline insurers whereas
14 14:46:10 it did not have to approve loans submitted
15 14:46:12 by GSEs; correct?
17 14:46:15 A. Yes.
18 14:46:15 Q. So, again, going back to my
19 14:46:18 prior question, the truth is BAC adopted a
20 14:46:22 process for the monoline insurer repurchase
21 14:46:25 demands where there was both an additional
22 14:46:28 step at the front end, namely through
23 14:46:30 investor review, and an additional level of
24 14:46:33 approval required at the back end, namely
25 14:46:37 the workout strategies group approval in
Page 1013
2 14:46:40 order for BAC to repurchase a monoline loan,
3 14:46:44 compared to the more streamlined process for
4 14:46:47 the GSEs; correct?
7 14:46:51 Q. Isn't that true?
9 14:46:54 A. Putting aside what that might
10 14:46:57 presuppose or what I'm inferring from your
11 14:47:00 line of questioning, that is, to the extent
12 14:47:03 you have the front end and back end step,
13 14:47:06 there are, you know, more steps to the
14 14:47:09 process.
15 14:47:11 Q. That's a yes?
17 14:47:12 A. Yes. That's true, consistent
18 14:47:16 with my prior testimony.
19 14:47:17 Q. Okay. So I was surprised when
20 14:47:18 you said in your prior answer it was
21 14:47:20 absolutely untrue. I just want the record
22 14:47:22 to be clear.
24 14:47:24 A. My prior testimony read back to
25 14:47:27 me, I will happily stand corrected, was you
HIGHLY CONFIDENTIAL
49 (Pages 1014 to 1017)
Page 1014
2 14:47:32 were clearly implying by your question, so
3 14:47:35 far as I could infer, that we were imposing
4 14:47:40 these impediments in the process to somehow
5 14:47:44 stymie the monolines.
6 14:47:46 And all I wanted to make very
7 14:47:47 clear is it was absolutely untrue that that
8 14:47:50 had anything to do with our decision to have
9 14:47:56 responsible governance around relatively new
10 14:47:58 process, not just for MBIA, not just for the
11 14:48:01 monolines, but every claimant out there that
12 14:48:03 was not named Fannie and Freddie, for which
13 14:48:07 we had a year's long established process.
14 14:48:10 So, that, just to be clear
15 14:48:12 about what I said was absolutely untrue, I
16 14:48:15 hope that clarifies it. I think that was my
17 14:48:17 testimony.
18 14:48:17 Q. So you agree with the facts,
19 14:48:19 you're just saying the inference that should
20 14:48:21 be drawn from it is not that BAC was trying
21 14:48:23 to slow the process down for the monolines?
23 14:48:27 Q. Right?
24 14:48:28 A. It is not an accurate inference
25 14:48:29 to draw from the facts that you had me agree
Page 1015
2 14:48:33 to.
3 14:48:34 Q. Well those are the facts you
4 14:48:36 testified to?
5 14:48:37 A. Yes -- sorry, you asked me
6 14:48:39 whether I agree.
7 14:48:40 Q. Okay.
8 14:48:40 A. On a purely factual basis, no
9 14:48:42 implications, yes. I answered in the
10 14:48:46 affirmative.
11 14:48:48 Q. Is that process still the same
12 14:48:49 today, in 2012?
14 14:48:52 Q. As to the additional step at
15 14:48:54 the front end for investor review and
16 14:48:56 additional level of approval required at the
17 14:48:58 back end?
20 14:49:00 A. It will depend. So in general
21 14:49:05 do we have a front end and back end review
22 14:49:10 similar to this on the non-GSE segments? I
23 14:49:13 would say we do in some instances.
24 14:49:15 I'll give you just again
25 14:49:17 further to my point I tried to clarify
Page 1016
2 14:49:20 before, you know, the monolines, for
3 14:49:23 instance, finite universe of deals that MBIA
4 14:49:25 and other monolines wrap.
5 14:49:27 Once we had done the
6 14:49:29 contractual review, it is not as though we
7 14:49:32 are replicating that every time we get a
8 14:49:34 claim on the same deal. We already know
9 14:49:36 there is a party outstanding, what are the
10 14:49:38 relevant, you know, reps and warrants.
11 14:49:40 So that would not be true,
12 14:49:42 which is again consistent with what I said
13 14:49:45 over time the need for that additional
14 14:49:47 governance would subside. For instance,
15 14:49:50 other private label deals we to this day
16 14:49:53 have that process where we're seeing claims
17 14:49:55 on new deals.
18 14:49:59 Q. And do you still have the third
19 14:50:00 level of approval required by WSG or its
20 14:50:03 successor for the monoline repurchase
21 14:50:08 demands by contrast to GSE repurchase
22 14:50:10 demands?
23 14:50:11 A. As of today I don't know since
24 14:50:12 my role changed in the fourth quarter of '11
25 14:50:17 I've had less, you know, input on the actual
Page 1017
2 14:50:20 operation, how many levels of review. So I
3 14:50:24 really can't testify to it because I simply
4 14:50:26 don't know the answer.
5 14:50:28 Q. It was true as of the fourth
6 14:50:30 quarter of 2011?
8 14:50:34 A. I believe we had the same and I
9 14:50:37 don't believe I testified to -- if you are
10 14:50:39 saying, are you saying these three levels
11 14:50:40 of review?
12 14:50:41 Q. Three levels of review --
13 14:50:43 A. I don't know exactly who
14 14:50:45 reviews at what stage. But we basically had
15 14:50:50 WSG and investor audit jointly managing
16 14:50:53 that, that check and balance existed as of
17 14:50:58 2011 or fourth quarter 2011.
18 14:51:00 Q. Would you turn, please, to the
19 14:51:02 document ending in Bates number 278 this is
20 14:51:09 Exhibit B Approval Matrix.
21 14:51:11 A. Okay.
22 14:51:11 Q. I notice in the table below the
23 14:51:16 main table there is something described as
24 14:51:18 repurchase risk rating level. Do you know
25 14:51:20 what that is?
HIGHLY CONFIDENTIAL
50 (Pages 1018 to 1021)
Page 1018
2 14:51:35 A. I believe it is a
3 14:51:36 categorization of repurchases based on the
4 14:51:39 specified criteria for purposes of the
5 14:51:43 approval matrix.
6 14:51:45 Q. So what kind of repurchase risk
7 14:51:46 is being qualified here?
9 14:51:52 Q. Is it a risk to BAC or
10 14:51:54 something else?
13 14:52:02 A. I think the numerical sequence
14 14:52:06 is an attempt to develop differentiations
15 14:52:12 among, you know, approval levels for
16 14:52:14 purposes of the table above that.
17 14:52:21 Q. So is a repurchase risk rating
18 14:52:23 of 1, does that refer to a risk that's
19 14:52:28 greater or less than a repurchase risk
20 14:52:29 rating of 3?
22 14:52:39 A. Just simply looking at the
23 14:52:41 table the higher the numerical designation
24 14:52:48 on this so-called repurchase risk rating
25 14:52:50 level, the higher approval required.
Page 1019
2 14:52:56 Q. Okay. So the highest approval
3 14:52:57 is required in instances where the claimant
4 14:53:00 has filed suit?
7 14:53:07 A. That is the repurchase rating
8 14:53:09 level 3, that's correct.
9 14:53:16 Q. Under repurchase rating 1, here
10 14:53:22 there is a statement "Qualifications
11 14:53:24 contractual breach is established. Borrower
12 14:53:27 has made less than 12 payments since
13 14:53:30 origination. Loan is delinquent or loss has
14 14:53:34 been incurred. Claimant has not filed
15 14:53:36 suit."
16 14:53:40 I take it this category
17 14:53:41 reflects the lowest level of approval that's
18 14:53:43 required within BAC before the repurchase
19 14:53:46 can be made; is that right?
22 14:53:55 A. Repurchase rating level 1,
23 14:53:56 which you just read requires tier 1 or tier
24 14:54:02 2 approval based on other specified
25 14:54:05 criteria.
Page 1020
2 14:54:09 Q. I don't know if this is the
3 14:54:10 nature of the objection, but is the
4 14:54:12 repurchase being made through a decision at
5 14:54:15 Countrywide Home Loans or is that a BAC
6 14:54:22 decision made at a different entity level?
8 14:54:24 A. The entity I testified to is
9 14:54:26 conducted by CHL in its principal capacity
10 14:54:30 or to the extent it is acting as agent for
11 14:54:32 others in its agent capacity.
12 14:54:34 As part of our corporate
13 14:54:36 governance, you know, key stakeholders may
14 14:54:40 have been required, I'm not sure exactly who
15 14:54:43 the stakeholders were at this time, required
16 14:54:45 to approve certain transactions and other
17 14:54:48 activity that were going on.
18 14:54:50 But it could have been, for
19 14:54:51 instance, our legal partner, our finance
20 14:54:53 partner, our risk partner, you know, those
21 14:54:59 in the overall organization that had a stake
22 14:55:02 in what was going on in, you know, CHL with
23 14:55:06 respect to the rep and warrant activity.
24 14:55:09 Q. When you referred to the
25 14:55:11 agreements, are there written service
Page 1021
2 14:55:13 agreements between CHL and the BAC entities
3 14:55:17 as to which CHL is processing the repurchase
4 14:55:19 demands?
6 14:55:22 A. Yes.
7 14:55:23 Q. Who is in charge of those
8 14:55:25 agreements?
10 14:55:28 Q. I mean, are the agreements
11 14:55:31 maintained in legal or how are they
12 14:55:35 developed, do you know?
14 14:55:36 A. They were developed by the
15 14:55:40 business and our internal legal partners.
16 14:55:46 Q. Okay. Staying at repurchase
17 14:55:48 risk rating level 1, do you know why there
18 14:55:52 is a distinction drawn between borrower
19 14:55:57 payments at less than 12 months versus 24
20 14:56:00 months as reflected in rating level 2?
21 14:56:04 A. Yes.
22 14:56:05 Q. What's the reason?
23 14:56:12 A. Because payments made reflect
24 14:56:15 on materiality and specifically material and
25 14:56:18 adverse effect that's required to be
HIGHLY CONFIDENTIAL
51 (Pages 1022 to 1025)
Page 1022
2 14:56:20 demonstrated as a condition to having to
3 14:56:24 repurchase the loan. And the more payments
4 14:56:29 a borrower makes, the less likely it is that
5 14:56:32 a breach, assuming one exists at all, would
6 14:56:36 have been material. And thus, satisfying
7 14:56:40 the standard required under most of the
8 14:56:42 governing contracts.
9 14:56:45 Q. So, was it the view of
10 14:56:49 Countrywide Home Loans that there is a
11 14:56:51 better argument that a breach is not
12 14:56:56 material and adverse if more payments are
13 14:56:57 made than 12 or 24?
15 14:57:04 A. I forgot how you characterize
16 14:57:06 it. Is it our --
17 14:57:08 Q. Was it your view or was it the
18 14:57:11 policy at CHL that that it is harder to
19 14:57:16 establish a material and adverse effect from
20 14:57:20 a breach if more payments are made than
21 14:57:24 either 12 in the case of risk rating level 1
22 14:57:26 or 24 in the case of risk rating level 2?
24 14:57:30 A. It was our belief that you had
25 14:57:36 to look at each governing contract. You had
Page 1023
2 14:57:38 to look at not only in terms of any
3 14:57:42 materiality or other requirements as a
4 14:57:45 condition to repurchase, but the
5 14:57:46 representation being cited.
6 14:57:51 And that the number of payments
7 14:57:52 made certainly should inform, to one degree
8 14:57:57 or another, depending how many payments made
9 14:57:59 and what sort of rep and warrants we were
10 14:58:01 talking about, but that payments made was
11 14:58:04 very relevant to that ultimate determination
12 14:58:08 as to whether claimant had successfully
13 14:58:11 proven an actionable breach.
14 14:58:15 Q. And is it the case that
15 14:58:17 distinction was drawn between loans that
16 14:58:19 actually were delinquent or as to which
17 14:58:23 losses were incurred versus loans that were
18 14:58:27 still performing such that if the loan was
19 14:58:30 still performing in order for the repurchase
20 14:58:32 approval to be made, you needed to go to the
21 14:58:36 tier 2 level of approval?
23 14:58:45 Q. I'm sorry, risk level rating 2
24 14:58:48 not tier 2?
25 14:58:49 MS. CONCANNON: Same objection.
Page 1024
2 14:58:52 A. Sorry. I'm trying to locate
3 14:58:54 reference to, you know, current or
4 14:58:56 performing loans.
5 14:58:58 Q. In risk level rating 1, one of
6 14:59:01 the qualifications is that loan is
7 14:59:03 delinquent or loss has been incurred. Risk
8 14:59:08 rating level 2 does not reflect that. Do
9 14:59:11 you see that?
10 14:59:11 A. Yes.
11 14:59:11 Q. So if the loan is still
12 14:59:13 performing, then is it the case that that
13 14:59:16 would lead to a risk rating level of 2
14 14:59:22 rather than 1, assuming that the claimant
15 14:59:24 had not filed suit?
17 14:59:25 A. That is my understanding, yes.
18 14:59:29 Q. And that would require an
19 14:59:30 approval level either a the tier 3 or -- of
20 14:59:36 tier 3 or above; is that right?
21 14:59:38 A. That is also my understanding,
22 14:59:40 yes.
23 14:59:42 Q. Okay. And if the loan were
24 14:59:43 delinquent but hadn't yet defaulted that
25 14:59:46 would be okay for an approval at level tier
Page 1025
2 14:59:51 1 or tier 2?
4 14:59:58 Q. Is that right?
5 14:59:59 A. If the loan was delinquent, not
6 15:00:00 defaulted.
7 15:00:01 Q. Not defaulted but delinquent.
8 15:00:03 A. I don't believe this particular
9 15:00:04 document differentiates, unless I'm not
10 15:00:06 reading the footnotes carefully. I don't
11 15:00:09 see any differentiation between, for
12 15:00:11 purposes of this approval matrix between a
13 15:00:16 current and a delinquent but not defaulted
14 15:00:19 loan. Again, for purposes of assigning, you
15 15:00:22 know, a tier that had to approve a
16 15:00:24 transaction.
17 15:00:26 Q. I'm again just referring to the
18 15:00:28 qualification loan is delinquent or loss has
19 15:00:31 been incurred. Is a distinction that is
20 15:00:35 drawn there between a delinquent loan versus
21 15:00:38 a defaulted loan?
23 15:00:43 A. If a loss has been incurred
24 15:00:45 there is no loan. I would read it, my
25 15:00:47 reading, my understanding was that we
HIGHLY CONFIDENTIAL
52 (Pages 1026 to 1029)
Page 1026
2 15:00:51 required or that a delinquent loan or loan
3 15:00:56 would have to have been delinquent,
4 15:00:59 defaulted, liquidated, one of those stages
5 15:01:04 for tier 1, for approvals -- for tier 1
6 15:01:11 approvers to have authority to approve to be
7 15:01:13 the final approval on those loans.
8 15:01:19 Q. By contrast, for currently
9 15:01:21 performing loans approvals would be made
10 15:01:24 only at the level of tier 3 or tier 4?
12 15:01:28 A. Yes. That's my understanding.
13 15:01:32 Q. Okay. In any case, it is not
14 15:01:34 the case you required a defaulted loan for
15 15:01:36 an approval?
17 15:01:41 A. This document, to be clear
18 15:01:45 doesn't -- well, all loans have to be
19 15:01:47 approved. And this document simply seeks to
20 15:01:52 identify what the terminal approval tier is
21 15:01:59 based on a set of criteria that's specified
22 15:02:02 in the table. They are all approved. It is
23 15:02:05 just a different tiering based on the
24 15:02:08 criteria.
25 15:02:10 Q. Okay.
Page 1027
2 15:02:11 A. By the way, it also doesn't
3 15:02:13 suggest a different calibration based on
4 15:02:19 risk rating that we can decide a loan
5 15:02:21 differently by making it tier 3, tier 2.
6 15:02:24 It really was an effort to have
7 15:02:26 the appropriate level of oversight given,
8 15:02:30 you know, a particular profile. You can see
9 15:02:31 what the profiles were in the table.
10 15:02:34 Q. You mean that the process of
11 15:02:36 approval may be effectively the same, but
12 15:02:39 the level at which the approval had to be
13 15:02:41 made differed according to the tier
14 15:02:45 requirement?
16 15:02:46 Q. Is that basically what you're
17 15:02:47 saying?
18 15:02:47 A. I think that's basically what I
19 15:02:49 said.
20 15:02:50 Q. Okay.
24 15:03:02 numbers CWMBIA-B 0000010150 through
25 15:03:02 172.)
Page 1028
4 15:03:04 that previously has been marked as 3572.
5 15:03:29 Is. And I only want to ask you about one
6 15:03:32 page on this one.
7 15:03:33 A. Okay.
8 15:03:34 Q. It is page ending in 159 it is,
9 15:03:41 again, one of the draft presentations on the
10 15:03:44 target state for investor repurchases.
12 15:03:55 A. Okay.
13 15:03:55 Q. On the overview page in the
14 15:03:57 upper left-hand box Summary, the last bullet
15 15:04:01 states, "The focus is on the CFC process due
16 15:04:04 to the magnitude of risk and the decision to
17 15:04:07 migrate BAC."
18 15:04:13 Do you understand what that
19 15:04:14 means, the decision to migrate BAC?
22 15:04:25 A. Not as we sit here right now.
23 15:04:28 Q. Was the BAC repurchase process
24 15:04:31 migrated to CHL through the service
25 15:04:35 agreements that you describe?
Page 1029
4 15:04:39 A. The service level agreements
5 15:04:41 address something different than that. I
6 15:04:43 talked about the transition and assessment
7 15:04:46 was made what is the organization, you know,
8 15:04:50 going to look like.
9 15:04:52 And I think I testified that
10 15:04:55 BAC had a small repurchase infrastructure
11 15:05:00 that at one time, I think you showed me a
12 15:05:02 chart, that it was managed by Steve Cummings
13 15:05:08 who I indicated reported to me.
14 15:05:13 So, that small repurchase
15 15:05:14 group, I do believe, you know, migrated into
16 15:05:21 my organization.
17 15:05:26 Q. And is that because the
18 15:05:27 greatest part of the risk was at CFC and not
19 15:05:30 at BAC?
21 15:05:34 A. I think consistent with how the
22 15:05:37 company made other decisions in terms of the
23 15:05:41 rest of the Countrywide organization, I
24 15:05:44 think it was matter of assessing where, you
25 15:05:47 know, where the best people, processes and
HIGHLY CONFIDENTIAL
53 (Pages 1030 to 1033)
Page 1030
2 15:05:52 systems resided between organizations and
3 15:05:56 making a decision based in, I think no small
4 15:06:00 part, on that consideration.
5 15:06:04 Q. Okay. Again, then part of the
6 15:06:06 reason was to avoid a duplicative function
7 15:06:08 in the combined company and to centralize it
8 15:06:12 in one side of the business; is that fair?
11 15:06:20 A. I think as a general business
12 15:06:21 matter, you know, avoiding duplication is
13 15:06:25 worthwhile. There were, I'm sure just, you
14 15:06:29 know, in terms of my business judgment there
15 15:06:31 were other reasons why you'd want them, you
16 15:06:33 know, housed under the same group, you know,
17 15:06:37 to ensure consistency, to realize economies
18 15:06:42 of scale are two other factors that I think
19 15:06:46 would be important.
20 15:06:48 Q. Why did Bank of America want to
21 15:06:50 ensure consistency in how CHL processed
22 15:06:55 repurchases and how the legacy BAC entity
23 15:06:57 would be reprocessing repurchases?
25 15:07:05 A. It wouldn't necessarily be, you
Page 1031
2 15:07:07 know, it's consistent where the contractual
3 15:07:09 requirements are the same. And.
4 15:07:11 So consistency, economies of
5 15:07:15 scale and just leveraging best practices,
6 15:07:21 right. We were obviously in the midst of
7 15:07:24 investing a substantial amount of resources
8 15:07:28 which continued for years into this
9 15:07:32 infrastructure. And it made little sense to
10 15:07:37 do that elsewhere for the reasons I
11 15:07:39 mentioned in terms of the consistency.
12 15:07:44 I think just as a general best
13 15:07:46 practice where you had similar, the same
14 15:07:51 contractual requirements, I think you would
15 15:07:53 generally want to know you're executing the
16 15:07:57 business, you know, in a consistent way each
17 15:07:59 time.
18 15:08:01 Q. Is that because the home loans
19 15:08:03 business began to be operated as a single
20 15:08:05 business after the merger?
23 15:08:10 A. I don't think that's, that
24 15:08:13 implicates the consistency point I was
25 15:08:16 trying to make.
Page 1032
2 15:08:17 Q. You don't think that's relevant
3 15:08:19 to the need for consistency?
5 15:08:21 A. I think best practices, like
6 15:08:24 you come up with best practices, right. The
7 15:08:26 best possible process you can, right.
8 15:08:31 Influenced by contracts and everything else.
9 15:08:34 And you want to replicate that best practice
10 15:08:37 time and time again on the thousands of
11 15:08:40 units.
12 15:08:41 It would make no sense to come
13 15:08:42 up with best practices or have, right, best
14 15:08:46 practices in one area and not have that also
15 15:08:49 being done in a different area. Beyond just
16 15:08:51 the inherent inefficiencies.
17 15:08:54 Q. When you say one area and
18 15:08:55 different area, you mean of the business?
19 15:08:58 A. Yeah, the broader business.
20 15:09:00 The broader business. I mean it could be
21 15:09:02 across, you know, anywhere where these
22 15:09:06 claims, you know, resided in the bank.
