michael schloessmann vol.2 mar24-2011 copy

EXHIBIT 160

FILED: NEW YORK COUNTY CLERK 11/21/2012 INDEX NO. 602825/2008

NYSCEF DOC. NO. 3288 RECEIVED NYSCEF: 11/21/2012

In The Matter Of:

MBIA INSURANCE CORPORATION

v.

COUNTRYWIDE HOME LOANS, INC., et al.

__________________________________________________

SCHLOESSMANN, MICHAEL W. ‐ Vol. 2March 24, 2011

___________________________________________________

4b3da8c1-ec3f-4361-a882-95302ebfe95e

MICHAEL W. SCHLOESSMANN - 3/24/2011

1-800-325-3376 www.merrillcorp.com/lawMerrill Corporation - New York

Page 454

SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK

-----------------------------------x

MBIA INSURANCE CORPORATION,

Plaintiff,

-against- Index No. 08/602825

COUNTRYWIDE HOME LOANS, INC.,COUNTRYWIDE SECURITIES CORP.,COUNTRYWIDE FINANCIAL CORP.,COUNTRYWIDE HOME LOANS SERVICING, LPand BANK OF AMERICA CORP.,

Defendants.

-----------------------------------x

VOLUME 2 March 24, 2011 9:35 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 ERIC J. FINZ, a Shorthand Reporter

and Notary Public within and for the State of

New York.

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2 (Pages 455 to 458)

55

12 A P P E A R A N C E S:3 QUINN EMANUEL URQUHART & SULLIVAN LLP

Attorneys for Plaintiff4 51 Madison Avenue

New York, New York 100105

BY: PHILIPPE Z. SELENDY, ESQ.6 ([email protected])

-and-7 COURTNEY STATFELD, ESQ.

([email protected])89

GOODWIN PROCTER LLP10 Attorneys for Defendants

Exchange Place11 Boston, Massachusetts 0210912 BY: SARAH HEATON CONCANNON, ESQ.

([email protected])13

-AND-14

GOODWIN PROCTER LLP15 901 New York Avenue NW

Washington, D.C. 2000116

BY: DAVID I. FREEBURG, ESQ.17 ([email protected])1819

ALSO PRESENT:20

JONATHAN POPHAM, Videographer2122232425

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1 MICHAEL W. SCHLOESSMANN209:09:31 THE VIDEOGRAPHER: Here begins309:09:38 volume 2, videotape No. 7 in the409:09:41 continuing deposition of Michael509:09:43 Schloessmann. Today's date is609:09:45 March 24, 2011, and the time is709:09:47 9:09 a.m.8 M I C H A E L W.9 S C H L O E S S M A N N,10 resumed, having been previously duly11 sworn, was examined and testified12 further as follows:13 CONTINUED EXAMINATION1409:09:49 BY MR. SELENDY:1509:09:49 Q. Yesterday you made reference1609:09:50 to some risk based pricing models that1709:09:53 CSC used in evaluating the1809:09:55 securitizations. What were you referring1909:09:57 to?2009:10:00 A. Can you give me some context?2109:10:03 Q. Let me just ask it more2209:10:05 generally. As of the time period from2309:10:07 2004 to 2007, did CSC employ risk based2409:10:11 pricing models in connection with these2509:10:13 securitizations?

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1 MICHAEL W. SCHLOESSMANN209:10:14 A. Yes.309:10:14 Q. And what were those models?409:10:16 A. When you say in connection509:10:17 with these securitizations?609:10:19 Q. Second lien securitizations.709:10:22 A. I'm not sure, nor do I think I809:10:25 said we employed the models in connection909:10:27 with these securitizations. We had our1009:10:30 own proprietary loss and prepay models1109:10:34 that we used to evaluate collateral. We1209:10:37 used to price collateral when we1309:10:39 purchased loans through our conduits.1409:10:42 Q. Okay. What are the names of1509:10:44 those models?1609:10:45 A. I don't know -- I don't know1709:10:48 or remember anyway the specific names.1809:10:51 They, generically speaking, were a1909:10:54 default or loss model, as well as a2009:10:56 prepay model.2109:10:58 Q. Okay. And what did CSC use2209:11:01 the default or loss model for?2309:11:05 A. So these were loan level2409:11:07 models, where you would input loans and2509:11:11 loan attributes, and it would calculate

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1 MICHAEL W. SCHLOESSMANN209:11:16 expected, you know, prepay and losses,309:11:19 and would allow you to project409:11:22 performance and/or, you know, price the509:11:25 loans based on, you know, execution609:11:28 assumptions.709:11:29 Q. And did CSC use those models809:11:31 in connection with loans acquired for909:11:34 HELOC securitizations, do you know?1009:11:37 MS. CONCANNON: Objection.1109:11:39 A. With very limited, if any,1209:11:42 exception. All of the loans in the1309:11:45 fifteen MBIA transactions, and I think1409:11:48 for that matter the rest of the CHL HELOC1509:11:51 securitizations and closed end second1609:11:53 securitizations, were Countrywide loans1709:11:55 and were not loans that we acquired1809:11:57 through our conduits at CSC.1909:12:00 Q. Does that mean you would not2009:12:01 have used those CSC pricing models at all2109:12:04 in connection with the securitizations in2209:12:07 dispute?2309:12:07 A. I'm unaware of -- asked now, I2409:12:11 can't think of anything that immediately2509:12:14 comes to mind as to why we would run them

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3 (Pages 459 to 462)

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1 MICHAEL W. SCHLOESSMANN209:12:16 through those models, but I could be309:12:19 mistaken and I'm probably not the best409:12:21 person to ask.509:12:21 Q. Who is the best person to ask?609:12:25 MS. CONCANNON: Objection;709:12:26 vague.809:12:26 A. I would start with the909:12:29 structuring group or our -- actually, I1009:12:33 would start with the structuring group.1109:12:34 I was going to give you the name also of1209:12:36 Wei Wang, who was in our fixed income1309:12:40 research, and that team helped produce1409:12:43 and develop the models. But they1509:12:46 weren't -- they were not running them in1609:12:48 terms of production mode.1709:12:50 Q. The structuring group would be1809:12:51 the group that ran them in production1909:12:53 mode?2009:12:53 A. Again, I can't be sure as it2109:12:55 related to, you're asking about the2209:12:57 securitizations themselves, and since the2309:13:00 structuring group headed up by William2409:13:03 Shang, as I said earlier, you know,2509:13:05 managed the, you know, the process by

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1 MICHAEL W. SCHLOESSMANN209:13:08 which we were interacting with the rating309:13:12 agencies around ratings levels to the409:13:15 extent, you know, CHL wasn't, that they509:13:18 would seem to be the logical, you know,609:13:20 group to be using those models.709:13:22 Q. Do you know the particular809:13:26 loan attributes that would be entered in909:13:28 as inputs into the model, the default1009:13:31 model?1109:13:31 MS. CONCANNON: Objection.1209:13:32 A. Some, but I don't have a top1309:13:35 of mind exhaustive list.1409:13:37 Q. Which attributes do you1509:13:38 recall?1609:13:39 A. It would have been certainly,1709:13:41 you know, LTV, CLTV, FICOs, geography.1809:13:47 Those kinds of things. Essentially the1909:13:49 attributes that would or would be2009:13:52 believed to impact either, you know,2109:13:56 loss -- excuse me, losses or prepay2209:13:59 experience on those loans.2309:14:00 Q. Would owner occupancy be one2409:14:02 of those attributes too?2509:14:04 A. Yes, I believe so.

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1 MICHAEL W. SCHLOESSMANN209:14:05 Q. Do you know if the309:14:06 documentation program itself would be one409:14:08 of those attributes?509:14:09 A. I believe that would as well.609:14:10 Q. Okay. And that's because each709:14:11 of these things, CLTV, FICO, owner809:14:15 occupancy, documentation program, were909:14:18 all to be correlated in some respect with1009:14:22 expected default risk?1109:14:23 MS. CONCANNON: Objection.1209:14:24 Q. Is that right?1309:14:24 MS. CONCANNON: Lacks1409:14:25 foundation.1509:14:26 A. I would not hold myself out to1609:14:28 be an expert on this, but I think there1709:14:31 was a general understanding in the market1809:14:32 shared by, you know, most market1909:14:34 participants, including the rating2009:14:36 agencies, if you were to look at their2109:14:37 models, that those attributes would be2209:14:40 all be deemed to one extent or another2309:14:43 relevant in terms of the determination of2409:14:45 or projection of performance on a group2509:14:47 of collateral.

