THE NEED TO MISLEAD: How to Use Expert Declaration: MBIA Sues Credit Suisse with Details on Securitization


Here you have a lawsuit that corroborates everything we have been telling you on Livinglies PLUS an example of how to use the third party report of an expert in pleadings. The content of the lawsuit is a clear explanation of the securitization process — the catch is that these are not just allegations — they are predicated on the expert report or declaration of people who are knowledgeable in securitization. The use of the expert findings takes the argument from theoretical to factual.

Your hidden agenda is to lead the Judge into the unavoidable conclusion that these securitized loans were based upon lies to borrowers, lies to investors, lies to insurers, lies to rating agencies and anyone else they needed to mislead in order to get these so-called mortgage-backed securities sold and insured.

The differences between this lawsuit and others that have been filed are many. MBIA is suing here because they were defrauded into insuring securitized mortgage loans that did not meet the criteria and representations concerning underwriting standards. The accusation is essentially that Credit Suisse, through its multiple subsidiaries and affiliates, lied to MBIA about the risk of defaults and therefore the risk of loss. And they are saying that the DLJ obligation to buy back the loans was breached.

Most importantly, the lawsuit describes the process of securitization with multiple pools created for multiple sales, each with its own set of fees and profits. While this lawsuit is yet another example of why borrowers and investors and insurers could join forces, it serves as an excellent resource for the content of an expert declaration, the allegations of a lawsuit alleging fraudulent underwriting representations, and the damage caused by reasonable reliance on the representations of multiple parties in multiple layers each designed to create “plausible deniability.”

My suggestion is that the description of this process be included in the expert report, that the allegations of the complaint be made simple, and that the tactical approach should be to allow the Judge to come to his/her own conclusion as to what happened. The important point here is that you make your appearance in court raising questions of fact that entitle you to discovery and to force answers to basic questions like who is the lender NOW and how much has been paid by whom on the obligation.

12 Responses

  1. Donaldson Lufkin & Jenrette Securities Corp
    DLJ Mortgage Capital
    Uses ‘Wells Fargo Bank NA’ PO Box 85071, San Diego CA

    Filing Agent 25,837 Filings (3/10/98 to 4/8/11)
    Norwest Asset Sec Corp Mort Ps Thr Cert Ser 1998-1 Trust of:

    CSMC Mortgage-Backed Trust 2007-5 · 10-K · For 12/31/07

    Filed On 4/15/08 4:25pm ET ·
    SEC File 333-140945-07 ·
    Accession Number 1056404-8-1198
    Registrant CSMC Mortgage-Backed Trust 2007-5
    Top of Form
    1 Closely Related:

    Office Address
    Norwest Bank Minnesota N A
    1100 Broken Land Parkway
    Columbai, Maryland 21703

    INCORPORATED New York, U.S.A.SEC CIK 1056404

    SIC Code 6189 Asset-Backed Securities (ABSs)SEC 12/20/99

    Deutsche Bank Trust Company Americas is now an affiliate of MortgageIT since
    the purchase of MortgageIT holdings, Inc.

    (“MortgageIt Holdings”), MortgageIT’s former parent company, by an affiliate of DB Structured Products, Inc.

    Deutsche Bank Trust Company Americas is now an Affiliate of Chapel Funding,
    LLC (“Chapel Funding”) since the purchase of Chapel Funding bay an affiliate
    of DB Structured Products, Inc.

    Pricewaterhouse reports:
    LaSalle Bank National Association’s (“LaSalle”)
    Report on Assessment
    of Compliance with Servicing Criteria for 2007 (reporting errors)

    R&G Mortgage Corp. and R-G Premier Bank of Puerto Rico, wholly owned subsidiaries of
    R&G Financial Corporation (together the “Company”)

    in accordance with the transaction agreements

    Commission File Number: 333-140945-07
    Issuing Entity:
    CSMC Mortgage-Backed Trust 2007-5

    As Depositor
    Credit Suisse First Boston Mortgage Securities Corp.

    As Sponsor DJL Mortgage Capital, Inc.
    Jurisdiction New York State


    c/o Wells Fargo Bank NA
    9062 Old Annapolis Rd
    Columbia MD 21045
    (410) 884-2000
    Securities: None

    Pooling & Servicing Agreement
    Dated 7/1/2007 (errors from 7/1/2007 – 12/31/2007) not reported until 3/31/2008 in 10K?