23 15:09:09 Q. Okay.
Page 1033
3 15:09:11 CWMBIA 0018586762 through 66.)
6 15:09:13 I marked as Exhibit 4051. It is an email
7 15:09:17 from yourself dated January 31, 2009. What
8 15:09:58 was Kent Sorey's responsibility as of
9 15:10:02 January 2009?
10 15:10:03 A. I believe he was in internal
11 15:10:05 audit.
12 15:10:11 Q. In what respect did internal
13 15:10:13 audit look at the repurchase process?
15 15:10:20 A. I don't know specifically
16 15:10:22 around this, but I know just as a general
17 15:10:26 matter investor -- I'm doing what you're
18 15:10:31 doing -- internal audit was, you know,
19 15:10:32 periodically reviewing different, right
20 15:10:35 facets of the business.
21 15:10:39 In this case, you know, the
22 15:10:40 email exchange appears to reference an
23 15:10:46 ongoing audit. I don't have the
24 15:10:49 particulars. And I don't know exactly what
25 15:10:51 aspect of the repurchase process he was
HIGHLY CONFIDENTIAL
54 (Pages 1034 to 1037)
Page 1034
2 15:10:52 focused on without seeing more.
3 15:10:58 Q. Okay. You say, "These are not
4 15:11:00 binary decisions but rather more complicated
5 15:11:03 ones. There is most often a highly
6 15:11:07 iterative one."
8 15:11:10 A. Yes.
9 15:11:10 Q. Are you referring to the
10 15:11:11 decision as to whether or not to repurchase
11 15:11:13 a loan?
12 15:11:17 A. Without knowing or reading
13 15:11:18 more, I don't know exactly what I'm
14 15:11:22 referring to.
15 15:11:22 Q. The end of that paragraph you
16 15:11:23 say, "I view you and your team as a valuable
17 15:11:26 partner in ensuring we are doing everything
18 15:11:29 possible to mitigate this enormous risk to
19 15:11:32 the company."
20 15:11:34 By "this enormous risk" are you
21 15:11:35 referring to repurchase demands?
23 15:11:41 A. Yes, it appears I am.
24 15:11:43 Q. Was your most important task at
25 15:11:45 this point in time to try and prevent the
Page 1035
2 15:11:47 repurchase liability from getting even more
3 15:11:50 out of hand?
5 15:11:55 A. Well, my most important task
6 15:11:59 was to ensure we had a process that again
7 15:12:05 vigorously yet credibility defended all
8 15:12:08 claims consistent with our contractual
10 15:12:11 And to do less would be to be
11 15:12:15 doing a disservice to the bank. So I guess
12 15:12:17 you can say if we failed to do our job and
13 15:12:19 were not thorough in our review, assessment
14 15:12:23 and response, that there was a risk, sure.
15 15:12:28 One of the risks is that we're
16 15:12:30 not, you know, we're buying back loans for
17 15:12:32 which we don't have a legitimate contractual
18 15:12:36 obligation to.
19 15:12:37 So that was a risk that I as
20 15:12:40 the manager of the group was concerned was,
21 15:12:44 you know, would be always concerned about
22 15:12:46 and wanting to make sure we had a process
23 15:12:49 and controls in place. Which is why I
24 15:12:53 believe, without knowing exactly what I was
25 15:12:55 getting at welcomed internal audit's review
Page 1036
2 15:12:59 to ensure that we were doing that which we
3 15:13:01 had established as policy and procedure.
7 15:13:01 CWMBIA-B 000007577.)
9 12:34:19 Q. Let me to introduce
10 15:13:09 Exhibit 4052, an email from Scott Kurzban to
11 15:13:12 you dated June 5, 2008.
12 15:13:37 In the first paragraph under
13 15:13:39 Repurchase Requests and Responses Mr.
14 15:13:41 Kurzban states, "We have received 3116
15 15:13:45 repurchase requests from the monolines."
16 15:13:47 At the end of that paragraph,
17 15:13:49 "It is not unrealistic to imagine we will
18 15:13:51 receive thousands more repurchase requests."
20 15:14:03 A. Sorry, where were you reading
21 15:14:04 from?
22 15:14:04 Q. First paragraph of his email to
23 15:14:06 you. First and last sentences of that
24 15:14:08 paragraph.
25 15:14:09 A. I'm sorry. Yes.
Page 1037
2 15:14:11 Q. Right. And so is it fair to say
3 15:14:17 from this very early date you were expecting
4 15:14:22 a very high number of repurchase demands
5 15:14:24 from the monolines?
8 15:14:29 A. I think it's fair to say that
9 15:14:31 Scott Kurzban in his email to me indicated
10 15:14:35 that it was not unrealistic to imagine that
11 15:14:38 we will receive thousands more repurchase
12 15:14:40 requests. That is Scott offering, you know,
13 15:14:44 his assessment.
14 15:14:45 I think even in Scott's words
15 15:14:48 it stops something short of what you
16 15:14:49 suggested. But, again, this was -- these
17 15:14:52 were Scott's words at the time. Right.
18 15:14:55 Q. Well you thought that in fact
19 15:14:58 there were going to be many more repurchase
20 15:15:00 requests from the monolines as of as long
21 15:15:03 ago as June 2008; isn't that right?
22 15:15:11 A. I don't know what I thought as
23 15:15:12 of June 2008.
24 15:15:14 Q. You were suggesting this was
25 15:15:15 just Mr. Kurzban's concern and not yours.
HIGHLY CONFIDENTIAL
55 (Pages 1038 to 1041)
Page 1038
2 15:15:18 A. No. I'm not suggesting that.
4 15:15:20 A. I can only tell you what I know
5 15:15:22 in reviewing the exhibit. I don't know
6 15:15:24 exactly what I thought. I don't have reason
7 15:15:26 to believe that if we produced this document
8 15:15:30 and it has, you know, a note from Scott to
9 15:15:31 me that I didn't receive it, I don't know
10 15:15:35 exactly how I sized up the monoline risk in
11 15:15:39 June of 2008.
12 15:15:41 Q. I might be able to help you
13 15:15:42 with that.
14 15:15:43 A. Okay.
17 15:15:43 string dated 6/6/08 production numbers
18 15:15:43 CWMBIA-B 000007593 through 598.)
20 12:34:19 Q. Let me show you Exhibit 4053.
21 15:15:52 Which is an email from yourself to looks
22 15:15:55 like Kevin Bartlett and Mark Miller June
23 15:16:00 6th, 2008 where you're forwarding Mr.
24 15:16:04 Kurzban's email.
25 15:16:17 A. Okay.
Page 1039
2 15:16:17 Q. In your email you say, "As you
3 15:16:21 can see from Scott's email below, we are
4 15:16:23 resource constrained in terms of dealing
5 15:16:26 with a growing number of repurchase
6 15:16:27 requests, particularly from the monolines
7 15:16:30 where we have already received repurchase
8 15:16:31 requests on over 3000 loans. We need to
9 15:16:33 discuss what steps ought to be taken to
10 15:16:35 address this."
11 15:16:39 Does that refresh your
12 15:16:40 recollection as long ago as June 2008 you
13 15:16:43 were concerned by the growing number of
14 15:16:45 repurchase requests from monolines in
15 15:16:47 particular?
18 15:16:53 A. I think the note states we are
19 15:16:55 resource constrained in terms of dealing
20 15:16:58 with the growing number of repurchase
21 15:17:00 requests.
22 15:17:01 Those are requests that we've
23 15:17:03 got in the door, including the over 3000
24 15:17:07 monoline claims that Scott references in his
25 15:17:09 email. I don't really see anything beyond
Page 1040
2 15:17:11 that.
3 15:17:12 I'm not suggesting I didn't
4 15:17:14 have a concern in the world about rising
5 15:17:16 repurchase claims. I think it was a gradual
6 15:17:19 evolving process. The landscape was
7 15:17:21 changing, you know, quickly.
8 15:17:23 But I don't know exactly what I
9 15:17:25 thought in June of '08. And this email just
10 15:17:28 tells me we were challenged in reviewing the
11 15:17:31 3000 monoline claims. And that we were
12 15:17:34 looking for, you know, essentially help in
13 15:17:38 the way of finding additional resources.
14 15:17:46 Q. And do you recall what you
15 15:17:47 discussed in terms of steps to address the
16 15:17:50 growing problem?
17 15:17:55 A. I don't remember at the time
18 15:17:58 other than -- well I won't even speculate
19 15:18:00 other than I was going to say need to add
20 15:18:02 resources.
24 15:18:14 BACMBIA-X 0000000192 through 194.)
Page 1041
2 12:34:19 Q. Let's mark as Exhibit 4054
3 15:18:18 another email from yourself, this one is
4 15:18:20 dated August 28, 2009.
5 15:18:39 In the first paragraph here you
6 15:18:40 say, "In the reserve validation meeting
7 15:18:43 yesterday, a line of questioning emerged
8 15:18:45 about what the view was in terms of future
9 15:18:47 monoline claims."
10 15:18:48 Let me pause right there. What
11 15:18:50 was the reserve validation meeting?
12 15:18:54 A. The reserve validation meeting
13 15:18:56 was another regular routine, I believe it
14 15:19:01 was a twice monthly routine and the group
15 15:19:07 charged with the rep and warrants reserve at
16 15:19:11 this period of time.
17 15:19:12 This would have been within
18 15:19:17 Shiva Iyer's organization under Jack
19 15:19:22 Schakett was -- these were their meetings,
20 15:19:26 where we had finance partners, accounting
21 15:19:28 partners and others to reserve -- to review,
22 15:19:32 rather, the rep and warrant review.
23 15:19:36 Topical issues and, you know,
24 15:19:38 as things evolved over time where we stood
25 15:19:41 on the reserve at that point in time,
HIGHLY CONFIDENTIAL
56 (Pages 1042 to 1045)
Page 1042
2 15:19:44 methodologies, changes to methodologies,
3 15:19:46 changes to models we were using. Things of
4 15:19:49 that nature.
5 15:19:52 Q. Okay. You say in part for
6 15:19:54 reserve validation, you say, "For that
7 15:19:57 reason and in order to better manage the
8 15:19:59 business and management expectations, I'd
9 15:20:02 like to develop a better ongoing view about
10 15:20:05 where claims are likely to go based on the
11 15:20:08 file requests."
12 15:20:10 Do you recall what was done to
13 15:20:14 help develop a better projection on file
14 15:20:15 requests?
17 15:20:21 A. I don't remember specifically,
18 15:20:22 you know, in connection with this note and
19 15:20:23 what may have followed.
20 15:20:31 Q. Was it difficult for BAC to
21 15:20:33 estimate the volume of repurchase demands
22 15:20:36 coming from the monolines?
25 15:20:41 A. I think inasmuch as, you know,
Page 1043
2 15:20:43 repurchase demands, control of repurchase
3 15:20:46 demands reside exclusively outside of the
4 15:20:51 company. It was dependent on counterparty
5 15:20:54 behavior that we didn't control and didn't
6 15:20:57 have, you know, any transparency into. We
7 15:21:00 sought to find some ways, proxies, however
8 15:21:05 imperfect they might be, to help us, you
9 15:21:07 know, manage the business. But it was, you
10 15:21:10 know, speculative.
11 15:21:12 But, again, we were trying to
12 15:21:13 find ways in which we could try to predict
13 15:21:15 what might be coming in so we can continue
14 15:21:18 to stand up a process and expand upon that
15 15:21:22 process to effectively manage the repurchase
16 15:21:26 pipeline.
17 15:21:26 Q. What kind of proxies did you
18 15:21:28 use for that purpose?

Page 1044
2 15:21:51
3 15:21:53
4 15:21:55
5 15:22:00
6 15:22:03
7 15:22:06
8 15:22:06
9 15:22:09
10 15:22:12
11 15:22:14
12 15:22:16
13 15:22:18

15 15:22:22 Q. Did you then take a percentage
16 15:22:26 of loan files as your expectation for the
17 15:22:29 demands?
19 15:22:30 Q. For example, if a thousand loan
20 15:22:33 files are requested, you would expect to see
21 15:22:35 repurchase demands on 700 loans?
23 15:22:41 A. We -- well, I can't testify
24 15:22:43 specifically to what we were thinking and
25 15:22:45 what we did right after this. But in
Page 1045
2 15:22:47 general over the years as we've tried to
3 15:22:51 make sure we had a growing process
4 15:22:54 commensurate with repurchase volumes,
5 15:22:57 current and whatever we could, you know,
6 15:22:59 project in the future, we would look at file
7 15:23:03 requests.
8 15:23:04

17 15:23:32

22 15:23:44 Q. What kind of ranges did you
23 15:23:46 see?
HIGHLY CONFIDENTIAL
57 (Pages 1046 to 1049)
Page 1046
2 15:23:51 A. I don't know -- I know on the
3 15:23:55 high end with respect to some of the
4 15:23:58 monolines that didn't appear to be terribly
5 15:24:01 selective in their reviews, we saw numbers
6 15:24:07 and heard of numbers between sort of 70 and
7 15:24:11 90 percent. Not suggesting those are
8 15:24:15 meritorious claims. It is simply just what
9 15:24:17 claims we were getting based on the
10 15:24:19 monolines actions only.
11 15:24:23 Q. I hear we have to change the
12 15:24:24 tape.
19 15:42:45 3:43 p.m. This begins volume 3, tape 17
24 15:42:53 string dated 11/12/08, production
25 15:43:08 numbers BAC MBIA-X 0000377813 through
Page 1047
2 15:43:15 819.)
4 15:42:58 Q. I would like to introduce
5 15:43:00 Exhibit 4055. It is an email exchange
6 15:43:03 between you and a few others, as of November
7 15:43:07 2008. BAC MBIA-X377813 through 819.
8 15:44:42 A. Do I need to review this whole
9 15:44:44 thing?
10 15:44:44 Q. I am basically going to ask you
11 15:44:46 about the first page. But you're free to
12 15:44:48 look the at anything you want for context.
13 15:44:53 I note the subject line is Monoline Percent
14 15:44:55 of Deals Files Requested.
15 15:44:58 A. Okay.
16 15:44:58 Q. Do you see that?
17 15:44:59 A. Yes.
18 15:45:00 Q. And in your email to Mark
19 15:45:02 Brucker you say, "Mark, as discussed, the
20 15:45:05 relationship between default and draw dates
21 15:45:09 is not particularly meaningful or perhaps
22 15:45:11 I'm failing to grasp the significance
23 15:45:15 irrespective of when a loan defaults, pre or
24 15:45:18 post draw, we still have rep and warrant
25 15:45:21 exposure to all loans subject only to the
Page 1048
2 15:45:25 applicable statute of limitations which
3 15:45:27 typically tends to run upon discovery of
4 15:45:31 breach or other circumstances in which a
5 15:45:33 party should have known of the breach."
6 15:45:35 You go on to say, "The contract
7 15:45:37 is very clear about the process, upon
8 15:45:39 discovery by either party we have 90 days to
9 15:45:42 cure, repurchase or indemnify. The
10 15:45:44 governing documents do not contemplate
11 15:45:46 giving effect to the remedy based upon when
12 15:45:49 the loan defaulted.
13 15:45:50 "Thus, we have rep and warranty
14 15:45:52 exposure on all loans which default, and
15 15:45:55 even those which don't, although the
16 15:45:58 materiality threshold perhaps makes it less
17 15:46:00 likely that a claimant would prevail."
19 15:46:03 A. Yes.
20 15:46:06 Q. What is the nature of the
21 15:46:08 discussion you had with Mark Brucker that
22 15:46:11 led to this email?
24 15:46:12 A. Sitting here today reading
25 15:46:13 this, I have no idea. I'm trying to figure
Page 1049
2 15:46:17 out what might have prompted it.
3 15:46:23 Q. Do you understand what Mr.
4 15:46:24 Brucker was talking about in terms of a
5 15:46:26 relationship between default and draw dates?
7 15:46:30 Q. Which you say is not
8 15:46:31 particularly meaningful.
10 15:46:38 A. All I can simply, in reading my
11 15:46:40 note, you know, to Mark, I can speculate
12 15:46:45 that I'm responding to something he had
13 15:46:46 raised. And it appears to have had
14 15:46:50 something to do with, you know, timing of
15 15:46:53 draws which, as I state here, I didn't
16 15:46:56 understand why he thought that was
17 15:46:59 significant.
18 15:47:00 Q. Okay. In your email you're
19 15:47:03 saying As to the repurchase remedy, that the
20 15:47:11 remedy doesn't arise based on when the loan
21 15:47:14 defaults; is that correct?
23 15:47:17 Q. That's in the last sentence of
24 15:47:19 your first paragraph.
25 15:47:31 A. I see the sentence, yes, I'm
HIGHLY CONFIDENTIAL
58 (Pages 1050 to 1053)
Page 1050
2 15:47:33 sorry.
3 15:47:33 Q. What was your point there?
4 15:47:35 A. Again, I don't know what
5 15:47:38 prompted this. I can only read what
6 15:47:40 purports to be my email to Mark. And he
7 15:47:44 appears to have raised something about
8 15:47:45 default, the relationship of defaults to
9 15:47:49 draws. And I am addressing that.
10 15:47:54 So I would, if I am forced to
11 15:47:57 speculate on what I was intending here, it
12 15:48:01 seems to me just based on what's written or
13 15:48:05 what's written, that I'm talking about
14 15:48:08 governing contracts or documents do not
15 15:48:11 contemplate giving effect to remedy based on
16 15:48:15 when the loan defaulted in the context, you
17 15:48:18 know, of whether or not the monolines were
18 15:48:20 drawing.
19 15:48:20 I don't know that, however. I
20 15:48:21 probably shouldn't be speculating.
21 15:48:26 Q. You go on to say, "We have rep
22 15:48:28 and warranty exposure on all loans which
23 15:48:30 default, and even those which don't,
24 15:48:32 although the materiality threshold perhaps
25 15:48:34 makes it less likely that claimant would
Page 1051
2 15:48:36 prevail."
3 15:48:37 What did you mean by that?
4 15:48:41 A. My view at the time and keeping
5 15:48:43 in mind this is 2008 and we were just
6 15:48:47 getting into the monolines that I'm
7 15:48:51 basically suggesting that -- well I'm
8 15:48:56 suggesting that a loan, we have rep and
9 15:48:59 warrant exposure on loans that default. And
10 15:49:01 I am suggesting we may even have it on
11 15:49:03 others subject to, you know, materiality.
12 15:49:09 Q. Meaning that it may be harder
13 15:49:11 to establish materiality of breach if the
14 15:49:13 loan hadn't yet defaulted?
16 15:49:15 Q. Is that your claim?
17 15:49:17 A. Again, not recollecting this
18 15:49:21 specific email, but it appears that I'm
19 15:49:23 suggesting that if a loan had not defaulted,
20 15:49:27 the proof threshold would be higher than if
21 15:49:32 it defaulted, you know, based on the
22 15:49:34 materiality requirement.
23 15:49:35 Q. You would still have exposure,
24 15:49:36 but it would be harder to make out the
25 15:49:39 claim; is that fair?
Page 1052
2 15:49:40 A. Well, you'd still -- what my
3 15:49:45 note suggests that I felt there might still
4 15:49:47 be exposure, albeit in diminished or to a
5 15:49:53 diminished degree.
9 15:49:53 CWMBIA 0018625735 through 748.)
11 12:34:19 Q. Let me introduce as
12 15:50:11 Exhibit 4056 an email string from James
13 15:50:14 Baker to you, among others, dated July 10,
14 15:50:18 2009.
15 15:50:33 Here I'm focused on the email
16 15:50:35 from you which begins at the bottom of the
17 15:50:37 first page.
18 15:51:54 A. Okay.
19 15:51:55 Q. In the first sentence of your
20 15:51:57 email you say, "I provided a deep dive on
21 15:52:00 our decisioning protocol to Barbara and her
22 15:52:04 DRs today."
23 15:52:05 Is that direct reports, DRs?
24 15:52:09 A. Yes. Sorry.
25 15:52:10 Q. Okay. And by "the decisioning
Page 1053
2 15:52:12 protocol" did you mean decisioning protocol
3 15:52:16 with respect to repurchases?
4 15:52:20 A. Yes.
5 15:52:20 Q. Then there is a paragraph below
6 15:52:22 that called "Perfected Claim Filter." Was
7 15:52:28 that drafted by you or was that a response
8 15:52:31 from James Baker to you?
9 15:52:37 A. I don't understand that.
10 15:52:38 Q. Okay. In his email he says "My
11 15:52:42 responses are below in blue." Obviously we
12 15:52:44 don't have the color copy.
13 15:52:45 A. We don't have color.
14 15:52:47 Q. I don't know whether this
15 15:52:48 paragraph that says Perfected Claim Filter
16 15:52:50 is a question from Mr. Baker to you or
17 15:52:52 whether that is your email.
18 15:52:59 A. That was part of my email. I
19 15:53:01 was basically -- let me just get -- a couple
20 15:53:05 questions are raised which I would like to
21 15:53:06 get some clarification on please coordinate
22 15:53:09 responses. Then I outline basically the
23 15:53:11 four questions.
24 15:53:12 And then his comments I think
25 15:53:14 are interspersed throughout my email,
HIGHLY CONFIDENTIAL
59 (Pages 1054 to 1057)
Page 1054
2 15:53:17 although it is hard to tell.
3 15:53:18 MS. CONCANNON: There is not a
4 15:53:19 color copy of this document, but there
5 15:53:20 is one where the responses appear in
6 15:53:23 bold, I have seen it just recently. If
7 15:53:25 you want we can get you the Bates number
8 15:53:26 of that but I think you marked it as a
9 15:53:28 prior depo.