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1 MICHAEL W. SCHLOESSMANN209:14:48 Q. Performance meaning309:14:49 specifically whether the loans repay or409:14:50 whether they default?509:14:52 A. Repay, prepay. You know, it609:14:55 would allow you to project prepay speeds709:14:58 on a group of collateral, it would allow809:14:59 you to estimate or project default or909:15:02 loss experience on that same group.1009:15:06 Q. Do you know if CSC used its1109:15:08 default model to value the tranches in1209:15:15 RMBS securitizations, even if it hadn't1309:15:17 acquired the loans itself?1409:15:19 MS. CONCANNON: Objection.1509:15:20 A. When you say value the1609:15:21 tranches, now we're talking about1709:15:23 something very different. You are using1809:15:25 structured finance tools like Intex,1909:15:29 these are commercially available tools2009:15:31 that model cash flows relating to bonds2109:15:33 as opposed to the underlying loans. So2209:15:35 you would not, so far as I know, you2309:15:38 would not run bonds through, you know,2409:15:42 the aforementioned models, which were,2509:15:44 you know, by definition, you know, loan

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4 (Pages 463 to 466)

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1 MICHAEL W. SCHLOESSMANN209:15:46 level.309:15:46 Q. But you wouldn't -- CSC would409:15:49 not do loan level analyses in order to509:15:53 back into valuations of the certificates?609:15:56 MS. CONCANNON: Objection.709:15:56 Q. I mean, for example, taking809:15:58 into account both the structure of the909:16:00 RMBS, the tranching and the like, but1009:16:03 also looking at the expected performance1109:16:05 of the loans underneath, would CSC take1209:16:07 that data to try and get some sense of1309:16:10 the true value of various certificates in1409:16:13 the RMBS that it was underwriting?1509:16:15 MS. CONCANNON: Objection to1609:16:16 form.1709:16:17 A. If we're talking about the1809:16:18 HELOC securitizations generally that we1909:16:22 underwrote and specifically the fifteen2009:16:24 MBIA transactions, I'm not sure to what2109:16:27 extent we -- I mean, we clearly modeled,2209:16:30 you know, the transactions, I mean, that2309:16:32 was our job, right, we structured, you2409:16:34 know, we came up with a capital2509:16:36 structure, and these were generally, you

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1 MICHAEL W. SCHLOESSMANN209:16:38 know, at least on the HELOC side, very309:16:41 plain vanilla type structures. Typically409:16:43 they were a single AAA, you know, wrapped509:16:47 or class or, you know, pass-through bond,609:16:49 and that was the extent of it. As well709:16:51 as the residual, you know, I think I809:16:54 mentioned, you know, Countrywide909:16:55 retaining.1009:16:56 Q. So what were the models -- did1109:16:58 CSC actually use a model to evaluate the1209:17:00 structure of these HELOC transactions?1309:17:03 A. Yeah, well, you're using the1409:17:06 Intex tool, which again, is a1509:17:09 commercially available structuring tool,1609:17:11 that structurers use to set up the deal.1709:17:15 They can set up various scenarios or1809:17:17 structural, you know, alternatives, and1909:17:19 run the cash flows on those alternatives.2009:17:22 I don't know, however, if losses were2109:17:27 typically, you know, run through those.2209:17:30 If they were ever done on the HELOC2309:17:32 deals, there would have been no2409:17:34 expectation of losses impacting the AAA2509:17:39 bonds. But again, I don't know to what

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1 MICHAEL W. SCHLOESSMANN209:17:42 extent we did that on the fifteen MBIA or309:17:44 the other HELOC deals.409:17:45 Q. Again, that would be Mr. Shang509:17:48 who would be in charge of that?609:17:49 A. Yes, his group.709:17:50 Q. Okay. And his group was the809:17:52 structuring group?909:17:52 A. That's correct.1009:17:53 Q. Does the collateral analytics1109:17:54 group have a role in that or no?1209:17:57 A. The collateral analytics group1309:17:59 that was within my transaction management1409:18:00 organization would prepare the loan level1509:18:04 tapes, so they would typically, as I1609:18:06 mentioned, in the context of providing1709:18:09 rating agencies tapes, if we were doing1809:18:11 that on behalf of the mortgage company,1909:18:13 they would be putting together the pools2009:18:15 at the direction of the mortgage company.2109:18:16 They would not be running cash flow2209:18:18 models, they did not have, for instance,2309:18:20 Intex. That was the exclusive domain of2409:18:24 William Shang's group.2509:18:25 Q. Do you know whether

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1 MICHAEL W. SCHLOESSMANN209:18:26 Mr. Shang's group used any model other309:18:28 than Intex with respect to the409:18:30 securitizations here?509:18:32 A. With respect to modeling the609:18:35 deal structures as opposed to the loans?709:18:38 Q. Yes.809:18:38 A. No, I think Intex was the, I909:18:42 can't be certain, but I believe Intex was1009:18:43 the only cash flow model we used.1109:18:45 Q. Okay. And are you aware of1209:18:46 any other models used by any entity at1309:18:49 Countrywide in connection with the MBIA1409:18:52 securitizations at issue here?1509:18:55 MS. CONCANNON: Objection;1609:18:55 vague, overbroad.1709:18:56 A. I'm not sure what the mortgage1809:18:58 company used. I know they just in1909:19:01 general when we underwrote securities for2009:19:03 them, they relied on, you know, a lot of2109:19:05 our analytics, secondary marketing may2209:19:08 have produced their own, you know,2309:19:10 summary of those transactions. But I2409:19:13 didn't have a lot, if any, visibility2509:19:15 into those.

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5 (Pages 467 to 470)

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1 MICHAEL W. SCHLOESSMANN209:19:16 Q. By the mortgage company you309:19:18 mean CHL?409:19:18 A. Yes.509:19:19 Q. Okay. And to what extent did609:19:21 CHL rely on the analytics of CSC?709:19:25 MS. CONCANNON: Objection;809:19:28 vague.909:19:28 A. I think there was a good deal1009:19:30 of reliance placed on the work we did as1109:19:32 an underwriter. That's what underwriters1209:19:35 typically do, they would prepare a, you1309:19:38 know, best execution analysis if, again,1409:19:41 depending on the structuring. As I said1509:19:43 before, the HELOC structures were,1609:19:45 amongst all the RMBS that we underwrote,1709:19:48 very plain vanilla in terms of the1809:19:50 simplicity of the structure. Oftentimes1909:19:52 a single class of a pass-through2009:19:54 security.2109:19:54 But where there were2209:19:57 structural, you know, variations to2309:19:58 consider, we would put those together and2409:20:01 present them to the mortgage company,2509:20:04 CHL, so they could make a determination

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1 MICHAEL W. SCHLOESSMANN209:20:06 of which structure they wanted to go309:20:08 with.409:20:09 Q. Are you aware of any509:20:11 particular requests that came from CHL to609:20:14 CSC with respect to assessment of709:20:18 analytics for the MBIA securitizations?809:20:21 A. Specifically, no.909:20:22 Q. Okay. So as far as you know1009:20:24 it's the general description of the deal1109:20:29 that you just described, and you're not1209:20:30 aware of other things?1309:20:31 A. No, I am speaking more broadly1409:20:34 about RMBS deals where we were1509:20:36 essentially agent for CHL underwriting1609:20:40 the securities. I would be surprised,1709:20:42 you know, just my recollection was that1809:20:46 the HELOC deals more than really any1909:20:48 other transactions that we did, were very2009:20:52 simplistic, straightforward in structure.2109:20:55 There was not much variation deal over2209:20:58 deal. And so there would probably be a2309:21:00 minimal, on a relative basis, there would2409:21:03 likely be a minimum level of the kind of2509:21:06 analytics I just described, you know,

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1 MICHAEL W. SCHLOESSMANN209:21:08 relative to other transactions we were309:21:09 doing that had more complicated409:21:11 structures.509:21:11 Q. Was CSC acting as agent for609:21:14 CHL in connection with these MBIA709:21:15 securitizations?809:21:16 MS. CONCANNON: Objection.909:21:17 A. Look, we were securities1009:21:20 underwriter. When I said agent, I sort1109:21:23 of loosely refer to, you know, we're a1209:21:26 security underwriter is essentially1309:21:28 working, you know, on behalf of the1409:21:30 issuer, we get paid a fee, as we talked1509:21:33 about, for placing those securities. You1609:21:35 can do, you know, underwriting can take1709:21:39 the term of mandatory commitments, best1809:21:41 efforts, so there could be a principal1909:21:43 component if you're taking down bonds.2009:21:44 But typically, you know,2109:21:46 virtually all the bonds were sold at2209:21:49 issuance so there wasn't a position we2309:21:51 were taking in those bonds.2409:21:52 Q. Was it a mandatory commitment2509:21:54 or a best efforts or something else?