    Credit Suisse First Boston Mortgage Securities Corp DE Corp
    Seller DLJ Mortgage Capital, Inc. DE Corp
    Servicer Wells Fargo Bank, NA
    (a national banking association

    In its capacity as Servicer
    State charter bank as Servicer and
    Backup Servicer
    Servicer Back-up Banco Popular
    Master Servicer Wells Fargo Bank, NA
    Trust Administrator Wells Fargo Bank, NA

    Company did not comply with backup servicer requirement.

    On February 14, 2008, the transaction
    agreement was replaced with a new
    transaction agreement filed with the Securities and Exchange Commission under
    Form 8-K/A on that same date.

    The new transaction agreement, requires the
    Company to provide certain periodic information about the pool assets only at
    the request of the back-up servicer.


    a Utah corporation, as a servicer
    (in Special Servicer SELECT PORTFOLIO SERVICING, INC Modification Oversight Agent


    US Bank National Association, a national banking association, as trustee (the “Trustee”)

    (incorporated herein by reference from

    Exhibit 4.1 of the Current Report on Form 8-K/A of the issuing entity, as filed with the Securities and Exchange Commission on February 13, 2008 as File No. 333-140945-07, Film No. 08606774, CIK No. 0001407650).

    as Custodian
    33.2 Banco Popular de Puerto Rico
    34.2 Banco Popular de Puerto Rico
    33.3 Deutsche Bank National Trust Company
    34.3 Deutsche Bank National Trust Company
    33.4 LaSalle Bank, National
    34.4 LaSalle Bank, National Association

    as Servicer
    33.5 R & G Mortgage Corporation
    34.5 R & G Mortgage Corporation
    35.2 R & G Mortgage Corporation

    33.6 Select Portfolio Servicing, Inc.
    34.6 Select Portfolio Servicing, Inc
    35.3 Select Portfolio Servicing, Inc
    33.7 Wells Fargo Bank, N.A. as
    34.7 Wells Fargo Bank, N.A.

    Master Servicer
    33.7 Wells Fargo Bank, N.A. as
    34.7 Wells Fargo Bank, N.A.
    35.4 Wells Fargo Bank, N.A.

    Trust Administrator

    33.7 Wells Fargo Bank, N.A. as
    34.7 Wells Fargo Bank, N.A.
    35.4 Wells Fargo Bank, N.A.

    33.8 Wells Fargo Bank, N.A.
    34.8 Wells Fargo Bank, N.A.

    “Bruce Kaiserman”Latest Filing: 3/28/11 as Signatory

    As: Signatory (Director, Officer, Attorney, Accountant, Banker, Agent, etc.)

    PHH Mortgage Trust/Series 2008-Cim2

    1 Closely Related:

    RegistrantPossibly Inactive per 1/22/09
    Form 15

    Office Address
    11 Madison Ave
    New York, New York 10010
    U.S.A. 11 Madison Ave

    C/O Credit Suisse First Boston
    New York, New York 10010
    212-325-2000 Delaware, U.S.A.–
    SEC CIK 1440463
    SIC Code
    6189 Asset-Backed Securities (ABSs)SEC 3/24/09

    2 Affiliate Relationships (based upon SEC Files: Parents / Subs., Directors / Officers, et al.)

    Last Filing Registrant 3/28/11
    Credit Suisse First Boston Mortgage Acceptance Corp [ formerly DLJ Mortgage Acceptance Corp ]
    Registrant Formerly
    Assigned On
    DLJ Mortgage Acceptance Corp
    Home Equity Mortgage Trust 2007-1

    DLJ Mortgage Acceptance Corp Mort Pass Thr Cert Ser 1995-Q6 · 424B5 · On 11/24/95
    Filed On 11/24/95 · SEC Files 33-77722, -14 · Accession Number 912057-95-10407

    This Filing’s “Filed As Of” Date was Corrected by the SEC on 4/2/04.

    DLJ Mortgage Acceptance CorpTRUST FUND
    Pool conventional, adjustable-rate, fully-amortizing, 1-4 family, first lien mortgage loans to be deposited by DLJ Mortgage Acceptance Corp into TRUST FUND for benefit of Certificateholders.