10 15:53:29 MR. SELENDY: Okay. I don't
11 15:53:30 think it will matter for my question
12 15:53:32 today.
13 15:53:34 Q. In the paragraph that says,
14 15:53:36 "Perfected Claim Filter" you ask "What stage
15 15:53:40 of implementation is our perfected claim
16 15:53:43 filter?"
17 15:53:44 What is the perfected claim
18 15:53:46 filter?
19 15:53:47 A. So I think I alluded to it
20 15:53:49 earlier in the process that we had routed
21 15:53:55 through IR. And basically what that is in
22 15:53:59 order to ensure a -- well I'll tell you what
23 15:54:05 it is and tell you what the purpose.
24 15:54:07 One was that the party
25 15:54:11 asserting the claim had the contractual
Page 1055
2 15:54:14 standing to bring the claim. So we are
3 15:54:15 dealing with the party, only those parties
4 15:54:17 that were again, you know, have standing.
5 15:54:19 Two would be that we expected
6 15:54:21 the claim to specifically cite the governing
7 15:54:26 contract and the specific rep and warrants
8 15:54:30 or warrant that were -- warranties that were
9 15:54:32 alleged to have been breached.
10 15:54:34 Three, that there was factual
11 15:54:38 support offered by the claimant. And
12 15:54:44 fourth, to the extent there was any
13 15:54:48 extrinsic evidence outside the loan file the
14 15:54:51 claimant was using to make their factual
15 15:54:55 allegations, we wanted to understand what
16 15:54:58 that was.
17 15:55:02 Q. Okay. What was the purpose of
18 15:55:04 that filter?
19 15:55:05 A. The purpose was to -- well in
20 15:55:07 the case of standing, again, consistent with
21 15:55:10 our contractual obligations we only wanted
22 15:55:13 to and only believe we had obligation to
23 15:55:20 engage on a pretty laborious claim review
24 15:55:23 and response process with those parties that
25 15:55:25 were in contractual privity with.
Page 1056
2 15:55:28 With respect to the rest it was
3 15:55:30 to ensure it was a competently stated, you
4 15:55:35 know, claim that would allow us to conduct a
5 15:55:37 review and render an assessment.
6 15:55:40 So it had, you know, the
7 15:55:43 benefit of ensuring that we could review the
8 15:55:48 claim and respond appropriately, thereby
9 15:55:51 really serving, you know, both parties. To
10 15:55:55 the extent claims were submitted in this
11 15:55:56 manner it would allow also for a more
12 15:55:59 efficient process.
13 15:56:02 Q. If all four of these
14 15:56:03 requirements were not satisfied, would the
15 15:56:08 underwriters at Bank of America not review
16 15:56:10 the repurchase demand?
18 15:56:14 A. I can't say that was
19 15:56:15 universally true. But typically if it was
20 15:56:19 materially defective in one or more of those
21 15:56:22 respects we would have responded accordingly
22 15:56:25 to the claimant. And the fact, you know, or
23 15:56:29 the experience generally was this was
24 15:56:34 something, you know, once there was an
25 15:56:36 established process with a claimant, a lot
Page 1057
2 15:56:38 of these issues would really be non-issues
3 15:56:41 because you would basically, a claimant
4 15:56:44 would basically replicate the same process,
5 15:56:48 you know, claim after claim.
6 15:56:49 Q. And your second question you
7 15:56:52 say, "Since we are obviously not reviewing
8 15:56:54 every single loan, how do we determine which
9 15:56:58 loans to subject to filter?"
11 15:57:01 A. Yes.
12 15:57:01 Q. Why did you say since we are
13 15:57:03 obviously not reviewing every single loan?
14 15:57:06 A. Well what I believe I thought
15 15:57:13 then I questioned whether we were reviewing,
16 15:57:17 you know, every claim for those four
17 15:57:20 criteria. Not that we are reviewing the
18 15:57:22 claims on substance. Because we did and we
19 15:57:25 are.
20 15:57:26 So it was, I guess, I'm going
21 15:57:30 to speculate I was questioning -- or my
22 15:57:34 supposition at the time was we couldn't be
23 15:57:36 reviewing every claim to those four criteria
24 15:57:40 on thousands of claims.
25 15:57:42 I was asking what we were
HIGHLY CONFIDENTIAL
60 (Pages 1058 to 1061)
Page 1058
2 15:57:44 doing, or at least challenging the group to
3 15:57:47 tell me otherwise.
4 15:57:50 Q. And the filter you described is
5 15:57:51 that the filter applicable to monoline
8 15:57:55 A. That was the filter applicable
9 15:58:00 to all non-GSE related claims.
10 15:58:05 Q. In the paragraph below the one
11 15:58:06 that I referred you to there is a statement
12 15:58:09 that "The claim filter is in process for all
13 15:58:12 private investor loans. Susan has
14 15:58:15 established a filter on the monoline side
15 15:58:18 that includes legal input on claims."
16 15:58:21 So were there different filters
17 15:58:22 for private investor demands versus monoline
18 15:58:25 demands?
20 15:58:29 A. I am only aware of the four
21 15:58:32 criteria that I articulated in my prior
22 15:58:37 testimony. So any other criteria would have
23 15:58:42 been outside of my knowledge and, as I said,
24 15:58:48 I would be unaware of it.
25 15:58:49 Q. You referred earlier today to a
Page 1059
2 15:58:51 check and balance between the WSG group and
3 15:58:56 investor audit. What was the purpose of
4 15:59:00 that check and balance in your mind?
6 15:59:03 A. Ultimately was to get to the
7 15:59:05 right answer. And by get to the right
8 15:59:08 answer I mean render a decision, you know,
9 15:59:11 consistent with our contractual terms in the
10 15:59:16 relevant contract.
11 15:59:20 And, you know, having two
12 15:59:21 different groups basically working jointly
13 15:59:27 on reviewing and ultimately approving loans,
14 15:59:31 you know, increased the probability that
15 15:59:34 that was going to happen.
16 15:59:36 It just, you know, struck me
17 15:59:38 and strikes me as better governance and an
18 15:59:41 important part of the process particularly
19 15:59:42 at that stage.
20 15:59:45 Q. To get, when you said to get to
21 15:59:47 the right answer, don't you really mean to
22 15:59:49 ensure that WSG and investor audit would do
23 15:59:52 everything possible to avoid having to
24 15:59:55 repurchase loans?
Page 1060
2 15:59:58 A. I think in some cases it could
3 15:59:59 mean that. In other cases it was also to --
4 16:00:04 well, look, I testified before that we
5 16:00:08 clearly did not want to buy back loans that
6 16:00:12 should otherwise be and could otherwise be
7 16:00:15 successfully defended against.
8 16:00:17 So we wanted to make sure we
9 16:00:18 were bringing to bear the appropriate, you
10 16:00:22 know, number and level of resources to
11 16:00:25 ensure that we weren't buying back loans
12 16:00:27 that we otherwise should have a successful
13 16:00:31 defense against.
14 16:00:33 Q. In fact you say later in your
15 16:00:35 email that one of the reasons you want
16 16:00:43 participation from production, you say I'll
17 16:00:50 just read it "This can inject a healthy
18 16:00:53 tension into the process as production has a
19 16:00:56 vested interest in putting forth an
20 16:01:00 explanation as to why a loan shouldn't be
21 16:01:01 produced. I think this will be a key check
22 16:01:06 and balance to ensure that WSG investor
23 16:01:07 audit are doing everything possible to avoid
24 16:01:16 having to repurchase loans. I need ops to
25 16:01:16 embark upon the process of creating a new
Page 1061
2 16:01:19 work flow feedback loop which includes
3 16:01:21 production."
6 16:01:23 A. Yes.
7 16:01:24 Q. That was a further effort to
8 16:01:25 ensure that the teams responsible for
9 16:01:30 repurchase did everything they could to
10 16:01:33 avoid repurchasing loans?
12 16:01:37 A. I think that we did everything
13 16:01:38 we could, consistent with our contractual
14 16:01:41 obligations to successfully defend against
15 16:01:43 repurchase claims.
16 16:01:48 Q. And that includes, as we talked
17 16:01:50 about earlier, only repurchasing loans that
18 16:01:52 you have to repurchase under the red face
19 16:01:54 test; right?
21 16:01:57 A. That wasn't my testimony.
22 16:02:01 Q. That was the written
23 16:02:02 documentation of your colleagues; right?
25 16:02:33 Q. We have a document that your
HIGHLY CONFIDENTIAL
61 (Pages 1062 to 1065)
Page 1062
2 16:02:34 counsel redacted last night, although we had
3 16:02:39 previously seen the full copy because it was
4 16:02:41 marked as an exhibit six or seven days ago.
5 16:02:45 We had an exchange of letters
6 16:02:47 last night. I don't know if you have a
7 16:02:49 response to our response to your letter,
8 16:02:52 Sarah?
9 16:02:52 MS. CONCANNON: Can I have a copy
10 16:02:53 of the document to make sure we're
11 16:02:55 speaking about the same one?
12 16:02:57 MR. SELENDY: This is the --
13 16:02:58 MS. CONCANNON: Yes.
14 16:02:59 MR. SELENDY: The document from
15 16:03:00 Michael Schloessmann February 2010 which
16 16:03:03 I will mark as Exhibit 4057 in the
17 16:03:06 redacted form.
18 16:03:07 MS. CONCANNON: Thank you.
23 16:03:09 MS. CONCANNON: So with reference
24 16:03:10 to this document it was reproduced to
25 16:03:12 you last night in a redacted format
Page 1063
2 16:03:16 following the last deposition about
3 16:03:17 which the witness answered some
4 16:03:19 questions on these documents I believe
5 16:03:23 subject to objection.
6 16:03:24 MS. TROMBLEY: No. Not subject
7 16:03:26 to objection.
8 16:03:26 MS. CONCANNON: Well, in any
9 16:03:27 event, following the last deposition we,
10 16:03:30 because of a certain reference in Mr.
11 16:03:31 Schloessmann's email to the retention of
12 16:03:33 counsel investigated whether in fact
13 16:03:37 this was a privileged communication.
14 16:03:40 What we determined is that while
15 16:03:42 Mr. Schloessmann's communication on
16 16:03:45 page 1141 was not an attorney-client
17 16:03:48 communication, the response of Mr.
18 16:03:49 Howard, which has now been redacted on
19 16:03:53 page 1139, moving into 1140 was
20 16:03:57 expressly incorporating information from
21 16:04:01 Countrywide counsel, Mr. Adams at
22 16:04:03 Gunster Yoakley.
23 16:04:05 And, therefore, because that
24 16:04:06 email, even though while on its face it
25 16:04:08 is not referenced that Mr. Howard had
Page 1064
2 16:04:11 been communicating with Mr. Adams, Mr.
3 16:04:13 Adams, as he would be happy to tell you,
4 16:04:16 were he here right now, did in fact
5 16:04:18 contribute to the substance of that
6 16:04:20 email.
7 16:04:21 We did redact that off as
8 16:04:24 attorney-client privileged.
9 16:04:24 MR. SELENDY: So you are standing
10 16:04:26 on your claim?
11 16:04:26 MS. CONCANNON: That's correct.
12 16:04:28 MR. SELENDY: So we will use this
13 16:04:29 exhibit today obviously reserving our
14 16:04:32 view that the document is not privileged
15 16:04:37 but we will use the redacted form that
16 16:04:39 you gave to us.
17 16:04:40 MS. CONCANNON: And I'll
18 16:04:41 represent to you based on my discussions
19 16:04:43 with Mr. Schloessmann he did not have
20 16:04:45 any communications directly with
21 16:04:48 counsel.
22 16:04:48 So you should be free to ask Mr.
23 16:04:51 Schloessmann any questions you might
24 16:04:52 want to ask about this document.
25 16:04:53 MR. SELENDY: Okay. Thank you.
Page 1065
2 16:05:01 MS. CONCANNON: So this is 4057?
3 16:05:05 MR. SELENDY: 4057.
5 12:34:19 Q. First, if I can ask you what
6 16:05:15 does this document represent? And feel free
7 16:05:17 to read it, if you didn't see it recently in
8 16:05:22 your preparation for the deposition.
9 16:05:47 A. So the email string begins with
10 16:05:49 a note from me to some members of my group
11 16:05:51 as well as Susan Welsh and Laurence Howard
12 16:05:56 of the Jacksonville group.
13 16:05:57 And basically I'm asking for
14 16:06:05 input, I recall as a follow on to
15 16:06:07 discussions I had with those in secondary
16 16:06:09 marketing that were charged with exploring
17 16:06:15 new securitization business.
18 16:06:19 And basically it was an attempt
19 16:06:22 by them to ensure they incorporated feedback
20 16:06:25 from us in terms of what we were seeing in
21 16:06:30 terms of past contracts, processes, etc.
22 16:06:33 that, you know, if given the opportunity to
23 16:06:37 improve upon, you know, reduce some of the
24 16:06:41 inherent ambiguity in contracts, things of
25 16:06:44 that nature, they wanted our insights given
HIGHLY CONFIDENTIAL
62 (Pages 1066 to 1069)
Page 1066
2 16:06:47 the role we were playing at that time.
3 16:06:51 Q. So did your team identify
4 16:06:53 multiple ways to try and change the language
5 16:06:57 of the RMBS transactions in order to make
6 16:06:59 deals more favorable for Bank of America?
9 16:07:02 A. I think in part, I guess you
10 16:07:07 could say more favorable, if you choose.
11 16:07:11 What I would say is we were endeavoring to
12 16:07:18 apply lessons learned from the aftermath of,
13 16:07:24 you know, the market implosion in August of
14 16:07:29 2007. And the recommendations were along
15 16:07:31 the lines of, as I said, clearing up
16 16:07:35 ambiguities that may have existed in the
17 16:07:37 contract. Adding provisions on issues or
18 16:07:43 processes that the PSAs never contemplated.
19 16:07:48 Including servicing provisions.
20 16:07:50 Ensuring that we had a thorough
21 16:07:52 internal vetting process for disclosures and
22 16:07:58 changes in pooling and servicing agreements
23 16:08:00 over time to ensure they kept pace with the
24 16:08:03 fluid nature of underwriting guidelines and
25 16:08:05 other changing circumstances as part of our
Page 1067
2 16:08:08 business.
3 16:08:08 And greater clarity around rep
4 16:08:11 and warrant which includes, you know, being
5 16:08:17 able to get a higher degree of certainty
6 16:08:20 that when we see and transfer the risk and
7 16:08:23 reward of a loan, that the transfer doesn't
8 16:08:25 get unwound based on, for instance, somebody
9 16:08:30 re-underwriting a loan six years later.
10 16:08:32 That was -- so issues around
11 16:08:36 sunset of reps and warrants and things of
12 16:08:39 that nature were part of this, were part of
13 16:08:44 the discussion.
14 16:08:44 Q. I was struck by your use of the
15 16:08:46 term "lessons learned" in your answer. Do
16 16:08:51 you recall the chart that McMurray had made
17 16:08:54 at Countrywide of lessons learned with
18 16:08:56 respect to the with respect to the housing
19 16:09:02 crisis?
21 16:09:03 A. I don't recall that.
22 16:09:06 Q. Are you aware -- it is John
23 16:09:07 McMurray; is that right?
25 16:09:09 Q. Are you aware that John
Page 1068
2 16:09:10 McMurray had advocated various changes be
3 16:09:13 made to the transaction documents going
4 16:09:14 forward in order to reduce the rep and
5 16:09:17 warranty liability for Countrywide?
7 16:09:22 A. I don't remember specifically
8 16:09:23 that. I do remember John having concerns
9 16:09:26 around, you know, the contracts and making
10 16:09:28 sure the contracts that we weren't making
11 16:09:33 reps and warranties that we didn't think we
12 16:09:35 needed to or were standard as a condition of
13 16:09:38 securitizing loans and things of that
14 16:09:40 nature.
15 16:09:40 But specifically the lessons
16 16:09:42 learned you referred to, I'm not sure if
17 16:09:44 I've seen those.
18 16:09:47 Q. Do you recall that Mr. McMurray
19 16:09:49 had wanted Countrywide to introduce a
20 16:09:54 restriction on its rep and warranties such
21 16:09:57 there would have to be a causal connection
22 16:09:59 between a breach and a default in order for
23 16:10:03 there to be repurchase liability?
25 16:10:07 A. As I said, I don't remember any
Page 1069
2 16:10:10 of these again lessons learned, including
3 16:10:15 that one specifically.
4 16:10:17 Q. Was that one of the requests
5 16:10:18 that your team had with respect to how to
6 16:10:20 change the securitizations going forward?
8 16:10:26 A. Well separate and apart from
9 16:10:28 McMurray --
10 16:10:29 Q. Yes.
11 16:10:30 A. -- who has long since left.
12 16:10:32 Q. Yes.
13 16:10:33 A. I will go back and refresh. I
14 16:10:37 believe I saw some reference to here further
15 16:10:40 definition of what is meant by material
16 16:10:42 breach. I thought I saw something along
17 16:10:47 those lines.
18 16:11:11 I don't necessarily see it
19 16:11:13 here. It wouldn't surprise me if that was
20 16:11:15 one of the suggestions that was given. That
21 16:11:17 happens to be an area that is being
22 16:11:18 litigated at the present time.
23 16:11:25 Q. Do you recall whether there was
24 16:11:25 a suggestion to exclude the representation
25 16:11:28 regarding borrower fraud?
HIGHLY CONFIDENTIAL
63 (Pages 1070 to 1073)
Page 1070
4 16:11:35 A. Well in the legacy
5 16:11:37 securitization docs, at least for legacy
6 16:11:39 Countrywide there was no borrower fraud. So
7 16:11:43 I don't know if that was one of the
8 16:11:45 suggestions. If you want me to read,
9 16:11:52 certainly we would not have changed our view
10 16:11:54 on that.
11 16:11:55 Q. Looking at the third bullet
12 16:11:57 point of Kathryn Martin's email to you, she
13 16:12:01 states, "Controls around what versions of
14 16:12:04 guidelines are released to counterparties
15 16:12:06 prior to the deal closing."
16 16:12:08 What did that concern refer to?
17 16:12:11 A. It's Kathryn's email, her
18 16:12:15 input, I can just tell you from my general
19 16:12:17 knowledge and awareness of this issue and
20 16:12:19 Countrywide's evolving underwriting
21 16:12:22 guidelines is, you know, the market was
22 16:12:23 constantly changing. So lenders were
23 16:12:26 updating their guidelines.
24 16:12:29 And what Kathryn is alluding
25 16:12:31 to, I believe, is the need to have controls
Page 1071
2 16:12:33 to ensure that we track what guidelines are
3 16:12:37 being provided to which counterparties and
4 16:12:41 making sure they're getting current
5 16:12:43 guidelines. And that we're documenting
6 16:12:46 their, you know, receipt of those
7 16:12:49 guidelines.
8 16:12:49 Q. Was there an issue with respect
9 16:12:51 to Countrywide having failed to provide to
10 16:12:57 counterparties the actual guidelines that
11 16:12:59 controlled the origination of loans in the
12 16:13:02 RMBS securitizations?
14 16:13:05 A. Well, I'm not aware of
15 16:13:07 Countrywide ever not providing guidelines
16 16:13:10 upon request. I can only speculate. Look,
17 16:13:14 I would be speculating if I was to say that
18 16:13:20 her comment here was as a result of not
19 16:13:25 providing the guidelines or not being able
20 16:13:28 to provide or find, you know, evidence in an
21 16:13:32 email or otherwise of those guidelines.
22 16:13:34 That's all I really know specific to this
23 16:13:37 bullet point.
24 16:13:40 Q. On the first bullet point which
25 16:13:42 says, "Statute of limitations on reps and
Page 1072
2 16:13:45 warranties" is that the issue you described
3 16:13:47 about wanting to have a sunset provision so
4 16:13:49 you wouldn't face a claim of breach six
5 16:13:52 years after the securitization closed?
6 16:13:55 A. Yeah, I think -- well, again,
7 16:13:57 Kathryn's note, what this -- the way I read
8 16:14:00 it in looking at this yesterday in
9 16:14:04 preparation, is that it was not necessarily
10 16:14:07 statute of limitations because you're not
11 16:14:09 going to change, I guess you could change
12 16:14:11 the State law or governing law. But it
13 16:14:14 really was around the sunset.
14 16:14:17 After some period of time with
15 16:14:18 respect to some of the representations and
16 16:14:20 warranties, I think you've seen a lot of,
17 16:14:23 you know, support mobilized across the
18 16:14:25 industry for some point in time where, you
19 16:14:29 know, we're not going to be litigating
20 16:14:31 underwriting decisions made years before.
21 16:14:33 So I think that is a sunset or
22 16:14:37 suggestion for a sunset of certain reps.
23 16:14:40 Q. When you say for certain reps,
24 16:14:42 what reps are you thinking of? How would
25 16:14:48 you distinguish between the reps Countrywide
Page 1073
2 16:14:49 would want to have sunset provision for
3 16:14:51 versus the others?
5 16:14:52 A. Look, my personal view, my
6 16:14:59 business judgment is you'd love to have, you
7 16:15:02 know, love to sell loans with no reps and
8 16:15:03 warranties and have as little residual risk
9 16:15:06 as possible. Any responsible company would
10 16:15:08 endeavor to manage their business that way.
11 16:15:11 The practical reality is you're
12 16:15:13 going to make reps and warrants. And to the
13 16:15:16 extent you're making an argument they should
14 16:15:19 expire at some point in time, there are
15 16:15:21 certain issues like if you had a loan you
16 16:15:27 didn't have an enforceable note or wasn't a
17 16:15:29 perfected first lien, that's very different
18 16:15:31 than going back and arguing about prudent
19 16:15:34 underwriting and was it an exception to
20 16:15:38 guidelines reasonable six years ago or
21 16:15:40 whatever.