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1 MICHAEL W. SCHLOESSMANN209:21:56 MS. CONCANNON: Objection.309:21:56 A. I believe it was best efforts.409:21:58 I'm not sure. You know, I can't509:22:00 remember. As I said, what I do remember,609:22:02 you know, the substantial majority of the709:22:06 time, you know, most, if not all of the809:22:09 bonds were being placed at issuance as909:22:11 opposed to, you know, either CHL taking1009:22:14 back bonds or Securities Corp. In my1109:22:20 recollection is as I think about it now,1209:22:22 is if there were, if there was a tail, we1309:22:24 would probably take it down at CSC. But1409:22:27 I'm not sure.1509:22:28 Q. Okay. And you don't recall1609:22:30 having to take down any tail, as you1709:22:32 described it, for these deals?1809:22:34 A. Not in particular.1909:22:36 Q. Okay.2009:22:36 A. It wouldn't surprise me just2109:22:38 in the normal course of our underwriting2209:22:40 activities if we positioned some bonds,2309:22:43 you know, that were left unsold after2409:22:46 issuance.2509:22:48 MR. SELENDY: Let's mark as

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6 (Pages 471 to 474)

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1 MICHAEL W. SCHLOESSMANN209:22:49 574, a document CWMBIA 9549475309:22:56 through 80.409:22:56 (Plaintiff's Exhibit 574 for509:23:00 identification, email dated May 25,609:23:02 2006, production numbers CWMBIA709:22:54 9549475 through CWMBIA 9549480.)809:23:29 Q. Let me know when you've had a909:23:31 chance to look at that.1009:23:32 A. Sure.1109:26:09 Okay.1209:26:09 Q. Okay. Are you familiar with1309:26:11 this document?1409:26:11 A. I am not. I don't recall ever1509:26:13 seeing this particular document.1609:26:18 Q. On the first page of the1709:26:21 document, there is an email that is sent1809:26:25 by Paul Abate of internal audit to you,1909:26:31 among others.2009:26:31 Do you see that?2109:26:32 A. Um-hum.2209:26:32 Q. Who is Paul Abate, and what2309:26:36 was his responsibility?2409:26:37 A. He was one of our internal2509:26:38 auditors.

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1 MICHAEL W. SCHLOESSMANN209:26:39 Q. And you don't recall receiving309:26:42 this from Mr. Abate?409:26:43 A. I mean, I obviously see that509:26:45 I'm, you know, on the note. I just -- I609:26:48 recall engaging with internal auditor,709:26:52 having them come meet with me as a result809:26:54 of this just to discuss this. I just909:26:56 don't have specific recollection of, when1009:26:59 I look at this, it doesn't, you know,1109:27:01 ring familiar. But it, you know, isn't1209:27:06 inconsistent with the discussion that I1309:27:07 do recall having with, and I'm not sure1409:27:09 if it was Paul, I think it was, that I1509:27:12 met with. But I definitely do have a1609:27:14 recollection of meeting with internal1709:27:15 audit on this subject.1809:27:16 Q. Did you meet with internal1909:27:17 audit about this time frame, May 2006?2009:27:21 A. I would -- my guess is yes, I2109:27:25 sent this out in May. It would surprise2209:27:28 me if it wasn't somewhat proximate to the2309:27:30 time I sent it out that I would have met2409:27:32 with them. But I can't say for sure.2509:27:34 Q. Okay. At the top of the first

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1 MICHAEL W. SCHLOESSMANN209:27:37 page, it shows that Ron Kripalani309:27:41 forwarded this assessment to Grant Couch.409:27:41 Do you see that?509:27:45 A. Yes.609:27:45 Q. What was Grant Couch's709:27:48 responsibility as of May 2006?809:27:51 A. Grant was our, Countrywide909:27:55 Securities Corporation's chief operating1009:27:57 officer.1109:27:57 Q. Okay. And did you have1209:27:58 discussions with Mr. Kripalani about the1309:28:03 internal audit response, do you recall?1409:28:05 A. I don't have recollection.1509:28:07 Q. Okay. If we turn to the1609:28:10 response itself. On page 3 of the1709:28:15 response, it's 9479, there are comments1809:28:21 by internal audit on the recommendations1909:28:25 that were documented by CSC.2009:28:25 Do you see that?2109:28:30 A. Where specifically?2209:28:31 Q. At the top of the page it says2309:28:33 "Exhibit A, internal audit comments on2409:28:35 each of the recommendations documented by2509:28:37 CSC."

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1 MICHAEL W. SCHLOESSMANN209:28:38 A. Okay.309:28:39 Q. Parentheses, section 4 of M.409:28:42 Schloessmann's memo.509:28:44 A. I see it.609:28:44 Q. The first one, 4-A, these are709:28:48 your recommendations which they're809:28:49 responding to; right?909:28:50 MS. CONCANNON: Objection.1009:28:51 A. I'll take at face value, they1109:28:56 look familiar to me having looked at the1209:28:58 document yesterday.1309:28:59 Q. Do you need to refer back to1409:29:00 your white paper?1509:29:02 A. If you're going to be asking1609:29:04 me to confirm these were in fact my1709:29:07 recommendations, I would prefer to have1809:29:09 it in front of me.1909:29:10 Q. Sure. It's Exhibit 260, I2009:29:12 think it's still in the stack right2109:29:14 there.2209:29:23 And so 4-A in the internal2309:29:27 audit comments states "quickly resolve2409:29:30 existing pipeline purchase claims as to2509:29:33 Ramius, Hanover and other investors."

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1 MICHAEL W. SCHLOESSMANN209:29:35 And do you see how that309:29:37 corresponds to your recommended action by409:29:39 Countrywide point 4-A?509:29:41 A. Yes, I do.609:29:42 Q. The internal audit response709:29:44 states "resolve claims. If due to a rep809:29:46 and warranty breach, initiate a909:29:48 repurchase. If not, provide an expedited1009:29:51 response, including support for the1109:29:53 reasons why the repurchase request was1209:29:55 denied."1309:29:56 Do you see that?1409:29:57 A. I do.1509:29:57 Q. Do you know if in fact CSC1609:30:00 implemented this recommendation from1709:30:04 internal audit?1809:30:05 MS. CONCANNON: Objection.1909:30:07 Q. Well, let me first ask you, is2009:30:09 this a direction, a recommendation or2109:30:11 something else from internal audit, as2209:30:13 you understand it?2309:30:14 MS. CONCANNON: Objection.2409:30:14 A. As I understand the2509:30:16 recommendation and as I understand the

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1 MICHAEL W. SCHLOESSMANN209:30:19 role of investor -- excuse me, internal309:30:21 audit, this would not have been a409:30:23 direction, that was not their place to509:30:26 direct action, it was to make609:30:28 recommendations.709:30:29 I would also say that what is809:30:31 unclear is who they're, you know,909:30:34 providing the recommendation to. As we1009:30:35 saw from some prior correspondence we1109:30:38 reviewed yesterday, it wasn't our1209:30:40 responsibility to repurchase loans, we1309:30:44 made some recommendations about, you1409:30:46 know, allowing for delegated authority1509:30:48 and the like, again, we covered that1609:30:49 yesterday. I believe this would have1709:30:50 been, you know, a recommendation to CHL,1809:30:54 but I can't be sure just by virtue of1909:30:56 this letter.2009:30:56 Q. As of May 2006, was it the2109:30:59 investor audit group at CHL that handled2209:31:03 those repurchase requests, do you know?2309:31:05 MS. CONCANNON: Objection;2409:31:06 lacks foundation.2509:31:07 A. I believe it was investor