    (REMIC)11/1/1995 CutOff Date.

    All Loans Originted or Acquired By:
    Quality Mortgage USA, Inc.
    Quality Mortgage USA Inc.
    (sold by Seller)
    To BUYER “DLJ Capital Inc.
    Prior to date of initial issuance of Certificates

    DJL Mortgage Capital, Inc.
    Affiliate of Depositor.

    As Depositor
    DJL Capital Inc. acquired by form affiliate on Delivery date

    Mortgage Loans Serviced
    Temple-Inland Mortgage Corp
    Master Servicer
    Temple-Inland Mortgage Corp
    Cut-Off Date 11/1/1995
    Delivery Date On or about 11/21/1995

    Variable Strip Certificates maintained by Depository Trust Co. represented by one or more certificates registered in the name of Cede & Co.

    No person acquiring a beneficial interest in Class of DTC Registered Certificate (each, a Beneficial Owner) will be entitiled to receive a Certificate except under limited circumstances.

    DTC will effect payments to and transfer of related DTC Registered Certificates among respective Beneficial Owners by means of electronic recordkeeping services acting throu organizations that participate in DTC.

    Proceeds to the Depositor are expected to be approximately $133,013,214 plus accrued interest, before deducting issuance expenses payable by the Depositor

    To be offered when accepted by Underwriter…
    Donaldson Lufkin & Jenrette Securities Corp
    Same Day Funds Settlement System Of the Depository Trust Co
    Donaldson, Lufkin & Jenrette Securities Corporation, New York, New York, on
    or about November 21, 1995, against payment therefor in immediately available funds.

    Quality Mortgage USA INC

    “The Seller-Loan Delinquency,
    Forbearance, Foreclosure,
    Bankruptcy and REO Property Status”
    and, to the extent provided by
    Lomas Mortgage USA, Inc. as described herein, the information set forth herein under

    “The Seller-REO Property Liquidation Experience”) has been provided by the Seller.

    “The Seller-REO Property Liquidation Experience” has been provided
    by Lomas Mortgage USA, Inc. in its capacity as servicer during the periods indicated.

    No representation is made by the Depositor, the Underwriter, the
    Master Servicer, the Seller, the Trustee or any of their respective affiliates as to the accuracy or completeness of the information provided by Lomas Mortgage
    USA, Inc.

  2. Great post and comments. This issue is also related to the effort by the FDIC to develop normative standards for securitization by banks. See my comment today in the American Banker and keep up the good work.


    Chris Whalen

  3. My comments below relate to the article referenced by Mario (also below), as well as the MBIA action above.

  4. Keep in mind that this is an article by “American Banker,” so the author is obliged to take a few swings at the borrower for getting the banks and their pals in this big mess.

    Also, Ms. Berry is addressing two things – Mortgage Insurance (MI) policy rescission and loan “repurchase” – for a fairly specific type of mortgage (+80% LTV) and GSE as “insured party.”

    MI policy rescission and loan “repurchase” may work for this group of loans as an easy fix for GSE’s that then turn around and (with their substantial leverage) force “lenders” to “repurchase” “bad” loans (so they can continue to play ball with the GSE’s in future). But MI policy rescission cannot be going very well for MI policy issuers outside of the GSE market, or else MBIA wouldn’t need to be running around suing Countrywide (BofA), Credit Suisse and others for fraud and damages in CA and NY. Hell, the MI companies didn’t even have subrogation clauses in their insurance contracts – perhaps because there is nothing to “subrogate?” Duh. (Perhaps Neil and/or Brad could comment on this aspect?)

    Two things immediately come to my mind about this. First, seems the only way an MI company could enforcibly affect a policy rescission is if there was a material breach or fraud by the parties to that contract, and the borrower is not a party to that contract. The policies are demanded to be rescinded not because the borrower lied, but because the “lender” or any or all of the parties who should be in the chain of title LIED. Second, how can the “lender” repurchase what it never funded or held – a table funded loan? Hence, the MI lawsuits methinks.

    If information or chain of title or whatever, obtained through discovery, indicates that the mortgage insurer had rescinded its contract and/or that the “lender” was forced to “repurchase” one’s loan, seems that would be very interesting on several levels: 1) What was the fraud(s) / material breach(es) by the “lender” that would lead to rescission of MI? 2) What was/were the fraud(s) / material breach(es) by the “lender” that would compel “repurchase” of the “nonperforming” loan? (As Judge Shack asks, “Please explain why would a Lender purchase a non-performing loan?”)