22 16:15:41 So I think, as I think about
23 16:15:45 choosing a subset of reps, I think it is
24 16:15:47 basically my advice I provided to the
25 16:15:50 secondary marketing folks were really around
HIGHLY CONFIDENTIAL
64 (Pages 1074 to 1077)
Page 1074
2 16:15:52 those types of representations and
3 16:15:55 warranties that were most problematic. And
4 16:15:58 ones for which I think having debate six
5 16:16:01 years after the fact around underwriting
6 16:16:02 when it would have been far more reliable to
7 16:16:06 do it contemporaneous with the originations,
8 16:16:08 as was the option, right, that's the
9 16:16:11 direction we needed to go as a condition of
10 16:16:16 doing securitizations.
11 16:16:16 Q. At the beginning of your answer
12 16:16:19 you said it would be desirable not to have
13 16:16:21 any reps and warranties, but the practical
14 16:16:23 reality you are going to have to have it.
15 16:16:25 Why is that the practical reality?
17 16:16:27 A. Again, my personal view,
18 16:16:29 business experience dealing in the capital
19 16:16:33 markets, when you sell loans, right, you're
20 16:16:35 expected to have, to make certain
21 16:16:37 representations and warranties.
22 16:16:39 So that has become standard and
23 16:16:42 customary in the business. To not makes
24 16:16:44 reps and warrants would materially alter the
25 16:16:49 complexion of the deal and frankly pricing
Page 1075
2 16:16:51 of the deal. Not that you couldn't do it.
3 16:16:52 But you couldn't do it in a price
4 16:16:54 competitive sort of way, in my judgment,
5 16:16:56 having been removed from the capital markets
6 16:16:58 for the last five years.
7 16:16:59 Q. What's your understanding of
8 16:17:02 the basis of the expectations that reps and
9 16:17:03 warranties be made with respect to loans?
11 16:17:10 A. Sorry, I don't understand.
12 16:17:11 Q. Why was there an investor
13 16:17:13 expectation that reps and warranties would
14 16:17:15 be made with respect to loans in
15 16:17:16 securitizations?
17 16:17:20 Q. Do you understand the basis of
18 16:17:22 that expectation?
19 16:17:22 A. I know, you know, based, I can
20 16:17:26 only tell you based on my knowledge and
21 16:17:29 experience and involvement in the business
22 16:17:30 for 20 years that it was usual and customary
23 16:17:36 to provide loan level representation,
24 16:17:38 different variations, but nonetheless a set
25 16:17:42 of loan level representations on every home
Page 1076
2 16:17:45 loan securitization transactions for the
3 16:17:47 most part.
4 16:17:48 Q. Is that because the
5 16:17:49 underwriters of the deal had better
6 16:17:50 information into the loan quality and the
7 16:17:53 investors?
9 16:17:56 A. No there was -- well, we could
10 16:18:02 spend some time here. Look, the investors
11 16:18:08 and insurers have an opportunity to do
12 16:18:11 thorough due diligence. So there is much
13 16:18:14 that can be accomplished if you're, as an
14 16:18:18 investor an insurer so inclined.
15 16:18:21 That having been said, there
16 16:18:22 are some things that you would not
17 16:18:26 necessarily be able to determine on a, you
18 16:18:32 know, on something other than maybe a cost
19 16:18:34 prohibitive basis.
20 16:18:35 So, you know, the notion of
21 16:18:37 having reps and warranties I think is fine.
22 16:18:43 I don't know if it is for the reason you
23 16:18:45 mentioned. But I think really the question
24 16:18:48 comes down to what can be determined, for
25 16:18:51 instance, I would say matters of
Page 1077
2 16:18:53 underwriting okay, prudency of underwriting
3 16:18:56 can be readily determined by conducting due
4 16:19:01 diligence.
5 16:19:02 In fact, you know, plenty of
6 16:19:04 parties have chosen to do that as a way of
7 16:19:06 managing its risk. As opposed to engaging
8 16:19:11 in debate years later on again that same
9 16:19:14 issue, of reasonable exceptions, prudency of
10 16:19:17 underwriting. That kind of thing.
11 16:19:18 Other issues, right, are not --
12 16:19:21 don't lend themselves as well to doing a
13 16:19:26 review up front. And therefore the reps and
14 16:19:29 warranties make more sense.
15 16:19:32 Q. If you don't have the loan
16 16:19:33 files there is a limit to how much due
17 16:19:35 diligence you can do; right?
19 16:19:38 A. That is true.
20 16:19:47 Q. Going down the fifth bullet
21 16:19:49 point states, "Clarification of the no
22 16:19:50 default rep and warranty."
24 16:19:54 issue refers to?
25 16:19:56 A. I believe I do.
HIGHLY CONFIDENTIAL
65 (Pages 1078 to 1081)
Page 1078
2 16:19:57 Q. What does that refer to?
3 16:20:04 A. It is to address what we
4 16:20:07 perceive to be the attempt by some parties
5 16:20:10 to basically manufacture a no fraud rep
6 16:20:20 where none was negotiated when there is a
7 16:20:24 customary rep that parties that choose to
8 16:20:28 require a fraud rep, know exactly what that
9 16:20:31 rep is.
10 16:20:32 And it's basically an
11 16:20:35 unmistakable statement around there being no
12 16:20:39 fraud on the loan, as opposed to what I
13 16:20:43 would refer to as a back door attempt at
14 16:20:46 getting that which wasn't negotiated up
15 16:20:50 front in a far more unambiguous way.
16 16:20:59 Q. In your email of February 4 at
17 16:21:01 4:07 p.m. which is the last page of this you
18 16:21:06 said you were going to pass along
19 16:21:08 information Sidley. Did you ever do that?
20 16:21:13 I'm just asking for a yes or no answer.
21 16:21:19 A. Where do I say that?
22 16:21:20 Q. You say "I am getting on a call
23 16:21:22 with Sidley next week in connection with
24 16:21:24 their likely engagement as issuer's
25 16:21:27 counsel."
Page 1079
3 16:21:33 MS. CONCANNON: Can you repeat
4 16:21:34 the question.
5 16:21:34 A. Where am I here? Oh, yeah,
6 16:21:35 sorry. That's looking down further so.
7 16:21:41 Did I get on a call?
8 16:21:42 Q. My question is did you ever
9 16:21:44 pass along this information to Sidley? It is
10 16:21:47 just a yes or no.
11 16:21:50 A. I don't know.
17 12:34:19 Q. I am marking as Exhibit 4058 a
18 16:22:25 presentation with a cover email from Susan
19 16:22:29 Welsh to you which Susan then forwards along
20 16:22:35 to Mike Malloy. It is BACMBIA-X 428762
21 16:22:42 through 793.
22 16:23:09 MS. CONCANNON: Can we just go
23 16:23:10 off the record for a second so I can
24 16:23:12 consult with counsel to Bank of America?
25 16:23:14 MR. SELENDY: Okay.
Page 1080
3 16:23:16 4:23 p.m. We're going off the record.
6 16:24:32 4:25 p.m. We are on the record.
8 16:24:35 Q. So, as of May 2009, what was
9 16:24:38 Susan Welsh's responsibility?
10 16:24:42 A. Susan, as I testified earlier,
11 16:24:47 managed the special assets group out of
12 16:24:50 Jacksonville.
13 16:24:52 Q. Okay. And I'd like to direct
14 16:24:54 your attention to the attached presentation
15 16:24:59 which is entitled Countrywide Monoline
16 16:25:06 Dispute Resolution Strategy. It is the page
17 16:25:10 ending in 8792. The heading on that page is
18 16:25:19 Initial Path to Resolution.
19 16:25:22 Much of the page is redacted.
20 16:25:26 I will just read the bits that are not
21 16:25:28 redacted.
22 16:25:29 A. Just give me a second.
23 16:25:31 MS. CONCANNON: Second to last
24 16:25:32 page of the document.
25 16:25:39 Q. Are you there?
Page 1081
2 16:25:40 A. Yes.
3 16:25:40 Q. It states, "Exposure can be
4 16:25:42 better contained through loan by loan
5 16:25:45 analysis, even if extrapolation is
6 16:25:47 eventually required to get to resolution."
7 16:25:50 The first point under that is
8 16:25:52 redacted. The next point says, "Loan level
9 16:25:54 review has provided invaluable information
10 16:25:57 and insight into the underwriting
11 16:26:00 practices."
12 16:26:01 Then below that it states,
13 16:26:03 "Loan level review is extremely
14 16:26:06 time-consuming, will never be completed in a
15 16:26:09 time frame that is acceptable to the
16 16:26:11 monolines and defending issues has been
17 16:26:13 problematic in many instances."
19 16:26:20 A. I do.
20 16:26:21 Q. Was it your judgment that
21 16:26:22 exposure to the monolines could be better
22 16:26:24 contained through a loan by loan analysis as
23 16:26:29 Susan Welsh's presentation stated?
25 16:26:37 A. I don't know at this time,
HIGHLY CONFIDENTIAL
66 (Pages 1082 to 1085)
Page 1082
2 16:26:38 whenever the date is in May of 2009 whether
3 16:26:45 I believed a loan level path or a global
4 16:26:49 settlement was better from a, you know,
5 16:26:54 economic impact standpoint.
6 16:27:00 Q. Is it fair to say you did agree
7 16:27:01 with the point loan level review is
8 16:27:03 extremely time-consuming?
9 16:27:09 A. Is it time-consuming? I
10 16:27:11 testified it is laborious, yes. It is a
11 16:27:13 very involved process.
12 16:27:17 Q. Did you also agree with her
13 16:27:19 statement back in mid 2009 that the loan
14 16:27:23 level review would never be completed in a
15 16:27:25 time frame that's acceptable to the
16 16:27:27 monolines?
18 16:27:33 A. Again, hard to say what I
19 16:27:38 believed at the time. In general my
20 16:27:41 recollection and understanding of what we
21 16:27:45 were faced with, you know, I did believe
22 16:27:49 that the monolines, you know, the process
23 16:27:53 because we were not, for instance, seeing
24 16:27:57 the process completed with respect to many
25 16:27:59 loans unless we were buying loans back.
Page 1083
2 16:28:02

10 16:28:23 So absent a claims were being
11 16:28:29 resolved either through repurchase and
12 16:28:31 rescissions, it was hard to see how we were
13 16:28:33 going to complete that process without
14 16:28:35 substantial numbers in impasse. I can only
15 16:28:39 guess that is what Susan is alluding to.
16 16:28:42 That was, you know, that is I believe would
17 16:28:44 have been my view at the time.
18 16:28:46 Q. Do you understand the basis of
19 16:28:47 her statement that defending issues has been
20 16:28:50 problematic in many instances?
21 16:28:54 A. I don't know specifically what
22 16:28:55 she's alluding to. I mean again it would
23 16:28:59 call for me to speculate.
24 16:29:05 Q. Are you aware generally of
25 16:29:06 categories in which Countrywide found it
Page 1084
2 16:29:08 more difficult to defend its loans with
3 16:29:12 respect to the monoline transactions?
5 16:29:18 A. I'm not sure -- well, no, I
6 16:29:20 don't know if the monolines pose any sort of
7 16:29:22 uniqueness, you know. It's the loans which
8 16:29:27 we securitized and other PLS transactions
9 16:29:30 that weren't necessarily wrapped by the
10 16:29:33 monolines. So I'm not sure I would connect
11 16:29:39 the two.
12 16:29:40 Q. Okay. Can you please turn back
13 16:29:41 to the page ending in 775 this slide states
14 16:29:51 Current Status Transaction Representations.
16 16:29:57 A. Okay.
17 16:29:57 Q. There are four representations
18 16:29:59 on this page. The first one is the
19 16:30:04 representation "As of the closing date each
20 16:30:06 mortgage loan was originated in accordance
21 16:30:08 with the sponsor's underwriting guidelines
22 16:30:09 and the sponsor had no knowledge of any fact
23 16:30:13 that would have caused a reasonable
24 16:30:15 originator to conclude each such mortgage
25 16:30:18 loan would not be paid in full."
Page 1085
3 16:30:21 A. Yes.
4 16:30:21 Q. The second one states, "As of
5 16:30:23 the closing date no default exists under any
6 16:30:26 applicable mortgage note or applicable
7 16:30:28 mortgage loan." Right?
8 16:30:31 A. Correct.
9 16:30:32 Q. The third one states, "Before
10 16:30:34 the approval of an application, an appraisal
11 16:30:37 of the related mortgaged property was
12 16:30:39 obtained from a qualified appraiser."
13 16:30:42 And the fourth states,
14 16:30:44 "Exceptions to underwriting guidelines are
15 16:30:45 made when compensating factors are present."
16 16:30:48 Did I read those last two
17 16:30:51 correctly?
18 16:30:51 A. As written, yes.
19 16:30:53 Q. Okay. Were these selected out,
20 16:30:56 do you know, as the four most important
21 16:30:59 representations generally in the monoline
22 16:31:01 transaction?
25 16:31:07 A. I don't have enough context to
HIGHLY CONFIDENTIAL
67 (Pages 1086 to 1089)
Page 1086
2 16:31:08 know why Susan selected those. Or for that
3 16:31:14 matter, whether these representations exist
4 16:31:16 in every one of monoline wrapped deals.
5 16:31:23 Q. Okay. Do you know what the
6 16:31:24 presentation is she was referring to in her
7 16:31:28 cover email to you?
8 16:31:31 A. I mean this deck?
9 16:31:34 Q. Okay. She says she prepared it
10 16:31:36 "when Joe, Craig were coming to Jax earlier
11 16:31:39 this month" by which I assume she means
12 16:31:43 Jacksonville. Who are Joe and Craig?
13 16:31:46 A. Joe, Joe Price. And Craig
14 16:31:48 Rosato.
15 16:31:51 Q. So is she referring do you know
16 16:31:53 to a presentation made to the two of them
17 16:31:55 about the monoline dispute resolution
18 16:31:58 strategy?
20 16:32:01 A. I don't have specific
21 16:32:02 recollection of this. So just in reading
22 16:32:03 her note it appears that's what she's
23 16:32:09 telling me.
24 16:32:09 Q. Do you recall any discussion
25 16:32:10 with her about this document?
Page 1087
2 16:32:20 A. I don't have any specific
3 16:32:21 recollection about this document. There are
4 16:32:22 a lot of decks and a lot of conversations.
5 16:32:27 Q. Do you recall any discussion
6 16:32:28 with her generally about the monoline
7 16:32:31 dispute resolution strategy, with Susan
8 16:32:35 Welsh?
9 16:32:35 A. Not the specifically other than
10 16:32:36 general awareness and acknowledgment that
11 16:32:39 Susan and I probably had a thousand
12 16:32:41 conversations. And given that we
13 16:32:42 communicated regularly, you know, it would
14 16:32:45 have -- I would expect that we would be
15 16:32:49 talking about this and other monoline
16 16:32:51 related issues.
17 16:33:02 Q. Okay. Did you develop any
18 16:33:03 preferred approach on how to review the
19 16:33:06 loans that were the subject of monoline
20 16:33:08 repurchase demands beyond what we discussed
21 16:33:12 already today?
22 16:33:14 A. An approach to the loan level
23 16:33:16 review of claims?
24 16:33:17 Q. Yes. Yes.
25 16:33:20 A. I'm not following.
Page 1088
2 16:33:21 Q. Okay. All right. So you don't
3 16:33:24 recall any discussion about how you would
4 16:33:28 put together the teams that would review the
5 16:33:30 monoline repurchase demands?
6 16:33:35 A. Look, I have general awareness
7 16:33:37 and recollection of, again, many
8 16:33:39 conversations that we had around legal
9 16:33:42 issues with counsel. Around process.
10 16:33:46 Around volumes. And how we were, you know,
11 16:33:50 executing our repurchase responsibilities in
12 16:33:53 this space. Both internal audit -- investor
13 16:33:57 audit and workout strategies, including the
14 16:34:01 Jacksonville team.
15 16:34:02 So we undoubtedly had
16 16:34:04 conversations around the process and people
17 16:34:08 and what we had stacked against us. I just
18 16:34:11 don't have specific recall.
19 16:34:13 Q. Did Susan Welsh report directly
20 16:34:16 to you?
21 16:34:16 A. No. She was outside of my
22 16:34:19 organization. In fact I would typically
23 16:34:22 represent it as a dotted line because it
24 16:34:24 was -- she were doing work, as I testified
25 16:34:26 earlier really on behalf of the workout
Page 1089
2 16:34:29 strategies group.
3 16:34:33 Q. Do you know who Ms. Welsh
4 16:34:35 reported to?
5 16:34:38 A. I believe at this time it
6 16:34:41 was -- let me get my timing right -- June of
7 16:34:44 '09, I believe it was Craig Rosato.
8 16:34:50 MR. BURTON: Counsel, I am just
9 16:34:51 going to put on this the record while
10 16:34:52 this document was redacted as with
11 16:34:55 others we reserve our rights to the
12 16:34:56 extent there is additional information
13 16:34:59 in this document that should be withheld
14 16:35:03 on privileged ground. I understand I'm
15 16:35:08 sure you reserve your rights as well,
16 16:35:09 but I'm putting on the record we reserve
17 16:35:11 our rights in that regard as well.
18 16:35:15 MR. SELENDY: Understood and we
19 16:35:16 do reserve ours.
20 16:35:17 Actually I am going to move on to
21 16:35:20 another document at this point.
23 16:35:32 Q. This one is rather large, in
24 16:35:33 fact I'm only going to ask you about one
25 16:35:35 page. Had I known how large it was perhaps
HIGHLY CONFIDENTIAL
68 (Pages 1090 to 1093)
Page 1090
2 16:35:39 it wouldn't be here.
8 16:35:42 Q. Let's mark as Exhibit 4059 a
9 16:35:44 set of documents titled Repurchase Approval
10 16:35:49 Process, CWMBIA 18592035 through 2341.
11 16:36:21 The page I would like to ask
12 16:36:22 you about is ending in Bates number 2139.
13 16:36:30 MS. CONCANNON: Take your time to
14 16:36:31 orient yourself. I agree we can save
15 16:36:33 some time if you go to 2139. Make sure
16 16:36:36 you have it in context.
17 16:37:54 Q. Okay. So my question is
18 16:37:55 whether the purpose stated in the -- well
19 16:37:58 let me backup.
20 16:37:59 Do you know what "CRM others
21 16:38:02 procedures" refers to?
22 16:38:05 A. CRM would have been credit risk
23 16:38:09 management, which was a legacy Countrywide
24 16:38:11 designation.
25 16:38:14 Q. And how about the use of the
Page 1091
2 16:38:15 term "others" is that referring to
3 16:38:19 procedures other than different sets of
4 16:38:22 procedures?
6 16:38:25 A. Well, let me see if I can
7 16:38:29 develop an understanding based on what
8 16:38:31 precedes it.
9 16:39:05 MS. TROMBLEY: If it helps, the
10 16:39:06 table of contents starts at 2039.
11 16:40:04 A. It's hard for me to say what
12 16:40:07 this is to determine what "Others" refers
13 16:40:10 to.
14 16:40:12 Q. Okay. Is it fair to say that
15 16:40:18 this statement of purpose at the top of page
16 16:40:20 2139 referred to the purpose of the
17 16:40:24 repurchase group as of October 2008?
19 16:40:31 A. Where are we?
20 16:40:32 Q. Back to page 2139.
21 16:40:34 A. Sorry. Well, I see this
22 16:40:39 document was circulated in October 2008. It
23 16:40:46 has legacy Countrywide references. And just
24 16:40:50 given how voluminous the document is, I
25 16:40:53 strongly suspect this document was in
Page 1092
2 16:40:55 existence for a time period well before I
3 16:41:02 got involved.
4 16:41:03 And therefore, you know, the
5 16:41:04 purpose may not -- the purpose indicated on
6 16:41:07 this page in the middle of the document
7 16:41:10 doesn't at all to me suggest that would have
8 16:41:12 been, you know, aligned or consistent with
9 16:41:17 what we were trying to do in terms of my
10 16:41:19 repurchase responsibility. So...
11 16:41:22 Q. Isn't the description of
12 16:41:24 purpose consistent with your own
13 16:41:27 description, specifically that "The
14 16:41:29 repurchase group's objective is to minimize
15 16:41:32 losses to Countrywide by refuting the
16 16:41:34 validity of investor repurchase requests
17 16:41:37 while also maintaining a credible
18 16:41:41 relationship with the investor?"
20 16:41:44 A. I didn't mean to offer, you
21 16:41:46 know, my assessment whether I agreed or
22 16:41:48 disagreed with it. It's just this document,
23 16:41:51 I suspect from its contents was done well
24 16:41:57 before my involvement in the process.
25 16:41:59 Are you asking me whether --
Page 1093
2 16:42:01 Q. Okay. I accept this was the
3 16:42:03 statement of purpose before you became
4 16:42:04 involved. Was it a fair description of the
5 16:42:07 purpose after you became involved?
7 16:42:09 Q. With respect to the purpose of
8 16:42:10 the repurchase group at Countrywide Home
9 16:42:13 Loans.
11 16:42:20 A. I have testified that my
12 16:42:21 guidance that I have communicated time and
13 16:42:27 time again throughout the years has been,
14 16:42:32 you know, that our chief, one of our chief
15 16:42:35 mandates is the vigorous, yet credible
16 16:42:38 defense of all claims consistent with our
17 16:42:40 contractual obligations.