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1 MICHAEL W. SCHLOESSMANN209:31:10 audit that was part of the LERC process.309:31:14 Q. Did investor audit become409:31:17 LERC, or what's the relation between the509:31:18 two?609:31:19 MS. CONCANNON: Objection.709:31:20 A. Investor audit, and I'm not809:31:24 entirely certain it was known by that,909:31:26 but I do believe at the time it was1009:31:28 referred to as investor audit, that was1109:31:31 the group that executed the operational1209:31:33 responsibilities under or around1309:31:37 reviewing files and repurchase claims.1409:31:40 LERC was the committee, loss exposure1509:31:44 review committee, that reviewed1609:31:45 recommendations that came out of internal1709:31:48 audit, I believe.1809:31:50 Q. And as of this point in time,1909:31:52 May '06, were you part of the investor2009:31:54 audit group, do you know?2109:31:56 A. No, I definitely was not.2209:31:58 Q. And were you part of LERC?2309:32:00 A. I don't believe so, no.2409:32:02 Q. Okay. Was there anyone from2509:32:03 CSC that was a part of LERC, do you know?

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1 MICHAEL W. SCHLOESSMANN209:32:06 A. At some point in time, and I'm309:32:09 not sure it was in May of '06, at some409:32:14 point in time as a result of, I believe,509:32:18 all of these discussions and609:32:20 recommendations that were going on, one709:32:23 of -- we had a representative from my809:32:25 group that sat in on LERC, I don't know909:32:28 if they were a voting member or not. But1009:32:30 they would have sat in on those1109:32:34 conversations. Again, not sure as to1209:32:36 when that took place.1309:32:37 Q. Who was that representative?1409:32:39 A. I recall it was Rex Malott.1509:32:45 Q. At what point in time did you1609:32:48 start to become involved with the1709:32:51 repurchase activity?1809:32:53 MS. CONCANNON: Objection.1909:32:53 Q. You personally.2009:32:54 A. In terms of direct2109:32:57 responsibility as opposed to in my role2209:32:59 as managing director of Countrywide2309:33:03 Securities?2409:33:03 Q. Yes.2509:33:04 A. I don't know precisely when.

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1 MICHAEL W. SCHLOESSMANN209:33:06 It was in 2008. You know, sometime309:33:11 during, you know, the first half of 2008409:33:14 I assumed responsibility for part of --509:33:18 well, there was a two-step process. When609:33:22 I assumed partial responsibility for the709:33:25 workout strategies, you know, component,809:33:28 it did not include investor audit.909:33:32 Subsequently, and again, I can't be sure1009:33:34 of dates top of mind, but subsequently I1109:33:38 also assumed responsibility for the1209:33:41 internal audit or excuse me, investor1309:33:43 audit function.1409:33:45 Q. Meaning you're now in charge1509:33:47 of that function; is that right?1609:33:49 A. Yes.1709:33:49 MS. CONCANNON: Objection.1809:33:50 Q. Is that, do you report to1909:33:54 legal in that capacity, or is your2009:33:56 function a business capacity?2109:33:58 MS. CONCANNON: Objection.2209:33:59 Q. Do you know?2309:34:00 A. Yes, I do know. I mean, I2409:34:02 don't report to -- my capacity is a2509:34:05 business function. I don't report to

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1 MICHAEL W. SCHLOESSMANN209:34:07 legal directly, if that's what you're309:34:10 asking.409:34:10 Q. Right. So the repurchase509:34:12 group is part of the business side of609:34:15 Countrywide?709:34:16 MS. CONCANNON: Objection.809:34:17 A. Well, the operational909:34:19 activities around reviewing claims and1009:34:24 files and the like, again, operationally1109:34:27 speaking, the group resides in the line1209:34:30 of business, that is correct.1309:34:33 Q. Do you know what the PAT1409:34:36 database is?1509:34:36 A. Yes.1609:34:36 Q. What is that?1709:34:38 A. That's the primary database1809:34:41 for repurchase claims in terms of their1909:34:46 logging, tracking and monitoring.2009:34:48 Q. What does it stand for, PAT?2109:34:56 That's the thing about acronyms.2209:34:58 A. It preceded me actually. I2309:35:06 believe it was product administration2409:35:08 tracking. It was a legacy system, it's2509:35:11 not -- I don't know who came up with that

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1 MICHAEL W. SCHLOESSMANN209:35:13 or why.309:35:15 Q. Do you know when it was first409:35:17 created?509:35:18 A. I don't.609:35:22 Q. Is it still used today in709:35:25 connection with repurchases?809:35:26 A. Yes.909:35:26 Q. What group is responsible for1009:35:29 the entry of data into the PAT database?1109:35:32 MS. CONCANNON: Objection;1209:35:33 lacks foundation.1309:35:36 Q. Well, let me just ask you, it1409:35:39 is a database; right?1509:35:39 A. Yes.1609:35:40 Q. And there are persons1709:35:41 responsible for entering data into the1809:35:43 database; right?1909:35:43 A. Yes.2009:35:44 Q. Okay, so what person or group2109:35:46 is responsible for the entry of data into2209:35:47 the database?2309:35:48 MS. CONCANNON: Objection.2409:35:49 A. Mostly internal auditors --2509:35:52 internal audit. Investor audit

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1 MICHAEL W. SCHLOESSMANN209:35:54 associates who review claims, log in the309:35:59 claims, and responses. But others409:36:03 within, you know, workout strategies also509:36:05 have the ability to input information as609:36:09 well.709:36:11 Q. That group is all under your809:36:13 supervision, the group of persons who are909:36:15 responsible for entering data into the1009:36:18 PAT database?1109:36:19 A. Yes.1209:36:19 Q. Okay. And what types of data1309:36:23 go in there specifically?1409:36:28 A. It would be all data regarding1509:36:36 repurchase claims.1609:36:37 Q. Meaning every step of the1709:36:45 process, the demand for the repurchase,1809:36:47 the analysis of the repurchase, the1909:36:50 response on the repurchase, all of that2009:36:51 goes in the database?2109:36:52 MS. CONCANNON: Objection.2209:36:53 A. When you say every step of the2309:36:54 process, during the course of the process2409:36:57 there is data extracted from the claim2509:37:02 itself that gets input initially. And

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1 MICHAEL W. SCHLOESSMANN209:37:05 there is a process by which those claims309:37:08 are reviewed. And the specific, you409:37:12 know, factual allegations asserted by the509:37:15 claimants in terms of, you know, finding609:37:17 types, are input, as well as the709:37:20 resulting review or some part of the809:37:23 resulting review is input.909:37:26 Q. When you said some part of the1009:37:28 resulting review, is part of the review1109:37:30 not entered into the database?1209:37:31 A. There is not specific parts1309:37:33 not. But I don't want to characterize1409:37:35 the database as capturing every aspect of1509:37:39 the review. I don't know, you know, that1609:37:42 any certain aspect is not. I mean,1709:37:47 again, it's a database, so it's not just1809:37:50 a, you know, a, you know, running1909:37:56 commentary of the entire lifecycle of a2009:37:58 claim necessarily. Although it seeks to2109:38:00 capture the, you know, critical2209:38:03 components of the review cycle in the2309:38:06 claim.2409:38:06 Q. With respect to MBIA's2509:38:07 repurchase demands, would the data that

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1 MICHAEL W. SCHLOESSMANN209:38:11 you've just described be entered into309:38:13 that PAT database?409:38:15 MS. CONCANNON: Objection;509:38:16 incomplete hypothetical.609:38:19 Q. Well, we discussed yesterday709:38:20 that MBIA has made about in excess of809:38:25 13,000, 14,000 repurchase demands. Do909:38:28 you recall that, that discussion?1009:38:30 A. I don't recall the 13,000.1109:38:32 Q. I don't recall the exact1209:38:33 number either. But there is some --1309:38:38 MR. SELENDY: What's the1409:38:39 number?1509:38:40 MS. STATFELD: Over 13,000.1609:38:41 MS. CONCANNON: Yes, you1709:38:42 represented yesterday it was over1809:38:44 15,000.1909:38:44 Q. And you said that Countrywide2009:38:46 is actively processing those claims.2109:38:48 That processing would be reflected in the2209:38:50 PAT database; is that right?2309:38:52 A. Yes, just like any other claim2409:38:54 received by, from another claimant, yes.2509:38:58 Q. Are you able to generate