    I think Dan is probably correct here. Such breaches by the “lender” may prove the borrower’s case that the borrower was ALSO lied to, especially about the nature of the agreement he/she unwittingly entered into with the “lender.” Perhaps this could lead to “rescission” by the borrower, plus damages, as well.

    BTW, if you are involved with a GSE, good luck extracting any worthwhile information from them. Their business models only seem to work in the blackest of darkness; I think they are even exempt from responding to QWR’s. Though not discussed much on this blog, I think they are the worst of the entire lot, worse even than the greediest private sector securitizers.

    This is opinion, not legal advice – I’m no lawyer.

  5. Dan
    My experience is when the is when the borrower moves on the title insurance, the bank has no interest in the property as they have no money to collect from the title insurance, in this case its PMI. I have always found this very interesting, but yet to try it. I am very afraid to talk to my title insurance co or to make a claim, I know some who was denied the insurance claim, I also know some one who said that the foreclosing bank hates when the title insurance do not pay.

  6. Mario,
    This is important information. It doesn’t mean they will abandon the house – it means it was returned to the lender who cannot sell it and is not receiving payments. They will ALWAYS foreclose (the bad news). The good news is that EVERYONE should be investigating, asking or attempting to DISCOVER if their alleged loan was repurchased and/or if any insurance claims were denied. This is also where it is very important to follow the chain of title. If it shows somewhere (assignment and assumption agreement, allonges, etc) that the loan went to Fannie Mae or Freddie Mac, and now somebody else is foreclosing, ASK questions. Send a QWR to Fannie Mae or Freddie Mac and send a freedom of information request also (or combine the two into one letter?).
    I am sure there is more here that I am not seeing. Can Neil or anyone else comment on this?

    Dan Edstrom

  7. Good … let these bastards screw each other over now.


  8. Insurers’ Claim Rejections Multiplying Lenders’ Pain

    As I understand this news is that all subprime loans with NINJA elements are being refused and are rescinded, well this could help the banks to not bother to foreclose, in my opinion. I have always wondered how and what is the process to file on the title company, for the title insurance, now I know that subprime was not insurable and thus there are a clouds on the titles.

    December 18, 2009
    Insurers’ Claim Rejections Multiplying Lenders’ Pain
    By Kate Berry