18 16:42:41 So to the extent you can
19 16:42:44 interpret those along similar lines, then I
20 16:42:47 wouldn't necessarily take issue with it. I
21 16:42:49 wouldn't necessarily have drafted it exactly
22 16:42:51 that way, but, again, I can just state what
23 16:42:55 my understanding of the group's mandate was
24 16:42:57 and what I had communicated over the years.
25 16:43:00 Q. When you say vigorous yet
HIGHLY CONFIDENTIAL
69 (Pages 1094 to 1097)
Page 1094
2 16:43:03 credible defense is that the same in your
3 16:43:06 mind as refuting the validity of investor
4 16:43:09 repurchase requests to the maximum ability
5 16:43:11 that one can?
7 16:43:16 A. I think you can infer that it's
8 16:43:19 the same if you read it in such a way that
9 16:43:22 refuting the validity of investor repurchase
10 16:43:25 requests while also maintaining a credible
11 16:43:28 relationship is, you know, that latter part
12 16:43:30 is synonymous with, you know, consistent
13 16:43:33 with contractual obligations which I think
14 16:43:36 is a fair interpretation. But, again, I had
15 16:43:42 not drafted this, I don't know what was
16 16:43:44 intended here.
17 16:43:47 MR. SELENDY: Let's mark as
18 16:43:48 Exhibit 4060 a document BACMBIA-X 429484
19 16:44:02 with several attachments. The last
20 16:44:04 Bates number is 9518.
21 16:44:16 Sorry they are tif files 9519,
22 16:44:25 9520, 9521, 9522, 23 and 24 attached.
Page 1095
2 16:43:50 numbers BACMBIA-X 0000429484 through
3 16:43:50 9524.)
5 16:45:26 Q. Here, first I would like to
6 16:45:27 establish whether you've seen the document
7 16:45:30 before.
8 16:45:36 A. I'm copied on this from Brian
9 16:45:39 Barnes or what appears to be an email from
10 16:45:42 Brian Barnes to me and many others. It does
11 16:45:44 purport to be a ROG deck which is a regular
12 16:45:50 management routine I participated in and
13 16:45:52 often led. So I have no reason to think I
14 16:45:57 did not see this.
15 16:45:59 Q. I would like to direct your
16 16:46:00 attention to Appendix 11 which has Bates
17 16:46:03 number ending in 9518.
18 16:46:12 A. Okay.
19 16:46:12 Q. Do you see it lists outbound
20 16:46:14 claim review criteria?
21 16:46:15 A. Yes.
22 16:46:21 Q. Does this refer to the criteria
23 16:46:23 governing the circumstances under which Bank
24 16:46:26 of America would initiate repurchase demands
25 16:46:27 to other entities?
Page 1096
3 16:46:34 A. Well the review criteria would
4 16:46:35 indicate loans selected for review, not
5 16:46:41 necessarily repurchase demands asserted
6 16:46:45 which only a review of those loans would
7 16:46:47 dictate.
8 16:46:50 Q. Okay. So this was like an
9 16:46:53 initial screen which determined which loans
10 16:46:54 Bank of America would review for potential
11 16:46:58 outbound repurchases; is that fair?
13 16:47:01 A. So based on my recollection of
14 16:47:02 our outbound process, that is correct.
15 16:47:06 Q. The first two bullets state
16 16:47:08 "Previous review criteria" and "New review
17 16:47:11 criteria."
18 16:47:11 If you could take a look at
19 16:47:14 those I'd like to understand what the change
20 16:47:19 was in the review criteria and why it was
21 16:47:21 adopted.
23 16:47:34 Q. Just to address your counsel's
24 16:47:37 objection, let's do those in two parts.
25 16:47:39 MS. CONCANNON: And as a
Page 1097
2 16:47:40 question.
3 16:47:40 Q. First, was there a change in
4 16:47:42 the review criteria as of October 2009?
5 16:48:19 A. Okay. Sorry, the question?
6 16:48:21 Q. Was there a change in the
7 16:48:22 review criteria for outbound claims?
8 16:48:24 A. I don't have specific
9 16:48:26 recollection of this page or the activity
10 16:48:31 it's referencing. I can only make the
11 16:48:35 assumption, you know, whether right or
12 16:48:40 wrong, by referencing previous and new
13 16:48:42 review criteria. At least it was being
14 16:48:44 proposed. I don't know whether it was
15 16:48:48 needed to be approved. And if so, whether
16 16:48:50 in fact it was approved. But I can only see
17 16:48:53 what's written here.
18 16:48:54 Q. Under the heading Previous
19 16:48:56 Review Criteria, it states that for BANA,
20 16:49:00 the criteria was to "Review all loans that
21 16:49:03 go 90 days delinquent."
22 16:49:06 Whereas for Countrywide Bank it
23 16:49:08 was to "Review all loans that go 60 days
24 16:49:11 delinquent before 18 payments are made." Is
25 16:49:13 that right?
HIGHLY CONFIDENTIAL
70 (Pages 1098 to 1101)
Page 1098
2 16:49:16 A. That's what it says.
3 16:49:19 Q. And the new review criteria
4 16:49:21 states that "Sellers will be bucketed into
5 16:49:24 two categories based on whether the
6 16:49:25 enterprise-wide exposure is greater on the
7 16:49:28 inbound or outbound side."
9 16:49:32 A. Yes.
10 16:49:32 Q. What does that mean whether the
11 16:49:36 enterprise-wide exposure is greater on the
12 16:49:38 inbound or outbound side?
14 16:49:45 A. It means we were looking at
15 16:49:47 both, for a given seller we were looking at,
16 16:49:50 you know, whether we had more inbound or
17 16:49:52 outbound exposure to the extent we had both
18 16:49:55 with a particular seller.
19 16:49:59 Q. Why would that affect the
20 16:50:00 review criteria for the Bank of America
21 16:50:03 review of loans that would be reviewed for
22 16:50:07 potential repurchase demands?
24 16:50:14 A. I am trying to remember. What
25 16:50:17 we were -- I know we were trying to ensure
Page 1099
2 16:50:22 that parties that, you know, were pressing
3 16:50:25 claims against us and that we had awareness
4 16:50:27 that we had claims against them as well so
5 16:50:31 we could take advantage of setoff rights, if
6 16:50:34 they existed contractually. Or just for
7 16:50:39 purposes of negotiating the settlement would
8 16:50:44 not have wanted to negotiate a settlement on
9 16:50:46 one side without considering our claims
10 16:50:48 against them.
11 16:50:50 That's foremost in my mind in
12 16:50:51 terms of why sizing up sort of the relative
13 16:50:55 inbound and outbound exposures were
14 16:50:58 relevant.
15 16:50:59 Q. But do you see that the review
16 16:51:04 criteria actually vary according to whether
17 16:51:06 the sellers fall in the category of more
18 16:51:09 inbound exposure or more outbound exposure?
20 16:51:20 A. I see that.
21 16:51:22 Q. Why is there a difference?
22 16:51:31 A. Well, my recollection in
23 16:51:33 looking at this table is to the extent we
24 16:51:35 had more inbound exposure to a counterparty,
25 16:51:43 we were aware that, you know, the same teams
Page 1100
2 16:51:46 in both organizations often times were
3 16:51:48 conducting the activity.
4 16:51:50 And we needed to be mindful of
5 16:51:54 that given that, you know, what we were
6 16:51:58 asserting on the outbound we would, even
7 16:52:02 underwriting that the contract varied from
8 16:52:04 deal to deal and often times the outbound
9 16:52:07 and inbound contracts vary considerably.
10 16:52:10 That as a practical matter we would be, you
11 16:52:14 know, we would have to expect, I think we
12 16:52:16 had reason to expect counterparties using
13 16:52:21 same defenses we did, irrespective of
14 16:52:24 contractual differences.
15 16:52:26 So it was just a, as I recall
16 16:52:27 it, a pragmatic consideration as to what we
17 16:52:30 wanted to do, you know, because we thought
18 16:52:33 it might, you know, impact our, you know,
19 16:52:36 ability to collect or have the reverse
20 16:52:39 effect of having parties, you know,
21 16:52:42 asserting claims adopt positions, even again
22 16:52:45 without regard to contractual differences,
23 16:52:47 but used based on argument and defenses
24 16:52:51 proffered.
25 16:52:53 Q. So the concern was with respect
Page 1101
2 16:52:55 to sellers where Bank of America had more
3 16:52:58 inbound exposure, you didn't want to adopt
4 16:53:01 standards that those sellers may then try
5 16:53:04 and against Bank of America for their own
10 16:53:14 A. I'm not sure how that differs
11 16:53:17 from my prior testimony.
12 16:53:18 Q. I thought I was simply
13 16:53:21 restating it in a shorter form.
14 16:53:23 Notwithstanding the objections.
15 16:53:25 Could you please restate the
16 16:53:27 question and see if the witness agrees.
17 16:53:27 (The pending question was read as
18 16:53:27 follows:
19 16:52:53 "Question: So the concern was
20 16:52:54 with respect to sellers where Bank of
21 16:52:57 America had more inbound exposure, you
22 16:53:00 didn't want to adopt standards that
23 16:53:03 those sellers may then try and against
24 16:53:06 Bank of America for their own repurchase
25 16:53:08 demands?")
HIGHLY CONFIDENTIAL
71 (Pages 1102 to 1105)
Page 1102
2 16:53:49 MS. CONCANNON: And there is some
3 16:53:50 objection.
4 16:53:50 A. I think that is more succinctly
5 16:53:53 stated. But with the understanding that it
6 16:53:57 was not whether we thought they had the
7 16:53:59 legitimate right to do that. But just as a
8 16:54:02 practical matter we were yet perhaps
9 16:54:06 creating issues that were, you know,
10 16:54:10 unnecessary to create as a result of our
11 16:54:12 outbound claims.
12 16:54:16 Q. Whereas, by contrast if there
13 16:54:18 was more outbound exposure for the seller,
14 16:54:23 Bank of America would be more aggressive in
15 16:54:25 terms of the breadth of the loans it would
16 16:54:28 review for potential repurchase demands?
19 16:54:32 Q. Is that fair?
20 16:54:34 A. More outbound, well that is
21 16:54:36 what is implied by the table in terms of the
22 16:54:38 no payment caps.
23 16:54:40 Q. Right.
24 16:54:40 A. Again, I would make the point
25 16:54:42 that with respect to our outbound contracts
Page 1103
2 16:54:45 often times they differed materially.
3 16:54:48 And what I think is notable in
4 16:54:50 looking at the payments made is that, you
5 16:54:56 know, our outbound contracts, some of them
6 16:54:58 had no material and adverse effect.
7 16:55:01 Payments made would be less relevant than
8 16:55:05 contracts with the material and adverse
9 16:55:09 effect.
10 16:55:18 Q. I think we have time for one
11 16:55:19 more document before we have to change the
12 16:55:22 tape. I also am confident we will finish
13 16:55:26 before the next tape is done.
14 16:55:27 MS. CONCANNON: The next tape
15 16:55:28 being the one after this one?
16 16:55:30 MR. SELENDY: Well, this one is
17 16:55:32 about to end. So the one after this
18 16:55:36 one, yes.
22 16:55:39 numbers CWMBIA-B 000000692 through 701.)
25 16:55:40 document previously marked as Exhibit 3980.
Page 1104
2 16:56:54 A. Okay.
3 16:56:55 Q. So on the first page Mr.
4 16:56:58 Kurzban is sending an email to Jess Lederman
5 16:57:05 as of 2008 back premerger.
6 16:57:08 Do you know what Mr. Lederman's
7 16:57:10 role was at that time?
9 16:57:13 A. I believe Jess was the chief
10 16:57:15 risk officer of Countrywide.
11 16:57:17 Q. So he succeeded to the position
12 16:57:19 held by John McMurray?
13 16:57:24 A. I believe so.
14 16:57:24 Q. And Mr. Kurzban says in
15 16:57:29 response to an email from Mr. Lederman,
16 16:57:34 "Totally understand. I wish I will say it
17 16:57:36 will slow, but it wouldn't. Our best hope
18 16:57:39 is that by pushing back on them forcefully
19 16:57:41 on most, but repurchasing the most egregious
20 16:57:45 errors, they decide to self-police before
21 16:57:48 submitting. Unlikely though, as by that
22 16:57:51 point their work is done.
23 16:57:52 "I am working with the
24 16:57:53 monolines to set their expectations. They
25 16:57:58 want to discuss broad categories of
Page 1105
2 16:57:59 repurchases, but I keep insisting that every
3 16:58:01 loan needs to be evaluated due to the unique
4 16:58:05 facts of each loan."
5 16:58:11 So, again, is it fair to say
6 16:58:13 both before and after the purchase of
7 16:58:18 Countrywide by Bank of America strategy at
8 16:58:20 Countrywide Home Loans was to repurchase
9 16:58:22 just the most egregious from the monolines?
11 16:58:31 A. I don't -- I can read Scott's
12 16:58:33 note. I don't know specifically more than
13 16:58:37 what I read and I don't know enough to agree
14 16:58:47 it was our policy pre and post merger to
15 16:58:52 repurchase only the most egregious as you
16 16:58:55 put it.
17 16:58:55 Q. You only know the policy post
18 16:58:57 merger?
20 16:58:58 A. I don't recollect what our
21 16:59:00 policy is. As I said earlier, when I got
22 16:59:07 involved it was in '08. And it became, you
23 16:59:11 know, increasingly so during the course of
24 16:59:14 sort of the middle of '08. But I can't
25 16:59:16 remember what I was doing in May of '08.
HIGHLY CONFIDENTIAL
72 (Pages 1106 to 1109)
Page 1106
2 16:59:21 Q. Isn't it fair to say that a
3 16:59:23 policy of repurchasing only the most
4 16:59:24 egregious loans is pretty much the same as a
5 16:59:27 policy of repurchasing only the loans that
6 16:59:31 meet the red face test?
8 16:59:35 A. I think both of those
9 16:59:37 descriptions are those of others, first of
10 16:59:40 all are those that are subjective in nature.
11 16:59:45 So I don't really, it would sort of be in
12 16:59:49 the eye of the beholder, you know, what to
13 16:59:50 make of the, quote, "red face loans," or
14 16:59:55 the, quote, "egregious loans."
15 16:59:58 Q. And, again, you don't recall
16 16:59:59 any discussions about how to define red face
17 17:00:03 loan?
19 17:00:08 A. I can simply provide my
20 17:00:09 understanding of the process as it existed
21 17:00:14 when I assumed responsibility for the
22 17:00:16 repurchase area. And that is that we wanted
23 17:00:23 to put forth a vigorous, yet credible
24 17:00:25 defense consistent with our contractual
Page 1107
2 17:00:30 Q. Do you know why the monolines
3 17:00:31 wanted to discuss broad categories of
4 17:00:34 repurchases, whereas Countrywide was
5 17:00:37 insistent on evaluating the loans on a loan
6 17:00:39 by loan basis?
8 17:00:44 A. Well, I can tell you generally
9 17:00:45 whether, you know, it was our thinking in
10 17:00:47 May of 2008. I don't know because again I
11 17:00:50 don't know exactly what my role was insofar
12 17:00:53 as repurchases.
13 17:00:55 But what I can tell you is our
14 17:00:57 understanding all along and remains to this
15 17:01:00 day that the process, the sole process
16 17:01:04 contemplated in the vast majority of the
17 17:01:07 governing contract is a loan level process.
18 17:01:12 And I can speculate why the
19 17:01:15 monolines would have wanted to discuss
20 17:01:17 broader issues. You probably have a better
21 17:01:19 handle on that. I can tell you just my
22 17:01:22 general understanding is that parties often
23 17:01:25 times don't want to go through the process
24 17:01:28 contemplated by the agreement because it is
25 17:01:32 too long and laborious.
Page 1108
2 17:01:35 I think if MBIA and other
3 17:01:38 claimants had their way they would submit
4 17:01:41 claims and just be paid on the spot. And
5 17:01:43 that is, you know, not how the process
6 17:01:46 works, we believe as contemplated in the
7 17:01:48 documents.
8 17:01:48 Q. So, if you want to slow things
9 17:01:50 down, make it long and laborious you go loan
10 17:01:54 by loan, if you want a timely resolution you
11 17:01:56 try to find a way to resolve it on broad
12 17:01:58 categories of repurchases?
14 17:02:00 Q. Right?
15 17:02:04 A. I don't know what, you know,
16 17:02:05 MBIA was thinking in terms -- in asking for
17 17:02:09 discussions around broad categories of
18 17:02:14 repurchases. So it is hard for me to say
19 17:02:19 what was their end game, you know, by
20 17:02:20 referencing broad discussions around broad
21 17:02:24 categories of issues.
22 17:02:27 Q. But you do know if you want to
23 17:02:29 make things last as long as possible before
24 17:02:31 you have a resolution, that loan by loan is
25 17:02:35 the way to go; right?
Page 1109
4 17:02:37 A. Look, I do know there is a
5 17:02:41 single process contemplated in the
6 17:02:43 agreements. And for better or worse, it is
7 17:02:47 long, costly, laborious, etc. for all
8 17:02:52 concerned, including us.
9 17:02:53 And, you know, you can
10 17:02:57 speculate yourselves as to why we might want
11 17:03:00 to do settlements with some counterparties,
12 17:03:04 right. But at the end of the day we are
13 17:03:09 both, both parties stuck with the contract,
14 17:03:11 whether we like it or not. And that
15 17:03:13 contract, again, has a single approach.
16 17:03:18 And we think we are acting in
17 17:03:20 manner consistent with what is called for in
18 17:03:22 the contract.
19 17:03:23 MR. SELENDY: The tape is done.
20 17:03:24 We'll take a break.
HIGHLY CONFIDENTIAL
73 (Pages 1110 to 1113)
Page 1110
3 17:17:48 5:18 p.m. This begins tape 18, volume 3
9 17:18:06 BACMBIA-W 000001407 email string dated
10 17:18:06 through email string dated.)
12 17:18:00 Q. I have marked as Exhibit 4061 a
13 17:18:03 one-page document BACMBIA-W 1407.
14 17:18:55 So my question for you concerns
15 17:18:57 the last paragraph in this email exchange
16 17:19:03 with Scott Kurzban in which he states at the
17 17:19:06 end of his email.
18 17:19:07 "We'd likely have a significant
19 17:19:09 amount of loans that are outside seller
20 17:19:11 guidelines and need to discuss this issue as
21 17:19:13 I believe that is a major issue for at least
22 17:19:15 one monoline. This decision could push them
23 17:19:19 over the edge which may be acceptable to us,
24 17:19:22 but I wanted to highlight the issue."
25 17:19:24 And this is back in September
Page 1111
2 17:19:25 of 2008.
3 17:19:31 First of all, do you recall
4 17:19:32 what seller guidelines are?
5 17:19:36 A. I believe there are in this
6 17:19:38 case Countrywide's underwriting guidelines
7 17:19:39 then in effect.
8 17:19:43 Q. And do you --
9 17:19:44 A. Not in effect. Sorry. In
10 17:19:47 effect at the time the subject loans were
11 17:19:48 originated.
12 17:19:50 Q. With respect to Mr. Kurzban's
13 17:19:51 statement that Countrywide likely has a
14 17:19:54 significant amount of loans outside of
15 17:19:55 seller guidelines, do you have any knowledge
16 17:20:01 what Mr. Kurzban was talking about?
18 17:20:10 A. I don't recall this email
19 17:20:11 specifically or discussing this, you know,
20 17:20:13 this issue. So it's hard for me to proffer
21 17:20:18 any insight beyond that which I can read
22 17:20:21 from Scott's note.
23 17:20:22 Q. Well, beyond not recalling the
24 17:20:24 specific email, did you have an
25 17:20:30 understanding as of September 2008 that
Page 1112
2 17:20:33 Countrywide had a significant amount of
3 17:20:36 loans outside of seller guidelines?
5 17:20:43 A. I have a general or had, I
6 17:20:44 believe I had a general understanding that
7 17:20:48 Countrywide and other lenders customarily
8 17:20:51 made exceptions to applicable guidelines. I
9 17:20:59 don't know if that satisfies your question.
10 17:21:00 Q. Is it your understanding that
11 17:21:01 what Mr. Kurzban is talking about are
12 17:21:03 exceptions made to seller guidelines?
14 17:21:09 A. I'm not sure. By virtue of the
15 17:21:13 fact he's including specifically a reference
16 17:21:17 to our CLUES system.
17 17:21:23 Q. Is it fair to say that
18 17:21:24 Countrywide did in fact have a significant
19 17:21:26 amount of loans outside of seller guidelines
20 17:21:28 with respect to the transactions that were
21 17:21:30 wrapped by the monolines?
23 17:21:35 A. I don't know as it pertains to
24 17:21:37 the issue Scott is citing. I know
25 17:21:40 industry-wide and it was true at Countrywide
Page 1113
2 17:21:42 that exceptions to guidelines were permitted
3 17:21:46 to be made. And that they typically required
4 17:21:51 an assessment, you know, of compensating
5 17:21:53 factors and other attributes of a given
6 17:21:56 loan.
7 17:21:57 Q. In your answer you narrowed the
8 17:21:59 question by saying you don't know as it
9 17:22:01 pertains to the issue Scott is citing.
10 17:22:03 My question was more general.
11 17:22:05 I'd like the reporter just to read it back
12 17:22:08 so you have the general question.
13 17:22:22 (The pending question was read as
14 17:22:22 follows:
15 17:21:23 "Question: Is it fair to say
16 17:21:24 that Countrywide did in fact have a
17 17:21:25 significant amount of loans outside of
18 17:21:27 seller guidelines with respect to the
19 17:21:29 transactions that were wrapped by the
20 17:21:31 monolines?")
22 17:22:25 A. I don't know how to quantify
23 17:22:28 significant, which is why I addressed the
24 17:22:31 question the way I did.