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1 MICHAEL W. SCHLOESSMANN209:39:00 reports off the database that would give309:39:02 a full history of the processing of409:39:05 repurchase demands for a particular509:39:07 counterparty?609:39:07 MS. CONCANNON: Objection.709:39:09 A. Yes.809:39:10 Q. Okay. So it would be possible909:39:11 to query the database and say give us the1009:39:14 full records with respect to the MBIA1109:39:17 repurchase demands?1209:39:18 A. When you say full records, you1309:39:21 could query certain data elements1409:39:25 regarding a particular claimant, a group1509:39:27 of claimants, status, you know, various,1609:39:31 you know, data attributes, you know, that1709:39:34 you could pivot off of and pull down a1809:39:37 report.1909:39:37 Q. Okay. Are there regular2009:39:40 reports that you request to have2109:39:43 generated from the PAT database?2209:39:45 MS. CONCANNON: Objection.2309:39:47 A. There are, I mean, there are2409:39:51 certainly reports that are generated that2509:39:54 are used primarily to allow our team to

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1 MICHAEL W. SCHLOESSMANN209:39:59 operate and to manage, you know, the309:40:01 business and, you know, to comply, you409:40:05 know, with our internal, you know,509:40:07 service level, you know, standards and609:40:09 whatnot.709:40:10 Q. And which reports are those?809:40:12 A. I don't know any by name.909:40:14 There are a number. Each of the, you1009:40:17 know, groups within the organization, you1109:40:21 know, will have reports run either on a1209:40:24 regular basis or on an ad hoc basis,1309:40:26 depending on, you know, what they1409:40:28 perceive, you know, the needs to be and1509:40:30 what sort of visibility they want into1609:40:32 the pipeline to ensure it's being, you1709:40:36 know, managed appropriately.1809:40:37 Q. When you're referring to each1909:40:39 of the groups within the organization,2009:40:40 which groups specifically are those that2109:40:42 might be requesting reports from the PAT2209:40:45 database?2309:40:46 MS. CONCANNON: Objection.2409:40:47 A. Just loosely define, I'm2509:40:50 speaking of the different segments.

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1 MICHAEL W. SCHLOESSMANN209:40:53 We've referred to segments, and there is309:40:56 a GSC segment, a monoline segment, a409:41:01 private investor segment and a mortgage509:41:02 insurance segment.609:41:04 Q. Okay. So with respect to709:41:07 MBIA, if we wanted to see reports that809:41:08 have already been generated, it would be909:41:10 the reports requested by the monoline1009:41:13 segment of the group; is that right?1109:41:16 MS. CONCANNON: Objection.1209:41:17 A. Yes.1309:41:17 Q. Okay. Do you know whether --1409:41:20 have you personally requested reports be1509:41:22 generated with respect to the MBIA1609:41:25 repurchases?1709:41:25 MS. CONCANNON: Objection. I1809:41:27 would instruct you to answer solely1909:41:28 to the extent you can do so without2009:41:30 revealing attorney-client2109:41:32 communications with either in-house2209:41:33 or outside counsel, or work that2309:41:36 was undertaken in connection with2409:41:37 the litigation at instruction of2509:41:39 counsel.

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1 MICHAEL W. SCHLOESSMANN209:41:41 Q. I'm not interested in309:41:42 communications with counsel about it. I409:41:44 would just like to know what reports you509:41:46 requested to have run from the database609:41:52 in connection with MBIA.709:41:52 A. I don't recall doing any, you809:41:54 know, subject to what was just discussed,909:41:56 I don't recall doing any specific MBIA,1009:41:58 you know, query.1109:41:59 Q. Do you know whether the -- do1209:42:03 you know what types of reports the1309:42:04 monoline segment of your group has1409:42:08 requested to be created by the PAT1509:42:11 database?1609:42:12 MS. CONCANNON: The same1709:42:13 instruction, to the extent that1809:42:15 those reports were requested or1909:42:18 involved the subject matter of2009:42:21 requests in connection with2109:42:21 litigation or communications with2209:42:23 counsel.2309:42:25 A. I can't separate the two. I2409:42:28 mean, you would say most, if not the2509:42:33 entirety, of what we've done in the

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1 MICHAEL W. SCHLOESSMANN209:42:36 monoline space has been in direct309:42:40 consultation with counsel.409:42:42 Q. So you can't separate the sort509:42:46 of, the reports generated as part of the609:42:49 ongoing business function from the709:42:50 reports generated in consultation with809:42:53 counsel?909:42:53 MS. CONCANNON: Objection;1009:42:54 assumes fact not in evidence. Also1109:42:58 asked and answered.1209:43:03 A. I would have difficulty1309:43:05 separating the two, just given an1409:43:09 involvement of counsel in the entire1509:43:11 claims process as it relates to monoline1609:43:14 claims.1709:43:14 Q. But that's a process that1809:43:17 began before any threat of litigation;1909:43:20 isn't it?2009:43:21 MS. CONCANNON: Objection.2109:43:21 Q. This repurchase process?2209:43:23 MS. CONCANNON: Objection;2309:43:23 vague as to repurchase process,2409:43:25 also assumes facts not in evidence.2509:43:29 A. Can you restate the question,

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1 MICHAEL W. SCHLOESSMANN209:43:31 please?309:43:31 Q. Yes. I mean, you've indicated409:43:33 that the, for example, the PAT database509:43:36 is a legacy database, the investor audit609:43:40 group was functioning, you know, some709:43:44 time ago, now you've stepped into that809:43:47 function. But we are talking about a909:43:49 process that has been in place for years,1009:43:51 right, with respect to the business1109:43:52 management of repurchases?1209:43:53 MS. CONCANNON: Objection;1309:43:54 mischaracterizes prior testimony,1409:43:55 assumes facts not in evidence.1509:43:57 Q. Isn't that right?1609:43:58 A. Here's how I would describe1709:44:01 it: Yes, the PAT database has been in1809:44:04 place for years, I've indicated I don't1909:44:06 know exactly how long. Yes, we have, you2009:44:11 know, processed repurchase requests in2109:44:15 what I would call the ordinary course2209:44:18 pre-2008. We had, for instance, received2309:44:22 a fairly regular, although relative to2409:44:25 current volumes, much less significant2509:44:28 volume of repurchase claims, mostly from

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1 MICHAEL W. SCHLOESSMANN209:44:30 the GSEs and, you know, claim denials309:44:34 from the mortgage insurance companies.409:44:36 That was part of what I would call our509:44:38 business as usual, you know, process.609:44:42 Beginning in 2008, I think the709:44:45 world changed pretty dramatically, and809:44:49 for instance there was no such thing as a909:44:51 monoline repurchase claim, so far as I'm1009:44:54 aware, before 2008. And so as that1109:44:57 activity picked up, you know, our focus,1209:45:01 you know, clearly changed in response to1309:45:04 those developing trends.1409:45:06 And so when we say -- when you1509:45:09 say we were processing those without the1609:45:11 threat of litigation, I don't believe1709:45:13 that to be true. I think if we look at1809:45:15 the MBIA case, which I think was filed in1909:45:18 the third quarter of '08, and given that2009:45:21 we just received first claims sometime I2109:45:23 think in the first half of '08 for the2209:45:26 first time ever from any monoline, it is,2309:45:29 in my recollection and judgment, they are2409:45:35 inextricably linked concepts here, in2509:45:39 terms of claims and threat of litigation.