    Private mortgage insurers have stepped up their rejections of claims on defaulted loans, compounding the pain that banks and other lenders have felt from the housing crisis.
    In the second and third quarters, insurers denied 20% to 25% of claims, up from a historic rate of 7%, according to Moody’s Investors Service Inc. Though the insured party is usually Fannie Mae or Freddie Mac, lenders that do business with the government-sponsored enterprises stand to lose when claims are rejected.
    This is because, when insurers deny claims, they also rescind the policies. The mortgages in question typically have loan-to-value ratios above 80%, which means Fannie and Freddie cannot hold them without the insurance. So when insurers cancel policies, the GSEs in turn make lenders buy back the loans.
    “Buybacks are really the pink elephant on lenders’ balance sheets that no one wants to talk about,” said William Armstrong, the chief executive of Blueberry Systems LLC, a Greenwood Village, Colo., developer of software that captures data discrepancies to prevent repurchase requests.
    Fannie and Freddie have already been forcing lenders for more than a year to repurchase greater numbers of faulty loans for reasons other than insurance rescissions. The spike in rescissions is accelerating this trend.
    Freddie said in its third-quarter financial report that servicers had repurchased $960 million of loans from it during the period, nearly double the amount a year earlier. Fannie does not disclose its volume of repurchase requests, but in its third quarter report, the GSE said that its repurchase requests have been increasing since the beginning of 2008, and that it expects them to remain high into next year.
    Peter Pollini, a principal of the consumer finance group at Pricewaterhouse Coopers, said repurchasing a loan whose insurance has been rescinded hits the lender with a “double-whammy.”
    “They have a nonperforming loan that has been brought onto the balance sheet, and they can’t sell it, and they have to take the full risk on that loan,” Pollini said.
    Insurance rescissions and buybacks reflect the dramatic loosening of underwriting standards in the middle of the decade.
    “Certain product types were flawed the day they were made,” said David Katkov, an executive vice president and chief business officer at PMI Group Inc. in Walnut Creek, Calif.
    Most loans whose claims are denied have “multiple reasons why they failed,” said Katkov, whose company is the second-largest private mortgage insurer as measured by insurance in force. For example, a borrower could have a low FICO score combined with a high loan-to-value ratio, no documentation of income and a questionable appraisal, he said. The combination of all those risk factors on the same loan would make it fall outside PMI guidelines. “How is that loan ever going to perform the way I priced it to perform?”
    At PMI, “we’re all about paying legitimate claims,” Katkov said. “My policy is very explicit. If you went over here and did something that is black, and I said you need to do something that is white, I’m not going to be obligated for that loan.”
    But others say the mortgage insurers are incorporating rescissions into their business models, using claim denial to get through the crisis. “Lenders are not happy, and the consumers paid a premium for nothing,” said Rhonda Orin, a managing partner at the Washington law firm Anderson Kill & Olick. “Lenders counted on private mortgage insurance when they made the loans, and now you have insurers saying the mere fact that a mortgage goes into default means the borrower gave false information, and they’re rescinding the policy instead of paying the claim. We call that post-loss underwriting.”
    The seven private mortgage insurers have rejected $6 billion of claims since early 2008, Moody’s said. During the same period, they paid out an aggregate $18 billion to $20 billion in claims.
    It is unclear how long rescission rates will remain at today’s historically high level.
    Katkov said he is not prepared to say claims are near their peak. But he said the loans made during the middle of the decade, when now-discredited practices like not documenting borrower incomes prevailed, “are getting close to the end of their life.” Claims on newer loans are more driven by economic fundamentals like job losses, he said. This suggests that future claims will be harder to deny, though Katkov would not forecast rescission rates.
    Banks repurchased $7.1 billion of defaulted single-family loans from various investors in the third quarter, National Mortgage News has reported, up from $1.9 billion in the second quarter. JPMorgan Chase & Co. repurchased the most loans last quarter, $2.7 billion, the newspaper said, and Bank of America Corp. was No. 2, with $2.3 billion repurchased.
    B of A did not return calls. Tom Kelly, a spokesman for JPMorgan Chase, said most of its buybacks were of loans from Government National Mortgage Association pools. Such loans are insured by government agencies like the Federal Housing Administration, a part of the Department of Housing and Urban Development. So bringing them back on the balance sheet did not affect JPMorgan Chase’s reserves or chargeoffs, Kelly said.
    But there also is concern that the FHA, whose capital reserves have dwindled, could become more aggressive in rejecting claims.
    “HUD is acting more and more like an insurer where, if they are faced with a potential loss, they will look at the file just like a mortgage insurer, and they won’t pay the claim if there is a problem,” said Dan Cutaia, the president of Fairway Independent Mortgage in Sun Prairie, Wis. “That’s a big change because FHA has been pretty lax over the years.”
    Laurence Platt, a partner at K&L Gates LLP, said lenders could take comfort that FHA has higher thresholds for claim rejections than private insurers, which can deny a claim if information is materially untrue. “FHA has to show the lender knew or reasonably should have known if information is incorrect,” he said. “So the lender never bears the risk of pure borrower fraud unless it could reasonably have been caught.”
    — Kate Berry is a reporter for American Banker.
    Other Lead Story items.

  9. Lisa,

    You’re of course right; their attorneys are every bit as bad if not worse. They chose which side to be on; they followed the money like a carrot on a stick. I hope it ultimately leads them to a very bad place.


  10. Also, following on from this lawsuit, read this one where its already been decided by a JURY! Decision has been handed down: The securitzing bank (LaSalle, now BofA) WAS guilty of breaching warranties AND negligence in it’s underwriting standards.

    They are GUILTY of selling on crap to others. In this case it’s Wells Fargo (unfortunately) but the principal remains: Banks found GUILTY of securitizig CRAP and selling onto others!

    Pass the word:

    This can help you fight these bastards like I am!

  11. Steve,

    Their attorneys aren’t exactly all goodness and light either.

    Lisa E
    ForeclosureHamlet @ gmail . com (Remove spaces to email)

  12. Sons of darkness; that’s who these damn banksters are.


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