25 17:22:42 Q. Are you able to answer the
HIGHLY CONFIDENTIAL
74 (Pages 1114 to 1117)
Page 1114
2 17:22:43 question with reference to a range or
3 17:22:46 quantification or some other qualifier that
4 17:22:50 you're comfortable with?
6 17:22:52 A. I am not in a position -- I
7 17:22:54 can't testify, you know, with any precision
8 17:22:57 in terms of percentage, a percentage of
9 17:23:02 originations that would have had exceptions
10 17:23:05 to guidelines.
11 17:23:06 I do know and have awareness of
12 17:23:10 loans that were originated, it was not
13 17:23:12 unusual to make exceptions to guidelines
14 17:23:15 whether you were talking about Countrywide
15 17:23:17 or any other lender.
16 17:23:18 It was understood in the
17 17:23:19 industry and my experience and exposure to
18 17:23:23 Countrywide's loans revealed to me that,
19 17:23:28 yes, exceptions were made and it was not
20 17:23:30 unusual and that they were permitted to be
21 17:23:32 made.
22 17:23:34 Q. For the 2005 to 2007 vintages,
23 17:23:36 is it fair to say that in fact it was
24 17:23:39 customary for Countrywide to make, to
25 17:23:43 originate loans outside of seller
Page 1115
2 17:23:46 guidelines?
4 17:23:52 A. It was -- whether it was
5 17:23:54 customary or not, I would say again it was
6 17:23:57 accepted practice to originate loans outside
7 17:24:01 of applicable underwriting guidelines where
8 17:24:06 compensating factors were present. That is
9 17:24:12 my general understanding of the nature of
10 17:24:16 exceptions to underwriting guidelines.
11 17:24:17 Q. I'm trying to get a sense of
12 17:24:19 how often Countrywide did that. And you
13 17:24:22 didn't like using Mr. Kurzban's term of
14 17:24:26 significant amount of loans. I believe you
15 17:24:29 had said it was customary to do so. But if
16 17:24:32 you're not comfortable with the term
17 17:24:33 customary, how would you characterize the
18 17:24:35 frequency with which Countrywide originated
19 17:24:40 loans outside of seller guidelines?
21 17:24:44 Q. And I understand you can't give
22 17:24:46 a precise quantification. Was it routine?
24 17:24:52 A. Look, I said it was not
25 17:24:54 unusual. Okay. It was accepted practice.
Page 1116
2 17:24:59 So I'm not sure, you know, how to describe
3 17:25:02 it differently short of quantifying it,
4 17:25:05 which I'm not able to do.
8 17:25:34 BACMBIA-I 0000080093 to 99.)
10 17:25:22 Q. I have marked as Exhibit 4062
11 17:25:25 of a March 2010 exchange of emails between
12 17:25:29 Greg Hobby and Michael Schloessmann and
13 17:25:32 others BACMBIA-I 80093 to 99.
14 17:27:35 A. Okay.
15 17:27:36 Q. Did Countrywide make a
16 17:27:37 presentation to the SEC about its repurchase
17 17:27:39 practices in the spring of 2010?
19 17:27:48 A. This note refreshes my
20 17:27:49 recollection that we provided the SEC with
21 17:27:56 some claims related data that they had
22 17:27:59 requested around this time. And I think
23 17:28:01 this email string was developed in
24 17:28:08 connection with us trying to be responsive
25 17:28:11 to that request by the SEC.
Page 1117
2 17:28:14 Q. Was there a meeting that
3 17:28:16 followed upon the provision of this data?
5 17:28:22 A. I'm not sure if a meeting
6 17:28:26 followed this, you know, the production of
7 17:28:28 this data.
8 17:28:30 I do recall personally being
9 17:28:32 involved in a meeting with the SEC around
10 17:28:36 related topics. But I can't recall when
11 17:28:40 that was, whether it was before or after, or
12 17:28:43 whether it had anything to do with this.
13 17:28:44 Q. Had the SEC requested the
14 17:28:46 meeting?
16 17:28:47 A. Pardon me?
17 17:28:48 Q. Had the SEC requested the
18 17:28:50 meeting?
19 17:28:51 A. Yes.
20 17:28:51 Q. And what was the subject of the
21 17:28:53 meeting?
22 17:28:55 A. The rep and warrant process and
23 17:28:58 reserves, including reserves, rather.
24 17:29:01 Q. Do you recall what you
25 17:29:02 presented to the SEC?
HIGHLY CONFIDENTIAL
75 (Pages 1118 to 1121)
Page 1118
3 17:29:08 A. I recall having produced a
4 17:29:12 document that we presented to the SEC. The
5 17:29:17 particulars of which I can't recall
6 17:29:19 specifically.
7 17:29:22 Q. Do you recall whether the SEC
8 17:29:23 had expressed concerns about how Countrywide
9 17:29:28 or Bank of America was processing repurchase
10 17:29:30 demands?
13 17:29:34 A. Do I recall concerns expressed
14 17:29:35 by the SEC as to how --
15 17:29:37 Q. Yes.
16 17:29:38 A. I don't recall them expressing,
17 17:29:39 you know, concerns about the manner in which
18 17:29:42 we were processing the claims.
19 17:29:50 Q. Do you know whether there was
20 17:29:51 any follow-up meeting with the SEC after
21 17:29:52 that?
23 17:29:57 A. I can't recall the sequence of
24 17:30:00 events. I do recall related to a provision
25 17:30:02 of information. I recall a meeting, at
Page 1119
2 17:30:05 least one meeting with the SEC. I can't say
3 17:30:07 when it was.
4 17:30:11 There may have been other
5 17:30:12 discussions that I wasn't a party to. I
6 17:30:17 can't remember if there was a meeting I
7 17:30:19 participated in other than the one that I
8 17:30:22 recollect.
9 17:30:26 Q. You said there may have been
10 17:30:27 other discussions with the SEC you were not
11 17:30:30 a party to. Do you know in fact whether
12 17:30:31 there were such discussions?
13 17:30:33 A. No.
19 17:30:39 Q. I'd like to mark as
20 17:30:42 Exhibit 4063 a document from Michael Sands
21 17:30:47 to Susan Welsh and yourself listing the top
22 17:30:52 five reasons that we have approved
23 17:30:56 repurchase on the monolines.
24 17:31:28 My first question for you do
25 17:31:30 you know why this document was created?
Page 1120
2 17:31:34 A. Give me just a minute so I can
3 17:31:36 read the string.
4 17:31:38 Q. Yes.
5 17:32:31 A. The string, note from me
6 17:32:34 references a meeting the next day and I
7 17:32:36 can't remember what the meeting was.
8 17:32:40 Q. That is a meeting with the SEC;
9 17:32:41 is it?
10 17:32:42 A. I can't recall what the meeting
11 17:32:46 was.
12 17:32:47 Q. Okay. If you look at the
13 17:32:51 second page of the email, at the bottom of
14 17:32:53 your email to Shareef Abdou, among others
15 17:32:57 you say, "James, please work this into a
16 17:33:01 grid for inclusion into the SEC
17 17:33:04 presentation."
18 17:33:04 Does that help?
19 17:33:05 A. Yes, it does. I overlooked
20 17:33:06 that. I'm sorry.
21 17:33:09 Q. So was this data put together
22 17:33:11 for presentation to the SEC?
25 17:33:22 Objection to the extent this contains
Page 1121
2 17:33:23 privileged information.
3 17:33:33 A. It clearly is indicating the
4 17:33:35 intent to include it in the SEC
5 17:33:37 presentation. So I'm not going to take
6 17:33:40 issue or I don't have a basis here today to
7 17:33:42 take issue with a note that I sent.
8 17:33:44 Q. Okay. If we go through the
9 17:33:45 chart at the top it lists the top five
10 17:33:50 reasons that Bank of America -- does "we"
11 17:33:56 refer to Countrywide or Bank of America, by
12 17:33:57 the way?
15 17:34:01 A. Where?
16 17:34:01 Q. If the first sentence "Below is
17 17:34:05 the top five reasons we have approved
18 17:34:10 repurchase on the monolines."
19 17:34:11 A. I can't tell you. All I can
20 17:34:13 tell you CHL is the party that consummated
21 17:34:16 all repurchase transactions with respect to
22 17:34:17 the CHL sponsored deals.
23 17:34:19 Q. Okay. For the CHL repurchases,
24 17:34:21 the top five reasons that are listed are in
25 17:34:25 order, income, stated income unreasonable.
HIGHLY CONFIDENTIAL
76 (Pages 1122 to 1125)
Page 1122
2 17:34:28 Misrepresentation, income. Then
3 17:34:35 documentation missing acceptable employment,
4 17:34:41 income documentation. 4, program guidelines
5 17:34:45 violation, LTV, CLTV exceeds guidelines.
6 17:34:49 And 5, documentation, missing sufficient
7 17:34:52 asset documentation.
8 17:34:53 Are those the five the
9 17:34:54 categories?
10 17:34:55 A. That is what is listed in
11 17:35:04 Shane's email, yes.
12 17:35:04 Q. I take it each of these basis
13 17:35:06 would be a material and adverse breach such
14 17:35:13 that Countrywide Home Loans determined a
15 17:35:15 repurchase was appropriate?
17 17:35:19 Q. Is that fair?
18 17:35:19 A. My understanding is to the
19 17:35:26 extent we repurchased loans we would have
20 17:35:28 first satisfied ourselves that the claimant
21 17:35:33 had demonstrated satisfactorily there was a
22 17:35:37 breach and the breach had a material adverse
23 17:35:40 effect consistent with the terms of the
24 17:35:41 contract.
25 17:35:42 I think the mere labeling of
Page 1123
2 17:35:43 loans with these issues, however does not,
3 17:35:45 it does not necessarily follow because the
4 17:35:50 loans are tagged with this issue they are
5 17:35:52 necessarily repurchases.
6 17:35:53 We have claims in pipeline that
7 17:35:55 would be appropriately or also labeled
8 17:35:57 similarly where the burden was not sustained
9 17:36:01 by the claimant.
10 17:36:02 So, the labels themselves don't
11 17:36:04 tell you whether you have a breach of
12 17:36:08 materially and adversely effects the
13 17:36:12 investors.
14 17:36:13 Q. These are the top five reasons
15 17:36:14 for which the repurchases were made by
16 17:36:17 Countrywide Home Loans; correct?
18 17:36:23 A. That is what Shane Sands is
19 17:36:25 purporting to convey here based on my
20 17:36:28 request.
21 17:36:28 Q. Is that Michael Sands?
22 17:36:30 A. Yes.
23 17:36:31 Q. Michael Shane Sands, okay.
24 17:36:32 Understood.
25 17:36:34 Therefore if it is categorized
Page 1124
2 17:36:36 in this way the driving reason for the
3 17:36:41 repurchase will be the reason that is listed
4 17:36:44 here in this chart; right?
6 17:36:53 A. My experience with the data we
7 17:36:56 capture in our PAT database at the time is
8 17:37:04 that, you know, it is not perfect in that we
9 17:37:08 get claims in that have multiple reasons.
10 17:37:12 There is a judgment made by the
11 17:37:16 person logging in the claims as to primary
12 17:37:20 finding. So it is, you know, I think it is
13 17:37:25 probably directionally correct, but I
14 17:37:27 wouldn't, you know, suggest that it is
15 17:37:30 perfect because it does require judgment in
16 17:37:33 how someone characterizes an issue might
17 17:37:35 vary from person to person who is logging in
18 17:37:37 claims.
19 17:37:37 It doesn't impact how the
20 17:37:39 decisioning that that loan is done. It
21 17:37:43 really is more around how the reporting that
22 17:37:45 we're able, you know, to capture from the
23 17:37:47 data.
24 17:37:49 Q. Okay. I understand there could
25 17:37:51 be multiple defects that give rise to the
Page 1125
2 17:37:54 determination the loan is eligible for
3 17:37:55 repurchase. Is that basically what you're
4 17:37:57 saying?
6 17:37:59 A. Yes. In that the data
7 17:38:00 presented here is based on running a data
8 17:38:05 query against the database. And basically
9 17:38:08 identifying loans by their, quote, "primary
10 17:38:13 finding," unquote type.
11 17:38:14 And that that is -- that is
12 17:38:19 itself subjective. So if we put another
13 17:38:22 issue in this primary finding, it may have
14 17:38:26 neglected some loans.
15 17:38:29 Conversely, we may have
16 17:38:30 overstated others. Again, I think it is
17 17:38:32 directionally correct. I just wanted to
18 17:38:35 point out, you know, there are, you know,
19 17:38:39 imperfections, you know, inherent
20 17:38:42 imperfections in the process.
21 17:38:43 Q. Okay. When you refer to
22 17:38:45 primary finding, is that the primary reason
23 17:38:47 why the loan would have been repurchased?
24 17:38:52 A. Typically it, as I understand
25 17:38:54 the process, a primary finding is determined
HIGHLY CONFIDENTIAL
77 (Pages 1126 to 1129)
Page 1126
2 17:38:59 at the time we get the claim. And the
3 17:39:03 information on the claim is input in the
4 17:39:04 system.
5 17:39:05 I also seem to recall that as
6 17:39:08 the claim got processed, if an issue became,
7 17:39:12 you know, that wasn't identified as a
8 17:39:14 primary became the prominent finding and
9 17:39:16 basis for repurchase, that field would have
10 17:39:18 been updated.
11 17:39:21 I can't be sure if that in fact
12 17:39:23 is an accurate statement of the process or
13 17:39:25 if in fact it was regularly done. I just
14 17:39:28 don't have enough specific knowledge around
15 17:39:31 how the data was captured.
16 17:39:33 Q. If you look at the five
17 17:39:34 categories here, would you agree any of
18 17:39:39 these misrepresentations, falling in these
19 17:39:42 categories -- strike that.
20 17:39:43 Would you agree any of these
21 17:39:44 problems, whether they are
22 17:39:48 misrepresentations or documentation problems
23 17:39:51 or guideline violations may be sufficient
24 17:39:56 for a breach to be material and adverse?
Page 1127
2 17:40:06 A. Very difficult to say. I think
3 17:40:08 the way I would describe this is, again, go
4 17:40:12 back to the specific representations and
5 17:40:15 warranties we were making on a particular
6 17:40:20 deal and you're going to have to make that
7 17:40:24 determination based on what facts were
8 17:40:26 demonstrated and whether they amounted to a
9 17:40:29 breach.
10 17:40:29 And I would just say as it
11 17:40:31 relates to your question under -- this goes
12 17:40:34 to the inherent imperfections of the data
13 17:40:37 collection process, misrepresentation of
14 17:40:39 income in and of itself is not a basis for
15 17:40:44 repurchase.
16 17:40:45 So often times when we talked
17 17:40:47 about how claims get identified on the
18 17:40:51 system, that -- we have some people who
19 17:40:54 input information that may have been a
20 17:40:55 stated income unreasonable, right. That
21 17:40:59 necessarily starts out with proving first of
22 17:41:01 all the income was misstated and secondly
23 17:41:05 misstated income that it was unreasonable.
24 17:41:07 Some of those loans in my
25 17:41:08 experience get categorized in income
Page 1128
2 17:41:12 misrepresentation. So, again, it's difficult
3 17:41:14 to draw definitive conclusions.
4 17:41:19 I would again say this gives
5 17:41:21 you I think a good directional sense of the
6 17:41:24 claims we saw most often or at least that
7 17:41:26 were the basis for repurchase. But
8 17:41:29 imperfect.
9 17:41:30 Q. So you're saying that some of
10 17:41:33 the loans listed here as misrepresentation
11 17:41:36 as to income may in fact be stated income
12 17:41:39 unreasonable?
14 17:41:42 A. Yeah, where a prerequisite to
15 17:41:45 finding a breach would be first proving that
16 17:41:47 the income was in fact misstated before you
17 17:41:50 even talk about gauging reasonableness of
18 17:41:53 income. That would be the approach we would
19 17:41:56 apply in stated income.
20 17:41:57 Q. Is this how the data was
21 17:41:58 reported to the SEC, do you know?
23 17:42:01 Q. In these categories?
24 17:42:02 A. I don't know.
Page 1129
2 17:42:05 Q. Okay. I take it, however, for
3 17:42:06 any of these categories they may be
4 17:42:08 sufficient to there to be a material and
5 17:42:11 adverse effect on the loan, even if the loan
6 17:42:16 hadn't yet defaulted; is that fair?
8 17:42:26 A. Are you asking whether any of
9 17:42:28 these loans that we have flagged as
10 17:42:30 repurchases had not yet defaulted?
11 17:42:32 Q. I'm saying any of these
12 17:42:34 categories of problems that were listed as
13 17:42:39 the reasons for which Countrywide approved a
14 17:42:42 repurchase, could be sufficient to
15 17:42:45 constitute a material and adverse effect,
16 17:42:48 even if the loan had not yet defaulted;
17 17:42:53 right?
19 17:42:55 A. That's -- I would not
20 17:42:56 characterize it that way. I believe the
21 17:43:00 material and adverse effect requirement in
22 17:43:05 what I believe is all of the pooling and
23 17:43:08 servicing agreements, the governing
24 17:43:11 contracts with respect to the deals the
25 17:43:13 monolines wrapped means something.
HIGHLY CONFIDENTIAL
78 (Pages 1130 to 1133)
Page 1130
2 17:43:17 And our interpretation based on
3 17:43:21 legal counsel's advice is that --
4 17:43:23 Q. Are you going to give -- are
5 17:43:25 you going to go into legal counsel's advice?
6 17:43:28 A. In consultations with lawyers
7 17:43:29 we have --
8 17:43:31 Q. You shouldn't go into that. I
9 17:43:33 will be happy to explore that, but your
10 17:43:34 counsel may not.
11 17:43:35 MS. CONCANNON: I believe you can
12 17:43:36 answer the question that he asked you
13 17:43:38 without revealing the advice of counsel.
14 17:43:41 To the extent you have an opinion
15 17:43:43 on --
16 17:43:45 THE WITNESS: Yes, okay.
17 17:43:46 MS. CONCANNON: Aside from any
18 17:43:47 conversations you may have had with
19 17:43:48 counsel, you can answer the question.
20 17:43:50 A. Our interpretation of the
21 17:43:54 material and adverse clause, material and
22 17:43:57 adverse effect clause in the governing
23 17:43:59 contracts is that it requires some
24 17:44:07 connection connecting the breach with
25 17:44:09 non-performance.
Page 1131
2 17:44:10 Or to put another way, if the
3 17:44:12 loan was still performing at the time we're
4 17:44:16 getting a request, it would -- I am not
5 17:44:18 going to state there would never be an
6 17:44:20 exception based on unique facts and
7 17:44:22 circumstances of a given loan, but by and
8 17:44:25 large given the governing contracts in the
9 17:44:29 monolines wrapped deals, that it would be
10 17:44:33 very difficult to satisfy ourselves that a
11 17:44:36 material breach had been demonstrated on a
12 17:44:38 loan that was performing.
13 17:44:42 For the reasons you've
14 17:44:44 identified here, these are all, you know,
15 17:44:47 credit or underwriting determinations.
16 17:44:52 Q. Okay. You're saying they are
17 17:44:54 all credit or underwriting determinations.
18 17:44:58 In other words, they have an impact on the
19 17:44:59 credit quality of the loan; is that your
20 17:45:01 point?
22 17:45:06 A. It would be better stated by
23 17:45:07 saying they're underwriting related issues.
24 17:45:15 Q. Okay. Aren't all guideline
25 17:45:21 issues underwriting related issues?
Page 1132
3 17:45:26 A. Yes. Guideline, guideline
4 17:45:31 related issues are underwriting issues. But
5 17:45:35 I was thinking more along the lines of
6 17:45:39 issues that might implicate a rep and
7 17:45:44 warrant that has nothing to do with
8 17:45:45 underwriting.
9 17:45:47 All of these fall into
10 17:45:48 underwriting related categories for which we
11 17:45:52 believe a performing loan would, you know,
12 17:45:57 rarely, if ever qualify.
13 17:45:59 Again, I can't discount the
14 17:46:00 possibility of a single loan or small group
15 17:46:03 of loans with unique facts and circumstances
16 17:46:08 might actually be able to satisfy the
17 17:46:10 threshold. But in general as it pertains to
18 17:46:12 underwriting related issues that a
19 17:46:16 performing loan would not have -- or a
20 17:46:22 default or alleged default on performing
21 17:46:25 loan would not have had a material and
22 17:46:27 adverse effect on the loan.
23 17:46:28 Q. And that's a position that
24 17:46:30 Countrywide has recently adopted, right,
25 17:46:32 with respect to the interpretation of its
Page 1133
2 17:46:35 contracts?
4 17:46:36 Q. As of some years after the 2005
5 17:46:45 and 2006 transactions were entered into;
6 17:46:49 right?
8 17:46:52 A. I don't know that to be the
9 17:46:54 case. What I do know is we had little or no
10 17:47:00 historical experience insofar as monoline
11 17:47:05 repurchase requests before I think March,
12 17:47:11 April or May 2008. And it was only after
13 17:47:14 that we would have been expected to, you
14 17:47:18 know, look and study, you know, the issue.
15 17:47:20 Because we had significant number of claims
16 17:47:23 that we wanted to ensure were being
17 17:47:25 processed and resolved in accordance with
18 17:47:27 our contractual obligations.
19 17:47:28 Q. And as John McMurray testified
20 17:47:32 it was the aspiration of Countrywide to
21 17:47:34 interpret its contracts to have such a
22 17:47:37 connection between materiality and default,
23 17:47:41 even though that's not in the contracts
24 17:47:43 themselves; right?