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1 MICHAEL W. SCHLOESSMANN209:45:41 Q. Okay. And you're referring309:45:43 specifically to the monoline repurchase409:45:45 demands, you're saying inextricably509:45:48 linked.609:45:49 MS. CONCANNON: Objection.709:45:50 Q. I'm trying to distinguish.809:45:52 The business process of evaluating909:45:56 repurchase claims is something that1009:45:58 existed prior to threat of litigation.1109:46:01 And you're saying with respect to the1209:46:02 monolines, those became inextricably1309:46:08 linked because the monoline repurchases1409:46:10 first arose in 2008 when everything1509:46:12 changed.1609:46:13 MS. CONCANNON: Objection;1709:46:15 mischaracterizes prior testimony.1809:46:16 A. I'm not suggesting that the1909:46:18 threat of litigation existed solely for2009:46:20 the monolines, okay. But the threat of2109:46:24 litigation clearly existed for the2209:46:26 monolines, and that the instance of2309:46:31 receiving, you know, or experiencing2409:46:34 receiving claims did not start until2509:46:38 2008, at which time there was, you know,

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1 MICHAEL W. SCHLOESSMANN209:46:41 a significant number of conversations309:46:42 that I'm aware of, you know, secondhand,409:46:45 you know, in early 2008, with our509:46:47 mortgage investor relations team and MBIA609:46:50 and perhaps other monolines, that, again,709:46:55 made the processing of repurchase claims,809:47:00 you know, the whole notion of processing909:47:05 the claims was, in our view, done with or1009:47:08 under the, you know, threat of1109:47:10 litigation.1209:47:11 Q. Okay. Now, yesterday you1309:47:13 testified that Countrywide is processing1409:47:16 MBIA's repurchase claims just the same as1509:47:18 if it were not in litigation with MBIA.1609:47:22 Is that still your testimony or are you1709:47:24 changing that?1809:47:24 MS. CONCANNON: Objection;1909:47:25 mischaracterizes prior testimony.2009:47:28 A. If you want to read it back,2109:47:30 we can go down that road. What I2209:47:32 testified to, as I recall, is the2309:47:36 determination that we made and make as to2409:47:41 specific breach claims is no different2509:47:44 and is not at all impacted by whether

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1 MICHAEL W. SCHLOESSMANN209:47:46 we're in litigation with a claimant or309:47:48 not.409:47:49 I said, you know, the manner509:47:51 in which we engage with that counterparty609:47:53 could, and in the case of MBIA, certainly709:47:57 is impacted by the fact that we are in809:47:59 litigation. I think those are two909:48:01 distinctly different concepts.1009:48:03 Q. Can you explain the difference1109:48:06 or the distinction that you're making1209:48:07 here? I mean, can you elaborate upon1309:48:11 that distinction, I want to be sure I'm1409:48:14 following you when I ask a follow-up1509:48:16 question.1609:48:17 MS. CONCANNON: Objection.1709:48:17 A. Well, I'll just state just1809:48:20 factually what has happened, and it1909:48:23 should come as no surprise to MBIA.2009:48:26 When we received the claim, we2109:48:29 log it, we conduct a thorough review and2209:48:34 we provide a response on those claims.2309:48:37 Thereafter there is no further2409:48:40 engagement, discussion with MBIA, as a2509:48:45 result of litigation and perhaps for all

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1 MICHAEL W. SCHLOESSMANN209:48:47 I know, because MBIA doesn't in turn, you309:48:51 know, reach out to us or hasn't engaged409:48:54 with us, you know, beyond, you know,509:48:57 receipt of our response.609:48:57 Q. Okay. So is it fair to say709:49:00 that the first part of that process where809:49:01 you log it, evaluate the claim, and909:49:04 generate the response to MBIA, that is1009:49:06 what you meant as saying that's all done1109:49:09 just the same as if there were no1209:49:10 litigation. And it's the second part,1309:49:13 the engagement with the counterparty1409:49:15 about the acceptance or denial of the1509:49:18 repurchase claim that is affected by the1609:49:20 litigation?1709:49:20 MS. CONCANNON: Objection;1809:49:21 mischaracterizes prior testimony.1909:49:24 Q. I'm asking, is that fair?2009:49:25 A. Well, it's beyond just the2109:49:28 logging of the claim and the processing.2209:49:32 The determination, the review and2309:49:35 determination of the claim and the2409:49:38 response is, so far as I know, consistent2509:49:43 with how we respond to all claims.

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1 MICHAEL W. SCHLOESSMANN209:49:45 Q. In the ordinary course of309:49:48 business?409:49:48 MS. CONCANNON: Objection.509:49:49 A. Well, in general that process,609:49:54 and it may differ between claimant709:49:58 groups, we may have different operating809:50:00 principles or rules of engagement, for909:50:03 instance, with the GSEs. But in general,1009:50:06 and specifically as it relates to all of1109:50:08 the monolines, claim comes in, it's1209:50:12 logged, it's reviewed, it's responded to.1309:50:16 And the criteria we use to make a1409:50:20 determination of whether we think there1509:50:21 is an actionable breach is no different1609:50:24 from one monoline versus the other,1709:50:27 unless the contract terms are, you know,1809:50:30 materially different. And at the end of1909:50:32 the day it's the contract terms that2009:50:34 dictate the ultimate determination.2109:50:38 Q. Okay. And so the change2209:50:40 because of litigation is with respect to2309:50:42 how Countrywide thereafter interacts with2409:50:46 the counterparty in connection with the2509:50:50 ultimate resolution of the disputed

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1 MICHAEL W. SCHLOESSMANN209:50:53 repurchase demand; is that right?309:50:56 MS. CONCANNON: Objection;409:50:57 mischaracterizes prior testimony.509:50:58 A. It's not -- look, I don't609:51:01 know, frankly, whether it's MBIA has709:51:05 reached out and sought to engage with us809:51:07 or they have similar concerns about being909:51:10 in litigation, but there is heightened1009:51:13 sensitivity in talking to a counterparty1109:51:16 beyond, you know, complying with our1209:51:19 obligation, what we think our obligation1309:51:21 is, to review and respond to requests1409:51:23 asserted by parties that have standing to1509:51:26 bring claims, which we've done.1609:51:30 Beyond that, we don't believe1709:51:31 we're contractually bound, nor do we1809:51:34 think, as -- nor do we think as a result1909:51:36 of the litigation we ought to be spending2009:51:38 time engaging in a free flowing2109:51:40 discussion around loans that we're being2209:51:45 sued on.2309:51:45 Q. Okay. Turning back to Exhibit2409:51:55 574. At the bottom of the page, there is2509:52:04 a discussion of your recommendation 4-C,

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1 MICHAEL W. SCHLOESSMANN209:52:10 to modify the CHL repurchase policy and309:52:13 process.409:52:13 Do you see that?509:52:14 A. Yeah.609:52:19 Q. Okay, that's on page 9479.709:52:22 A. No, I see it, I'm just trying809:52:23 to compare it to the other document.909:52:41 Q. Is that consistent with your1009:52:43 recommendation?1109:52:44 MS. CONCANNON: Objection;1209:52:45 vague.1309:52:49 A. I'm just, again, looking at my1409:52:51 document to see if it is.1509:53:09 Okay, so we are on 479.1609:53:13 Q. Yes, page 3 of the internal1709:53:15 audit response.1809:53:15 A. Right.1909:53:15 Q. To your recommendations.2009:53:17 A. And we're talking about 4-C.2109:53:19 Q. Yes.2209:53:20 A. In which internal audit is2309:53:21 suggesting that a proactive approach to2409:53:24 purchasing loans is not recommended at2509:53:27 this time without further study.

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1 MICHAEL W. SCHLOESSMANN209:53:28 Q. Let me be clear as to my309:53:29 question. First, I'm just talking about409:53:31 the heading, "modify the current CHL509:53:35 repurchase policy and process." Here609:53:37 they're responding to the recommendation709:53:38 in 4-C of your memorandum; is that right?809:53:41 A. It appears so, yes.909:53:43 Q. Okay. Then in terms of what1009:53:44 they do recommend, at the bottom of 4-C,1109:53:48 they state "specifically regarding1209:53:50 repurchase requests, the following should1309:53:53 occur: If a repurchase request is a rep1409:53:56 and warranty breach, it should be1509:53:58 repurchased without delay. If a1609:54:01 repurchase request is not a clear rep and1709:54:03 warranty breach, it should be1809:54:05 specifically looked at from the1909:54:08 relationship point of view."2009:54:11 Do you know whether those2109:54:12 recommendations were followed by2209:54:16 Countrywide Home Loans?2309:54:18 MS. CONCANNON: Objection.2409:54:27 A. I do not.2509:54:29 MR. SELENDY: Let's mark as

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1 MICHAEL W. SCHLOESSMANN209:54:30 575, an email from Bill Endicott to309:54:35 you, dated June 6, 2006.409:54:35 (Plaintiff's Exhibit 575 for509:54:41 identification, email dated June 6,609:54:43 2006, production numbers CWMBIA709:54:43 0011019994 through CWMBIA809:54:51 0011019996.)909:54:51 MR. SELENDY: The size of the1009:54:53 font is courtesy of Countrywide.1109:54:54 MS. CONCANNON: Again, we1209:54:55 produced them in the best format1309:54:57 available.1409:54:57 MR. SELENDY: I believe it.1509:56:15 Q. So my first question is1609:56:16 whether this is an email exchange1709:56:17 involving you in June of '06.1809:56:19 A. It appears to be, yes.1909:56:20 Q. And do you know what the issue2009:56:22 was with delinquency reporting?2109:56:24 MS. CONCANNON: Objection;2209:56:25 vague.2309:56:26 A. From the review of this, it2409:56:28 generally refers to the issue around2509:56:32 loans that are being purchased, where the

Page 501

1 MICHAEL W. SCHLOESSMANN209:56:37 servicing is being transferred to our309:56:39 system, and there is a process, or excuse409:56:41 me, in the interim there is, you know,509:56:44 the data is static as opposed to fluid,609:56:47 because you're not getting real-time709:56:50 access to payments until those loans809:56:52 actually board, is what I recall this909:56:54 being about.1009:56:56 Q. By boarding you mean until the1109:56:58 data is loaded on to the AS 400 system?1209:57:01 A. Yes.1309:57:01 Q. What is that system exactly?1409:57:03 A. That system is and was1509:57:07 Countrywide's proprietary servicing1609:57:09 system. It was not a commercial1709:57:11 application as many servicers use, it was1809:57:15 essentially an organic item built over1909:57:18 the years by Countrywide.2009:57:19 Q. So that's the name that is2109:57:20 used for the computer platform that is2209:57:24 used as the basis for Countrywide2309:57:27 Servicing?2409:57:27 MS. CONCANNON: Objection.2509:57:27 A. Yes.

Page 502

1 MICHAEL W. SCHLOESSMANN209:57:28 Q. And so the issue concerned309:57:32 data that may become stale after the409:57:35 time -- well, I'm sorry.509:57:37 Exactly how does the question609:57:41 of static data correspond to a problem in709:57:46 delinquency reporting?809:57:47 MS. CONCANNON: Objection.909:57:48 Q. As you had discussed in this1009:57:49 context.1109:57:50 A. So as I recall and having had1209:57:52 my recollection refreshed by this note,1309:57:57 when you purchase loans, most of the time1409:57:59 we purchase loans we also bought the1509:58:01 servicing rights. And so there was a1609:58:03 time period in which you transitioned the1709:58:07 servicing from the prior servicer to the1809:58:09 new servicer. And during that time1909:58:11 period you weren't getting real-time or2009:58:14 couldn't get, you know, it's typical of2109:58:17 servicing transfers, where you weren't2209:58:19 getting real-time information.2309:58:20 And so if those loans were2409:58:24 securitized, okay, during this interim2509:58:28 servicing transfer period, and you came

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Page 503

1 MICHAEL W. SCHLOESSMANN209:58:31 up to the first reporting cycle and the309:58:34 loans weren't boarded, then they would, I409:58:39 believe what was, you know, the practice,509:58:42 was they were just showing those loans as609:58:44 delinquent. So you'd see this anomalous709:58:46 spike in delinquencies in the first809:58:48 reporting cycle, which would ultimately909:58:51 normalize. But that temporary spike was1009:58:54 creating what I thought was, you know,1109:58:56 unnecessary, you know, investor backlash,1209:58:59 as my note indicated.1309:59:01 Q. Is this with respect to loans1409:59:03 that CSC purchases?1509:59:06 A. Yes.1609:59:07 Q. Or is it broader?1709:59:08 A. No, specifically loans that1809:59:10 CSC purchased.1909:59:10 Q. From originators other than2009:59:13 Countrywide?2109:59:13 A. Yes, Countrywide, all of2209:59:15 Countrywide's originations aren't2309:59:16 impacted by this. When Countrywide2409:59:19 originates a loan, it begins servicing2509:59:21 that loan, you know, immediately.

Page 504

1 MICHAEL W. SCHLOESSMANN209:59:23 Q. What about loans that309:59:25 Countrywide Home Loans purchases from409:59:27 other originators?509:59:28 A. So --609:59:30 MS. CONCANNON: Objection;709:59:31 vague.809:59:32 A. We purchase loans from other909:59:34 underwriters at Countrywide Securities1009:59:38 Corporation.1109:59:38 Q. Right.1209:59:39 A. Are you --1309:59:39 Q. I'm saying Countrywide Home1409:59:41 Loans also purchased loans from other1509:59:43 originators; didn't it?1609:59:44 A. Yes, through correspondent1709:59:45 lending.1809:59:46 Q. Right. And so with respect to1909:59:48 those purchases through correspondent2009:59:50 lending, was there a similar problem?2109:59:52 MS. CONCANNON: Objection;2209:59:53 lacks foundation.2309:59:53 Q. If you know.2409:59:54 A. I don't believe so. I think2509:59:56 the nature of how they purchased loans I

Page 505

1 MICHAEL W. SCHLOESSMANN209:59:58 think I alluded to earlier, where they're310:00:01 funding each individual loan, the manner410:00:03 in which those loans were set up as a510:00:04 condition of funding, they were able to,610:00:07 I believe, effect a concurrent transfer710:00:10 of servicing or transfer servicing810:00:13 concurrent with their purchase.910:00:15 Our business model was buying1010:00:18 bulk packages where sellers weren't able1110:00:21 to accommodate that same process, so we1210:00:24 had this interim challenge in terms of1310:00:28 transferring servicing, as any other, you1410:00:30 know, bulk buyer of loans did.1510:00:32 Q. How long was the gap that1610:00:36 you've just described, typically?1710:00:38 A. Typically, as I recall, from1810:00:40 the date of purchase to the date you1910:00:42 would actually have the loans boarded, it2010:00:45 might be 30 to 45 days, generally2110:00:48 speaking.2210:00:49 Q. Okay. And the problem was you2310:00:52 had, either you would overreport because2410:00:55 you don't have the data, or you might2510:00:56 underreport, again, because you wouldn't

Page 506

1 MICHAEL W. SCHLOESSMANN210:00:58 have the data; right?310:01:00 A. Yeah, yes, you're making an410:01:03 assumption, you know, absent real-time510:01:05 information.610:01:06 Q. And you were advocating710:01:09 underreporting the delinquent loans810:01:11 because you thought that would be a910:01:12 closer approximation?1010:01:13 MS. CONCANNON: Objection.1110:01:14 Q. Than overreporting?1210:01:15 A. Yeah, I believe it was --1310:01:19 recognizing when we bought loans we1410:01:21 bought current loans only. So every loan1510:01:23 we bought, okay, we were -- we bought a1610:01:26 current loan. And so, you know, we're1710:01:29 talking about the passage of 30 to 451810:01:31 days thereafter. And some of those were1910:01:33 newly originated where the first payment2010:01:36 might not be due for 30 or 45 days out.2110:01:39 And so in my estimation, we were faced2210:01:43 with a choice of substantially2310:01:46 overreporting, substantially2410:01:49 overreporting delinquencies on that2510:01:54 subset of loans that were securitized, or

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1 MICHAEL W. SCHLOESSMANN210:01:56 modestly underreporting delinquencies,310:01:59 albeit temporarily.410:02:00 Q. Okay.510:02:00 A. Typically it would be one610:02:02 reporting cycle, one monthly reporting710:02:04 cycle.810:02:04 Q. Okay, thank you.910:02:05 MR. SELENDY: Let's mark as1010:02:07 576, CWMBIA 10372346 through 56.1110:02:07 (Plaintiff's Exhibit 576 for1210:02:16 identification, email dated June 7,1310:02:18 2006, production numbers CWMBIA1410:02:10 10372346 through CWMBIA 10372356.)1510:03:05 Q. And this is an extended email1610:03:06 exchange involving you, among others;1710:03:09 right?1810:03:09 A. It appears to be. I'm just1910:03:11 trying to get my bearings here.2010:03:13 Q. Okay, let me know when you're2110:03:15 ready.2210:05:06 A. Okay. I haven't looked2310:05:08 carefully at McMurray's note. I don't2410:05:10 know where your questioning is going to2510:05:11 be.