HIGHLY CONFIDENTIAL
79 (Pages 1134 to 1137)
Page 1134
2 17:47:46 A. I don't know what -- again, I
3 17:47:48 testified earlier, you know, the John
4 17:47:51 McMurray lessons learned, I don't have any
5 17:47:54 specific recollection of those.
6 17:47:55 I can tell you that it is our
7 17:47:59 position and it has been our position that
8 17:48:02 predates reference to recently, that the
9 17:48:06 material and adverse effect actually means
10 17:48:08 something in the contracts.
11 17:48:10 Q. It means there is an effect on
12 17:48:13 credit quality; right?
13 17:48:14 A. The standard speaks for itself.
14 17:48:16 It's material and adverse effect on the
15 17:48:19 interest of the bondholders in many of these
16 17:48:22 agreements.
17 17:48:22 And a loan that is performing,
18 17:48:28 for instance, six years after it was
19 17:48:30 underwritten that we receive a repurchase
20 17:48:31 request on citing a breach that materially
21 17:48:35 impacts that loan, while performing, that we
22 17:48:39 believe is a significant threshold to
23 17:48:45 satisfy. As it should be.
24 17:48:48 Q. And we discussed earlier for
25 17:48:50 loans that are still performing, that's why
Page 1135
2 17:48:52 you would seek an approval at a tier 3 or 4
3 17:48:56 level, as opposed to tier 1 or 2; right?
5 17:49:00 Q. You would need that approval in
6 17:49:02 order to repurchase the performing loan?
8 17:49:05 A. The approval matrix that
9 17:49:06 existed at that time indicated what tier was
10 17:49:11 required for loans that made, as I recall
11 17:49:13 under 12 or over 24.
12 17:49:17 And I think it is, my
13 17:49:18 recollection and understanding of what we
14 17:49:20 were trying to get at, is that payments made
15 17:49:23 do in fact matter. I think it is accepted
16 17:49:26 in the industry they matter.
17 17:49:27 And that if we were approving
18 17:49:32 loans with greater than 24 payments, for
19 17:49:34 instance, I think that was a rating 2, that
20 17:49:36 we would want more seasoned and senior level
21 17:49:41 awareness of it. Not that we weren't going
22 17:49:43 to approve it. But that it warranted
23 17:49:47 greater scrutiny.
24 17:49:48 Q. Right. And you said similarly
25 17:49:51 if you were approving loans that were not
Page 1136
2 17:49:53 yet delinquent or had losses incurred, you
3 17:49:56 would want to have greater scrutiny of the
4 17:50:00 approval of the repurchase demand; right?
5 17:50:04 MS. CONCANNON: Objection is.
6 17:50:04 Q. Or are you changing that
7 17:50:05 testimony?
9 17:50:09 A. I'm not sure that recites my
10 17:50:10 prior testimony from earlier today.
11 17:50:13 Q. I'm just curious, are you
12 17:50:15 standing by your prior testimony that if a
13 17:50:17 loan was still performing as opposed to a
14 17:50:21 loan that was delinquent or where there were
15 17:50:23 losses incurred, would you need to go to a
16 17:50:25 level of tier 3 or 4 to seek approval of the
19 17:50:31 A. I don't remember if it was 3 or
20 17:50:34 4. Perhaps that's right, just again I don't
21 17:50:39 remember the exhibit precisely. But whether
22 17:50:41 a loan was performing or whether a loan had
23 17:50:43 substantial number of payments made, I think
24 17:50:46 it goes to the same issue. A related issue,
25 17:50:50 anyway.
Page 1137
2 17:50:51 That is, you know, if we were
3 17:50:54 being asked to buy back a loan that was
4 17:50:55 currently performing or that had made more
5 17:50:59 than 24 payments we believed it was prudent
6 17:51:04 to require more seasoned and senior level
7 17:51:07 awareness before approving it. Not that we
8 17:51:12 wouldn't. But that we wanted greater
9 17:51:14 governance around those repurchases.
10 17:51:32 MR. SELENDY: I am marking as
11 17:51:34 Exhibit 4065 an email from Kent Sorey
12 17:51:39 dated October 10, 2008.
17 17:52:20 MS. CONCANNON: Did I misplace
18 17:52:22 4064? You skipped that.
19 17:52:23 MR. SELENDY: We'll get to 4064
20 17:52:24 next. Sorry.
22 17:52:25 Q. I just wanted to confirm this
23 17:52:45 was an internal audit report on put backs at
24 17:52:50 the post merger home loans business at Bank
25 17:53:03 of America.
HIGHLY CONFIDENTIAL
80 (Pages 1138 to 1141)
Page 1138
2 17:53:03 A. Yes. This appears to be --
4 17:53:06 A. -- an internal. This appears
5 17:53:08 to be an internal audit report. I am not
6 17:53:10 sure if it is draft form or final form from
7 17:53:16 October 2008.
8 17:53:17 Q. Do you have any understanding
9 17:53:17 of how the internal audit was conducted?
10 17:53:26 A. I don't recall the particulars
11 17:53:27 of this audit, no.
12 17:53:29 Q. Did you review the audit, do
13 17:53:31 you recall at the time?
14 17:53:36 A. I don't -- other than seeing
15 17:53:38 this for purposes of my preparation, I don't
16 17:53:45 recall this audit specifically.
17 17:53:49 I'm not suggesting that I would
18 17:53:52 not have seen it given that I had
19 17:53:53 responsibility over a significant portion of
20 17:54:00 the repurchase process. I likely would have
21 17:54:02 seen it, I just don't remember.
22 17:54:07 Q. Do you recall making any steps
23 17:54:09 in response to the recommendations in the
24 17:54:10 audit?
25 17:54:18 A. Well I recall what I can glean
Page 1139
2 17:54:21 from the audit report on page 3 in terms of
3 17:54:29 the areas identified as needing improvement.
4 17:54:35 First, I don't recall there
5 17:54:37 being anything that came out of this that we
6 17:54:40 were not aware of ourselves. We, as I
7 17:54:43 testified earlier, we were well aware the
8 17:54:49 landscape was changing. That we were seeing
9 17:54:51 claims from counterparties, you know, with
10 17:54:53 whom we had no historical experience. And
11 17:54:55 that those claim levels required a
12 17:54:59 significant ramping up of staffing, as well
13 17:55:04 as systems and processes.
14 17:55:05 And that we were working very
15 17:55:09 hard and doing just that. So, I'm not sure
16 17:55:14 to what extent I would have agreed or
17 17:55:16 disagreed. But these are, these in general
18 17:55:19 are steps we were already taking with
19 17:55:23 respect to the repurchase process. And
20 17:55:26 would, at this early stage, would have been
21 17:55:30 surprised if there was nothing we needed to
22 17:55:34 do, you know, to enhance and build out our
23 17:55:36 process.
24 17:55:37 Q. Let me show you a document from
25 17:55:40 January 2009. It is an email exchange that I
Page 1140
2 17:55:43 have marked as Exhibit 4064.
6 17:56:25 BACMBIA-H 0000008042 through 043.)
7 17:56:25 A. Okay.
8 17:56:26 Q. This is talking about what
9 17:56:27 happens with the CHL loans; right, after
10 17:56:30 they're repurchased?
11 17:56:32 A. Yes.
13 17:56:33 Q. Where do those loans end up
14 17:56:35 after CHL repurchases loans?
15 17:56:36 A. They end up --
17 17:56:42 A. -- all repurchased loans where
18 17:56:45 CHL is the party obligated to repurchase
19 17:56:47 loans ends up on CHL's balance sheet.
20 17:56:54 Q. Which entity funds the
21 17:56:55 repurchase of the loans?
22 17:56:57 A. CHL would fund and then balance
23 17:57:02 sheet all of its repurchases.
24 17:57:06 Q. In the middle of the page there
25 17:57:07 is the statement from Drew Williams that "We
Page 1141
2 17:57:11 have an ongoing project, Project Ground Hog
3 17:57:15 to sweep CHL's balance sheet on to BANA at
4 17:57:18 least quarterly."
5 17:57:20 Do you understand what that is
6 17:57:21 referring to?
9 17:57:24 A. Other than what I read, I don't
10 17:57:28 have any specific insights beyond what's on
11 17:57:31 the page.
12 17:57:32 Q. Was there an effort for BANA to
13 17:57:36 take the assets and liabilities off CHL on a
14 17:57:41 quarterly basis, do you know?
16 17:57:44 A. No. That is not my
17 17:57:46 understanding.
18 17:57:46 Q. Okay.
19 17:57:46 A. My understanding is to the
20 17:57:49 contrary, that we made sure or wanted to
21 17:57:54 make sure loans repurchased by CHL remained
22 17:57:57 on CHL's balance sheet.
23 17:58:04 Q. At the bottom of the page Drew
24 17:58:06 Williams writes "We actually went through a
25 17:58:08 funding plan from Treasury to sell off the
HIGHLY CONFIDENTIAL
81 (Pages 1142 to 1145)
Page 1142
2 17:58:11 entire CHL balance sheet, including loans to
3 17:58:13 BANA."
5 17:58:17 means?
7 17:58:23 A. I have an understanding based
8 17:58:25 only on what I'm reading. I've given you my
9 17:58:28 understanding what in actuality happened to
10 17:58:29 loans repurchased by CHL.
11 17:58:34 Q. Is it correct the entire CHL
12 17:58:37 balance sheet was sold off to BANA?
15 17:58:47 A. No. At what point in time are
16 17:58:50 you --
17 17:58:50 Q. Well, this is the email from
18 17:58:52 Drew Williams dated January 2009.
19 17:59:00 A. I don't have any awareness of
20 17:59:01 specific transactions that took place
21 17:59:05 whereby BAC or another bank entity
22 17:59:09 was purchasing loans out of CHL.
23 17:59:25 Q. Do you know how CHL got the
24 17:59:27 funding to repurchase loans after 2009?
Page 1143
2 17:59:38 A. In general CHL would have had
3 17:59:41 its own resources to satisfy repurchase
4 17:59:44 obligations and that from time to time there
5 17:59:50 were capital contributions, you know, that
6 17:59:57 the bank in its independent judgement
7 17:59:59 decided to make at the times they made them.
8 18:00:04 Q. When you're referring to
9 18:00:05 capital contributions, you mean transfusions
10 18:00:08 of capital from the Bank of America entities
11 18:00:14 to Countrywide Home Loans?
14 18:00:17 A. I'm speaking Bank of America
15 18:00:23 Corporation as sole shareholder of
16 18:00:25 Countrywide Financial Corporation electing
17 18:00:28 in its independent judgment to make capital
18 18:00:31 contributions at the times and in the
19 18:00:34 amounts it deemed appropriate.
20 18:00:39 Q. Do you know the total amount of
21 18:00:41 the capital contributions that Bank of
22 18:00:45 America Corporation made to Countrywide
23 18:00:48 Financial Corporation?
25 18:00:49 A. I don't top of mind know what
Page 1144
2 18:00:51 the aggregate total would be.
3 18:00:54 Q. It is some billions of dollars;
4 18:00:56 is that fair?
6 18:00:57 A. It is multiple billions, yes.
10 18:01:05 BACMBIA-H 0000008603 through 04.)
12 18:01:02 Q. Let me show you a document I
13 18:01:03 marked as 4066, BACMBIA-H 8603 through 04.
14 18:01:40 On the last page of this there is an email
15 18:01:44 from Richard Pohl under the heading Rep and
16 18:01:46 Warranty Payments, "Cash is disbursed to the
17 18:01:52 third party from the Fed account at BANA to
18 18:01:56 the offsetting debt to the company that is
19 18:01:59 repurchasing the loan, either CHL, CW Bank
20 18:02:04 LT or BANA."
21 18:02:05 Then it goes on to say "Within
22 18:02:05 the BAC/BANA cash management process there
23 18:02:09 is a daily intercompany settlement based on
24 18:02:12 daily usage based on G/L activity as opposed
25 18:02:16 to strictly cash movement."
Page 1145
3 18:02:19 A. Yes.
4 18:02:19 Q. Is that consistent with your
5 18:02:20 understanding of how cash was disbursed to
6 18:02:23 pay for repurchases of loans?
8 18:02:25 A. I didn't have, you know,
9 18:02:26 specific knowledge of all the mechanical
10 18:02:31 parts. I had and have a general
11 18:02:36 understanding, have and had, have and had a
12 18:02:38 general understanding that whatever happened
13 18:02:40 in the interim there was always
14 18:02:44 reconciliation such that the responsible
15 18:02:46 party was the one or responsible company
16 18:02:50 within the bank was the one ultimately
17 18:02:54 paying for the repurchases.
18 18:03:00 Q. Okay. Switching to a different
19 18:03:01 topic, did Bank of America use Berkshire to
20 18:03:04 assist in the re-underwriting of the MBIA
23 18:03:16 A. I have a recollection as it
24 18:03:18 pertains to some 8800 repurchase claims that
25 18:03:21 were delivered to us in a single day back in
HIGHLY CONFIDENTIAL
82 (Pages 1146 to 1149)
Page 1146
2 18:03:26 late June of 2010. That in order to process
3 18:03:31 such a large volume that we got in a single
4 18:03:34 day or over a short span of time we sought
5 18:03:38 to engage third party, a third party vendor,
6 18:03:42 Berkshire, in this case to assist with that
7 18:03:44 review.
8 18:03:48 Q. How was Berkshire selected as a
9 18:03:50 vendor?
10 18:03:54 A. I'm not really sure. I'm not
11 18:03:57 aware of what role I had in the vendor
12 18:04:00 selection process in that case.
13 18:04:01 Q. Was Berkshire selected by the
14 18:04:03 special asset group down in Jacksonville?
16 18:04:06 A. My understanding is that Susan
17 18:04:10 Welsh and team in Jacksonville most likely
18 18:04:14 within my organization officially and
19 18:04:18 unofficially would have been the people
20 18:04:20 initiating that contact.
21 18:04:25 Q. Do you know whether there was
22 18:04:26 any group at Bank of America responsible for
23 18:04:30 the quality control of the Berkshire work?
24 18:04:34 A. I don't know the specifics
25 18:04:35 around the Berkshire engagement. I do know
Page 1147
2 18:04:39 that in general during the time I was
3 18:04:42 managing the entire group, to the extent we
4 18:04:45 used third party vendors to assist in the --
5 18:04:49 any part of the repurchase process, that we
6 18:04:52 sought to ensure there was, you know,
7 18:04:56 ongoing monitoring and surveillance of the
8 18:04:58 work to ensure acceptable quality. But,
9 18:05:03 again, I can't speak to Berkshire
10 18:05:04 specifically.
11 18:05:06 Q. Do you have a view as to
12 18:05:08 whether Berkshire did a good job?
14 18:05:12 A. I don't. I don't know.
15 18:05:37 Q. Did you ever have any
16 18:05:38 discussion with Michael Sands or Debbie Hamm
17 18:05:44 about the quality of the Berkshire work?
19 18:05:47 A. Who? The second name?
20 18:05:48 Q. Debbie Hamm.
21 18:05:51 A. I am not sure I know that name.
22 18:05:53 But Michael or Shane Sands is somebody I
23 18:05:58 have had multitude of conversations about
24 18:06:03 and I do recall having conversations around
25 18:06:05 the receipt of 8800 repurchase requests in a
Page 1148
2 18:06:11 single lump delivery back in June 2010.
3 18:06:14 It would not surprise me if I
4 18:06:16 had conversations around how we were getting
5 18:06:18 after that review, since it was a pretty
6 18:06:22 extraordinary request to come at one time.
7 18:06:28 Although I can't remember any specific
8 18:06:30 conversations I had around that review.
9 18:06:35 Q. Okay. And you don't recall
10 18:06:36 whether there was a view that the Berkshire
11 18:06:38 performance was not great, was mediocre, in
12 18:06:42 fact?
15 18:06:43 A. I don't have a specific
16 18:06:44 recollection around what the assessment or
17 18:06:47 whoever would have performed the assessment
18 18:06:49 of Berkshire. Or, moreover, what we did to
19 18:06:52 ensure if it was insufficient in any
20 18:06:56 respect, if it was determined insufficient,
21 18:06:59 you know, what we would have done to augment
22 18:07:02 the reviews in order to ensure, you know,
23 18:07:05 the appropriate quality.
24 18:07:26 Q. We're near the end here, just a
25 18:07:27 little bit more. I think two more
Page 1149
2 18:07:31 documents. Let's mark as Exhibit 4067 a
3 18:07:41 Repurchase Oversight Group deck dated
4 18:07:44 January 24th, 2011.
7 18:07:41 Repurchase Oversight Group deck dated
8 18:07:44 January 24th, 2011, production numbers
11 18:08:07 Q. I misspoke. Three more
12 18:08:09 documents.
13 18:08:19 So does in this fact reflect a
14 18:08:21 deck that was used in connection with a ROG
15 18:08:24 meeting dated January 24, 2011?
17 18:08:27 A. It appears so, yes.
18 18:08:31 Q. I just want to ask you about
19 18:08:32 the page ending in Bates number 433043. I
20 18:08:43 think it is slide 61.
21 18:08:45 A. Okay.
22 18:08:49 Q. This lists as appendix 8 ROG
23 18:08:54 charter, a series of points under the --
24 18:08:56 there is a small bullet, "To identify,
25 18:08:58 measure and make policy and governance
HIGHLY CONFIDENTIAL
83 (Pages 1150 to 1153)
Page 1150
2 18:09:00 related decisions pertaining to repurchase
3 18:09:03 activities."
4 18:09:04 Then there is protocols, agenda
5 18:09:07 items and duties.
6 18:09:08 If we look under the heading
7 18:09:10 for Duties, the fifth bullet down states,
8 18:09:14 "Working -- workout strategies group makes
9 18:09:18 individual loan level repurchase decisions,
10 18:09:21 however ROG has set a monthly repurchase cap
11 18:09:24 of in calculated losses. If
12 18:09:29 such cap is to be exceeded in any particular
13 18:09:32 month, all ROG voting members, excluding
14 18:09:35 legal, must approve."
16 18:09:38 A. Yes, I do.
17 18:09:38 Q. In fact did ROG set a monthly
18 18:09:41 repurchase cap of ?
20 18:09:45 A. My recollection I do have
21 18:09:46 specific recollection of this so-called cap
22 18:09:50 what it was in actuality was a threshold.
23 18:09:56 Again, another form of governance that we
24 18:10:00 had that allowed workout strategies to
25 18:10:03 approve repurchases in the aggregate total,
Page 1151
2 18:10:05 in this case, this time
3 18:10:09 And anything beyond that would
4 18:10:11 require approval of the group cited here
5 18:10:17 which would, in my recollection was always
6 18:10:20 provided. So it did not operate in any way,
7 18:10:24 shape or form as a cap.
8 18:10:25 It is just a, I consider it
9 18:10:29 somewhat akin to the approval matrix,
10 18:10:31 although I'm not technically a part of it,
11 18:10:35 or perhaps it was, I don't recall. But it
12 18:10:37 was simply a different group that would have
13 18:10:42 to approve repurchases in excess of
14 18:10:44 in a given month.
15 18:10:47 It was much about providing
16 18:10:49 notice and awareness to finance partners,
17 18:10:51 other key stakeholders as anything else, as
18 18:10:53 I recall.
19 18:10:56 Q. Is that figure still
20 18:10:57 today?
21 18:10:58 A. I don't know.
22 18:11:01 Q. Was it previously
23 18:11:03 A. I don't remember what it was
24 18:11:05 before what it may have been after. My
25 18:11:10 understanding of this, no matter what the
Page 1152
2 18:11:12 amount was, it was just a heightened level
3 18:11:14 of approval needed once we broached whatever
4 18:11:17 the threshold was at the time.
5 18:11:18 Q. Okay.
7 18:11:43 Exhibit 4068 for identification, CRM
8 18:11:43 Monoline Starter Kit, production numbers
9 18:11:43 CWMBIA 0018623126 through 176.)
11 18:08:07 Q. Let's mark as Exhibit 4068 a
12 18:11:41 document entitled CRM Monoline Starter Kit.
13 18:12:03 I will note there is no date on the document
14 18:12:04 we have. At least not that I've noticed --
15 18:12:10 I'm corrected. If you go ahead to page
16 18:12:14 ending in Bates number 129 there is an
17 18:12:18 identifier in the document name that says
18 18:12:21 April 21, 2009.
19 18:12:42 Do you know what this document
20 18:12:44 is?
21 18:12:52 A. I don't know specifically, but
22 18:12:53 by appearances it looks like some sort of
23 18:12:56 training manual or training material.
24 18:13:00 Q. Was it a training material
25 18:13:03 prepared for underwriters working on
Page 1153
2 18:13:05 monoline repurchase demands, do you know?
4 18:13:08 A. This is, this is a document to
5 18:13:11 be used by the investor audit group. And
6 18:13:17 by, you know, the titling, I believe it
7 18:13:20 would be on monoline related claims.
8 18:13:23 Q. So that would be for the
9 18:13:24 underwriters dealing with the monoline
11 18:13:27 A. I believe so, yes.
12 18:13:29 Q. And do you know which entity
13 18:13:30 had responsibility for creating the
14 18:13:32 document?
16 18:13:38 A. I don't know which entity. I
17 18:13:40 don't know which person or people had a role
18 18:13:43 in developing this. But I would or I
19 18:13:50 believe in reviewing it that this was
20 18:13:52 something from investor audit specifically.
21 18:13:57 Q. Okay. If you refer to page
22 18:14:01 ending in 3129 there is a monoline list of
23 18:14:04 standard responses.
24 18:14:12 A. 3129. Okay.
25 18:14:14 Q. What does this reflect, this
HIGHLY CONFIDENTIAL
84 (Pages 1154 to 1157)
Page 1154
2 18:14:16 list?
4 18:14:22 A. I would like the opportunity to
5 18:14:23 look at it, please.
6 18:15:01 This document, while I did not
7 18:15:03 author it and am not sure whether I've even
8 18:15:06 seen it before appears to provide the
9 18:15:15 investor auditor group with standard
10 18:15:18 responses to improve the consistency and
11 18:15:22 efficiency of the repurchase process where
12 18:15:28 claims with similar fact patterns were
13 18:15:30 present.
14 18:15:31 So it was an aid to the
15 18:15:33 underwriters that were reviewing thousands
16 18:15:35 of loans in order to, again, better improve
17 18:15:39 upon efficiencies and consistency.
18 18:15:43 Q. Looking at the first point, it
19 18:15:45 states, "Compliance breach if there is no
20 18:15:47 loss to the investor caused by a breach of
21 18:15:50 the compliance rep."
23 18:15:55 A. Yes.
24 18:15:55 Q. How would an underwriter in
25 18:15:57 investor audit determine whether there was a
Page 1155
2 18:15:59 loss to the investor caused by the breach of
3 18:16:01 the compliance rep?
5 18:16:09 A. My understanding of this from
6 18:16:10 investor audit's perspective in terms of
7 18:16:13 loss to investor is loss on the loan. I
8 18:16:19 know for certain they were not assessing
9 18:16:21 deal structure and things of that nature.
10 18:16:24 So they were looking at the
11 18:16:25 loan unto itself and not the deal to assess
12 18:16:31 whether the loan had defaulted and whether
13 18:16:33 there had been a loss associated with that
14 18:16:36 loan.
15 18:16:37 Q. Again how would an underwriter
16 18:16:38 in investor audit determine whether there
17 18:16:40 was a loss to the loan caused by a breach of
18 18:16:42 the compliance rep?
20 18:16:47 A. Are you asking whether there
21 18:16:48 was a loss or loss caused by breach of the
22 18:16:50 compliance rep?
23 18:16:51 Q. Well the standard response
24 18:16:53 refers to compliance breaches if there is no
25 18:16:57 loss to the investor caused by a breach of
Page 1156
2 18:16:59 the compliance rep.
3 18:17:01 So I take your point that the
4 18:17:03 document must mean a loss to the loan caused
5 18:17:06 by a breach of the compliance rep. And I'm
6 18:17:09 asking you, do you have an understanding of
7 18:17:10 how an underwriter in investor audit could
8 18:17:14 determine whether there was a loss to the
9 18:17:16 loan caused by a breach of the compliance
10 18:17:19 rep?
12 18:17:19 A. Having not drafted this, I'm
13 18:17:21 not sure to what extent it was applied to
14 18:17:28 breached claims that cited compliance
15 18:17:31 findings. I have general awareness about
16 18:17:34 our view around certain compliance findings
17 18:17:38 on loans that had defaulted and were
18 18:17:41 liquidated that had nothing to do with a
19 18:17:46 disclosure document, you know, that may have
20 18:17:50 not been in the file having nothing to do
21 18:17:52 with the default that we don't believe that
22 18:17:57 would satisfy the materiality requirement.
23 18:18:01 Q. What type of compliance
24 18:18:02 breaches in your view could cause a loss to
25 18:18:05 the loan?
Page 1157
3 18:18:09 A. I'm not sure or I'm not aware
4 18:18:11 of one I could cite that would necessarily
5 18:18:13 cause a loss to a loan.
6 18:18:18 Q. Granted on your point of would
7 18:18:20 it necessarily cause it, what kind of
8 18:18:23 compliance breaches in your mind could
9 18:18:25 potentially cause a loan to not perform as
10 18:18:33 loaned?
12 18:18:34 A. I'm not aware of any.
13 18:18:35 Q. How about a breach of the Truth
14 18:18:38 in Lending Act?
16 18:18:42 A. As I said before, you would
17 18:18:43 have to look at the individual contract and
18 18:18:46 you'd have to look at the facts and
19 18:18:49 circumstances on the loan, to your question
20 18:18:52 the nature of Truth In Lending Act
21 18:18:57 violation, if one existed. What was the
22 18:18:58 nature of it. Sizing it up in terms of the
23 18:19:02 contractual standard of materiality.
24 18:19:05 Q. So such a violation may or may
25 18:19:07 not have a material and adverse effect, it
HIGHLY CONFIDENTIAL
85 (Pages 1158 to 1161)
Page 1158
2 18:19:10 would depend on the circumstances of the
3 18:19:11 particular loan?
5 18:19:14 A. I think in general that's the
6 18:19:16 assessment that gets made without
7 18:19:20 indicating, you know, what percentage of
8 18:19:21 loans, because I don't know would satisfy
9 18:19:23 that threshold.
10 18:19:26 Q. And in your view that would be
11 18:19:27 an appropriate assessment for Truth in
12 18:19:30 Lending Act violation as well?
14 18:19:38 A. I will say it this way, to the
15 18:19:39 extent we are talking about alleged rep and
16 18:19:42 warrant breaches, all of which are subject
17 18:19:46 to a material and adverse standard in the
18 18:19:50 governing contracts I think that are at
19 18:19:51 issue here and the rest of the monoline
20 18:19:55 deals, you know, that would be an entirely
21 18:20:00 appropriate, you know, way to assess the
22 18:20:04 claim.
23 18:20:04 Q. On the next point, unreasonable
24 18:20:08 stated income based on on-line source, this
25 18:20:11 is drafted as a, it says, "Countrywide
Page 1159
2 18:20:14 reviews each loan to the reasonable person
3 18:20:17 standard."
4 18:20:18 Then it goes on ultimately to
5 18:20:21 say, "The income was deemed reasonable
6 18:20:24 considering... cite why the profile
7 18:20:26 supported it."
8 18:20:28 Is this essentially an
9 18:20:30 instruction that any time there is a request
10 18:20:35 for repurchase relying upon unreasonable
11 18:20:39 stated income using an on-line source, that
12 18:20:41 the investor audit response should be to
13 18:20:45 reject that request for whatever reasons can
14 18:20:51 be found in the profile?
16 18:20:56 A. I can only speak to my general
17 18:20:58 understanding and guidance. I personally
18 18:21:01 have provided around stated income loans,
19 18:21:06 and as we saw in an earlier exhibit, we have
20 18:21:08 bought back loans specifically in the
21 18:21:13 monoline segment for unreasonableness of
22 18:21:16 stated income.
23 18:21:16 So, if the question was was
24 18:21:20 this a standard response every time we got a
25 18:21:22 claim predicated on unreasonableness of
Page 1160
2 18:21:26 stated income, I can tell you definitively
3 18:21:28 it was not.
4 18:21:29 What this is suggestive of to
5 18:21:32 me, just with my general awareness and
6 18:21:34 knowledge of the process is that when we got
7 18:21:36 a claim based on the allegation of
8 18:21:40 unreasonableness of stated income, that we
9 18:21:45 analyzed each of those claims based on the
10 18:21:49 facts or alleged facts cited.
11 18:21:52 In general I think you can
12 18:21:53 fairly, you know, surmise from this response
13 18:22:01 that we view salary.com and other web sites
14 18:22:06 as highly unreliable for predicting what a
15 18:22:11 given salary range is. Often times many
16 18:22:14 years after the fact. And I think it is,
17 18:22:17 you know, well understood the
18 18:22:19 vulnerabilities in those web sites.
19 18:22:21 And often times we believe that
20 18:22:23 that, you know, simply citing a third party
21 18:22:26 website as proof that, A the income was
22 18:22:30 misstated; and B, it was unreasonable was
23 18:22:34 insufficient proof.
24 18:22:35 Q. Is that categorical or will
25 18:22:38 Countrywide accept certain demonstrations of
Page 1161
2 18:22:40 variants of income based on on-line sources
3 18:22:44 as sufficient to show that stated income is
4 18:22:51 unreasonable?
6 18:22:52 A. Having already testified that
7 18:22:53 we do in fact buy back loans for, you know,
8 18:22:57 in those cases where we have concluded that
9 18:22:59 the income stated was in fact unreasonable,
10 18:23:06 it, I think follows we would consider all
11 18:23:11 the circumstances around reasonableness of
12 18:23:13 income.
13 18:23:14 So, you know, what I would say
14 18:23:16 it would be difficult to conclude that a
15 18:23:21 claimant had appropriately demonstrated a
16 18:23:25 material breach by simply referring to a
17 18:23:30 salary.com figure. And, you know, basically
18 18:23:35 asking us to believe that that ought to be
19 18:23:38 substituted for the income stated.
20 18:23:40 And that it was unreasonable,
21 18:23:44 you know, because of that. So different
22 18:23:47 claims cite different facts. If there is
23 18:23:50 more there, you know, to consider we would
24 18:23:52 have considered more.
25 18:23:54 And if the relevant facts of
HIGHLY CONFIDENTIAL
86 (Pages 1162 to 1165)
Page 1162
2 18:23:58 the loan, the occupation of the borrower,
3 18:24:00 other facts, you know, the credit profile of
4 18:24:04 the borrower relative to the stated income,
5 18:24:06 those are things we regularly consider in
6 18:24:11 assessing reasonableness of stated income.
7 18:24:13 Q. What if the stated income is 50
8 18:24:15 percent higher than the 90th percentile off
9 18:24:21 of salary.com and there is nothing in the
10 18:24:24 file to show that there was any effort to
11 18:24:27 verify income?
13 18:24:29 Q. Could that be sufficient to
14 18:24:31 show a material breach?
16 18:24:34 A. It is my understanding of our
17 18:24:36 process that we would look at that and, you
18 18:24:41 know, perhaps inquire further. By the way,
19 18:24:45 the variance is, you know, what is a
20 18:24:48 relevant or material variance is highly
21 18:24:51 dependent on, for instance, geography, job
22 18:24:54 function.
23 18:24:55 There are certain job functions
24 18:24:56 that are wildly disparate if you look at a
25 18:25:00 range. You can pull up a job function. You
Page 1163
2 18:25:02 may know somebody with that same title that
3 18:25:05 makes multiples of that.
4 18:25:06 So it is -- which again
5 18:25:10 underscores the inherent unreliability of
6 18:25:12 these web sites. So I'm not prepared to
7 18:25:16 categorically say it if presented with this
8 18:25:21 variance on a loan that we would never buy
9 18:25:24 back or never come to the conclusion like
10 18:25:27 the claimant did that it was unreasonable.
11 18:25:30 I suspect we would, and there
12 18:25:32 is evidence of having done so when you
13 18:25:34 consider all of the repurchases that have
14 18:25:36 been consummated.
15 18:25:46 Q. If you go to the next page
16 18:25:47 there is a heading DTI Exceeds That Allowed
17 18:25:49 in Prospectus Supplement.
18 18:25:55 The suggested response is "CRM
19 18:25:57 disagrees, the Prospectus Supplement states
20 18:26:00 variations in the monthly debt to income
21 18:26:05 ratio limits are permitted based on
22 18:26:06 compensating factors. In this case the
23 18:26:09 compensating factors were bracket insert
24 18:26:12 comp factors."
25 18:26:16 What kind of instruction is
Page 1164
2 18:26:18 this in your mind?
4 18:26:26 A. Again, as somebody not familiar
5 18:26:27 with this specific document, but has a
6 18:26:29 general awareness of the process in the
7 18:26:36 decisioning this was indicating correctly
8 18:26:39 that if just because there may have been a
9 18:26:43 disclosure in the Prospectus that -- by the
10 18:26:47 way, most of which to my knowledge is
11 18:26:48 qualified by generally, that there were DTI
12 18:26:52 maximums so, too were there explicit
13 18:26:58 disclosure around exceptions being permitted
14 18:27:02 generally qualified by compensating factors.
15 18:27:05 So that again takes us back to
16 18:27:06 the individual contract and a facts and
17 18:27:11 circumstances assessment on each and every
18 18:27:13 loan.
19 18:27:13 So it could very well have been
20 18:27:15 perfectly acceptable that we would have
21 18:27:20 granted an exception to a DTI limit if one
22 18:27:23 was disclosed in the Prospectus.
23 18:27:26 Q. The compensating factors that
24 18:27:30 have to be listed in the file; correct?
Page 1165
2 18:27:36 A. Not necessarily.
3 18:27:36 Q. In what circumstances in your
4 18:27:38 view would they not have to be listed in the
5 18:27:40 file?
7 18:27:45 A. I can't speak to what actually
8 18:27:47 was required to be listed. Again, this goes
9 18:27:52 to, talked earlier about the difference
10 18:27:54 between contemporaneous underwriting where
11 18:27:57 you have a loan officer talking to a
12 18:27:59 borrower face-to-face as opposed to somebody
13 18:28:04 going back six years after the fact and
14 18:28:07 forensically trying to piece together or
15 18:28:09 speculate on what happened and what was
16 18:28:11 asked about and what wasn't.
17 18:28:13 So it in my experience not
18 18:28:19 every single conversation is documented. It
19 18:28:23 would be helpful to the process perhaps.
20 18:28:25 But it is unrealistic to think the
21 18:28:28 underwriter documented every single step of
22 18:28:30 the process. So that contemporaneous
23 18:28:33 underwriting with face-to-face interaction
24 18:28:35 with the borrower where a lot of that, you
25 18:28:39 know, would have taken place isn't always
HIGHLY CONFIDENTIAL
87 (Pages 1166 to 1169)
Page 1166
2 18:28:43 perfectly documented.
3 18:28:44 And so what we would seek to do
4 18:28:49 is evaluate the loan and the compensating
5 18:28:52 factors on their face.
6 18:28:55 Q. Isn't it prudent underwriting
7 18:28:56 practice to list the compensating factors at
8 18:28:59 the time the loan is generated?
10 18:29:06 A. At the end of the day to me
11 18:29:08 prudent underwriting goes to the
12 18:29:12 underwriting decision on the loan. And it
13 18:29:16 would be nice, it would be helpful to have
14 18:29:22 an underwriter, I say this with the
15 18:29:25 perspective of having been in the space for
16 18:29:27 five years, having had an underwriter
17 18:29:30 regurgitate everything, download everything
18 18:29:32 that transpired in an end-to-end process
19 18:29:35 that could have taken 90 days and where they
20 18:29:38 may have had, you know, 50 different
21 18:29:41 conversations with borrowers. Okay.
22 18:29:43 That didn't always happen. We
23 18:29:46 never got that sort of download. And there
24 18:29:49 were exceptions where all the compensating
25 18:29:54 factors were not documented in one place.
Page 1167
2 18:30:00 But, you know, that, in our view does not
3 18:30:03 mean it's not relevant to ascertain six
4 18:30:08 years later in my example where, you know,
5 18:30:10 there is an underwriting, a re-underwriting
6 18:30:13 being done by a claimant. You know, it's
7 18:30:17 entirely appropriate for us to, you know,
8 18:30:19 ascertain in absence of documentation what
9 18:30:24 the objective fact or attributes on the loan
10 18:30:27 was.
11 18:30:28 Q. Including going outside the
12 18:30:30 file?
14 18:30:34 A. Well it's -- are you asking me
15 18:30:36 is there ever an occasion where we would
16 18:30:41 want to produce extrinsic evidence?
17 18:30:45 Q. Yes.
18 18:30:46 A. In order to address a specific
19 18:30:48 claim? I don't know specifically of what
20 18:30:52 sort of evidence we would have produced.
21 18:30:54 But I don't see, you know, sitting here
22 18:30:58 today an issue with that. At least top of
23 18:31:00 mind.
24 18:31:01 Q. Didn't the Countrywide
25 18:31:04 Technical Manual require that there be a
Page 1168
2 18:31:06 list of any compensating factors maintained
3 18:31:08 in the file?
5 18:31:11 A. I don't have that specific
6 18:31:13 knowledge of the underwriting manual.
7 18:31:17 Q. I promised to be done by the
8 18:31:19 end of tape. Apparently we are a couple
9 18:31:21 minutes off. So we're done. Thank you, Mr.
10 18:31:23 Schloessmann.
11 18:31:24 A. Thank you.
12 18:31:32 MS. CONCANNON: We are going to
13 18:31:33 designate the transcript Highly
14 18:31:35 Confidential pending our review. We'll
15 18:31:36 review quickly and do line-by-line
16 18:31:39 designations.
17 18:31:41 I don't have any follow-up
18 18:31:43 questions. Do you?
19 18:31:44 MR. BURTON: No.
20 18:31:46 MS. CONCANNON: Then we are done.
21 18:31:47 MR. SELENDY: Thank you.
22 18:31:48 THE WITNESS: Thank you.
23 18:31:48
24 18:31:48
25 18:31:48
Page 1169
3 18:31:50 6:32 p.m. This concludes volume 3, tape
4 18:31:53 18 of the videotaped deposition of
5 18:31:57 Michael Schloessmann consisting of six
6 18:32:00 videotapes. We are off the record.
7
8 (Time Noted: 6:32 p.m.)
9
10
11 _______________________
12 MICHAEL W. SCHLOESSMANN
13
14 Subscribed and sworn to before me
15 this _____ day of _________, 2012.
16
17 __________________________________
18
19
20
21
22
23
24
25
HIGHLY CONFIDENTIAL
88 (Pages 1170 to 1173)
Page 1170
2 STATE OF NEW YORK ) Pg__of__Pgs
3 ss:
4 COUNTY OF NEW YORK )
5 I wish to make the following changes, for
6 the following reasons:
7 PAGE LINE
8 ____ ____ CHANGE: _______________________
9 REASON: _______________________
10 ____ ____ CHANGE: _______________________
11 REASON: _______________________
12 ____ ____ CHANGE: _______________________
13 REASON: _______________________
14 ____ ____ CHANGE: _______________________
15 REASON: _______________________
16 ____ ____ CHANGE: _______________________
17 REASON: _______________________
18 ____ ____ CHANGE: _______________________
19 REASON: _______________________
20 ____ ____ CHANGE: _______________________
21 REASON: _______________________
22 ____ ____ CHANGE: _______________________
23 REASON: _______________________
24 ____ ____ CHANGE: _______________________
25 REASON: _______________________
Page 1171
2
3 C E R T I F I C A T E
4 STATE OF NEW YORK )
: ss.
5 COUNTY OF NEW YORK )
6 I, TAMMEY M. PASTOR, a Registered
7 Professional Reporter, Certified LiveNote
8 Reporter and Notary Public within and for the
9 State of New York, do hereby certify:
10 That MICHAEL W. SCHLOESSMANN, the
11 witness whose deposition is hereinbefore set
12 forth, was duly sworn by me and that such
13 deposition is a true record of the testimony
14 given by the witness.
15 I further certify that I am not
16 related to any of the parties to this action
17 by blood or marriage, and that I am in no way
18 interested in the outcome of this matter.
19 IN WITNESS WHEREOF, I have hereunto
20 set my hand this ____ day of ___________,2012.
21
22
23 __________________________
24 TAMMEY M. PASTOR, RPR, CLR
25
Page 1172
2 (Deposition Exhibit 260 for 843
3 identification previously marked,
4 email string dated 5/17/06
5 production numbers CWMBIA
6 0009882017 through 221.)
9 Memo undated, production numbers
10 CWMBIA 0009912977 through 80.)
12 identification, email string dated
13 11/20/08, production numbers
14 BACMBIA-P 0000092542 through 543.)
16 identification, email string dated
17 7/21/08, production numbers
18 CWMBIA-B 000009808 through 824.)
19 (Deposition Schloessmann Exhibit 896
20 4046 for identification, email
21 string dated 7/21/08, production
22 numbers CWMBIA-B 0000009596
23 through 9623.)
Page 1173
3 numbers CWMBIA-B0000010889 through
4 924.)
7 email string dated 3/3/09,
8 production numbers BACMBIA-X
9 0000006465 through 506.)
11 4048 for identification, Monoline
12 Strategy Presentation, November
13 2008, production numbers BACMBIA-G
14 000001458 through 490.)
18 numbers CWMBIA 0018629284 through
19 302.)
20
22 4050 for identification,
23 Repurchase Oversight Group April
24 14th, 2009, production numbers
25 BACMBIA-X 0000427844 through 866.)
HIGHLY CONFIDENTIAL
89 (Pages 1174 to 1177)
Page 1174
5 production numbers CWMBIA
6 0018550274 through 280.)
10 production numbers CWMBIA-B
11 0000010150 through 172.)
16 66.)
20 numbers CWMBIA-B 000007577.)
23 string dated 6/6/08 production
24 numbers CWMBIA-B 000007593 through
25 598.)
Page 1175
5 numbers BACMBIA-X 0000000192
6 through 194.)
10 numbers BAC MBIA-X 0000377813
11 through 819.)
16 748.)
21 through 141.)
Page 1176
2 through 793.)
7 2341.)
12 through 9524.)
16 production numbers CWMBIA-B
17 000000692 through 701.)
21 numbers BACMBIA-W 000001407 email
22 string dated through email string
23 dated.)
Page 1177
3 numbers BACMBIA-I 0000080093 to
4 99.)
9 through 744.)
14 862.)
18 numbers BACMBIA-H 0000008042
19 through 043.)
23 numbers BACMBIA-H 0000008603
24 through 04.)
HIGHLY CONFIDENTIAL
90 (Page 1178)
Page 1178
2 4067 for identification,
3 Repurchase Oversight Group deck
4 dated January 24th, 2011,
5 production numbers BACMBIA-X
6 0000432983 through 045.)
8 4068 for identification, CRM
9 Monoline Starter Kit, production
11 176.)
12
13
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15
16
17
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Deposition Transcript of Michael Schloessman

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Deposition Transcript of Michael Schloessman

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EXHIBIT 161

FILED: NEW YORK COUNTY CLERK 12/11/2012

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