Page 508

1 MICHAEL W. SCHLOESSMANN210:05:11 Q. Let me start, and if you need310:05:13 more time to review, just by all means410:05:15 say so.510:05:16 First thing I would like to610:05:21 ask you about is on page 2 of the710:05:24 document. There is an email from Debbie810:05:31 Brown to you at the top of the page.910:05:31 Do you see that?1010:05:33 A. Yes.1110:05:33 Q. And she says "I hear from Mike1210:05:36 that our method of calculating repurchase1310:05:38 amounts differs from CHL."1410:05:38 Do you see that?1510:05:43 A. I do.1610:05:43 Q. Do you understand what that1710:05:45 issue concerned?1810:05:47 MS. CONCANNON: Objection.1910:05:49 A. I understand it only from the,2010:05:53 you know, the language or text that2110:05:56 follows.2210:05:58 Q. Okay. So you don't recall2310:05:59 having a discussion about this?2410:06:00 A. Not specifically.2510:06:04 Q. In fact, did the method of

Page 509

1 MICHAEL W. SCHLOESSMANN210:06:06 calculating repurchase amounts used by310:06:09 CSC differ from that used by CHL?410:06:12 MS. CONCANNON: Objection.510:06:14 A. I don't have a reason to610:06:15 believe that, you know, this is wrong.710:06:19 And it's clearly suggesting as much.810:06:21 Q. What is the difference, or910:06:23 what was the difference as of June '06?1010:06:26 MS. CONCANNON: Objection.1110:06:30 A. Do you want me to simply1210:06:31 interpret?1310:06:32 Q. If you can characterize it.1410:06:34 MS. CONCANNON: Objection.1510:06:37 Q. What's your understanding of1610:06:38 the difference as described by Debbie1710:06:40 Brown to you in the email that was sent1810:06:42 to you? I know it was a few years ago.1910:06:45 MS. CONCANNON: You can speak2010:06:46 as to your understanding at the2110:06:47 time, but don't speculate if you2210:06:48 are just interpreting what's on the2310:06:50 page.2410:06:53 A. I would be simply just2510:06:56 reiterating what's on the page here. I

Page 510

1 MICHAEL W. SCHLOESSMANN210:07:00 mean, I don't have a specific310:07:01 recollection of this issue coming up or410:07:04 even this email chain.510:07:06 Q. As you sit here today, what's610:07:08 your understanding of the difference that710:07:10 Ms. Brown is reporting here?810:07:13 MS. CONCANNON: Objection.910:07:15 Q. You can answer that.1010:07:16 A. She is -- she is appearing to1110:07:19 allude to the calculation of a repurchase1210:07:25 price that on one hand or in one1310:07:29 methodology includes the price paid for1410:07:32 the loan, and on the other hand, and1510:07:35 again, I'm just inferring from this,1610:07:37 would be setting the repurchase price at1710:07:43 par, or essentially 100 percent of the1810:07:45 outstanding principal balance. Which was1910:07:50 typically, in most contracts, was the2010:07:54 repurchase price.2110:07:55 Q. And did CSC -- which method2210:07:58 was used by CSC, as you understand it?2310:08:01 MS. CONCANNON: Objection.2410:08:03 Q. The price paid or the par2510:08:05 amount?

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1 MICHAEL W. SCHLOESSMANN210:08:05 MS. CONCANNON: Objection.310:08:07 You're asking him to read the410:08:08 document?510:08:10 A. I don't recall. I'm going off610:08:15 of this letter.710:08:16 Q. She says "we include per diem810:08:19 interest through funding and repurchase910:08:21 price is calculated with premiums if1010:08:25 applicable."1110:08:26 Does that suggest that CSC1210:08:28 used a par calculation as opposed to the1310:08:30 price paid calculation?1410:08:31 MS. CONCANNON: Objection;1510:08:32 calls for speculation.1610:08:33 A. Just give me a second here.1710:09:02 Again, it's simply -- it's1810:09:04 speculation about what is being said by1910:09:07 Debbie in this letter, or email. And it2010:09:11 appears, again, inferring from this is2110:09:14 that, you know, the question of2210:09:18 difference in methodology was do you2310:09:20 include a premium or not. In the2410:09:24 calculation of a repurchase price.2510:09:26 Q. And CSC did and CHL did not?

Page 512

1 MICHAEL W. SCHLOESSMANN210:09:29 MS. CONCANNON: Objection.310:09:30 Q. Is that -- I just want to410:09:32 understand which entity did which, as you510:09:34 understand it.610:09:34 MS. CONCANNON: If you know.710:09:36 A. As a general matter, what I do810:09:38 know is our contracts typically called910:09:42 for the repurchase at par plus accrued1010:09:46 interest. And that if premiums were to1110:09:49 be included, those were specifically1210:09:52 negotiated repurchase terms.1310:09:55 Q. Okay.1410:09:56 A. That isn't what is1510:09:58 necessarily -- Debbie is suggesting.1610:10:01 That's my actual recollection just of the1710:10:04 premium issue generally, and what were in1810:10:09 many of our contracts. Although, again,1910:10:11 each contract can be different and2010:10:13 separately negotiated.2110:10:14 Q. Okay. If you turn to page2210:10:19 350, this is the email from John McMurray2310:10:22 to Scott Kurzban, copying a number of2410:10:27 others.2510:10:32 And actually I'd like to

Page 513

1 MICHAEL W. SCHLOESSMANN210:10:34 direct your attention to the second page310:10:37 of that email, starting at 51, where he410:10:41 reproduces a policy on high risk510:10:46 products.610:10:46 Do you see that?710:10:47 A. Yes.810:10:48 Q. Are you familiar with that910:10:51 policy, that looks like it extends from1010:10:54 page 51 through 52?1110:10:58 A. I'm going to take a closer1210:11:05 look.1310:11:05 Q. Yes.1410:12:33 A. Okay.1510:12:34 Q. Does this reflect a policy1610:12:36 that John McMurray put together in his1710:12:39 capacity as chief credit officer?1810:12:40 MS. CONCANNON: Objection;1910:12:41 calls for speculation, lacks2010:12:43 foundation.2110:12:45 A. I would be making that2210:12:46 conclusion only based on John's note,2310:12:50 which appears to include this policy that2410:12:58 he I believe is claiming ownership of, at2510:13:01 least indirectly.

Page 514

1 MICHAEL W. SCHLOESSMANN210:13:03 Q. You've seen that policy before310:13:05 from him; right?410:13:06 A. It is -- it's vaguely510:13:08 familiar. I don't remember looking at610:13:09 this specific one. But as I read through710:13:11 it these are, you know, concepts that810:13:15 aren't altogether unfamiliar to me. So I910:13:19 don't know in what context I may have,1010:13:20 you know, seen this or heard of these in1110:13:23 the past.1210:13:23 Q. Was this a policy that he1310:13:26 wanted CFC to adopt or CHL, do you know?1410:13:31 MS. CONCANNON: Objection.1510:13:34 A. I believe -- I believe this is1610:13:36 a Countrywide Home Loans, you know,1710:13:41 policy. Some of it, when I see all1810:13:45 repurchases, a references to all1910:13:47 repurchases going through LERC, you know,2010:13:51 I'm not sure if he intended for those to2110:13:54 have -- I'm not sure of whether he2210:14:01 intended that specific policy to, you2310:14:05 know, impact Countrywide Securities2410:14:08 Corporation.2510:14:08 Q. In the first paragraph under

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Page 515

1 MICHAEL W. SCHLOESSMANN210:14:10 the heading, there is a definition given310:14:14 for high risk product, and he states "a410:14:16 high risk product is any product where510:14:19 the ALCO or RCC triggers are reached."610:14:25 Do you know what that means?710:14:28 A. I don't specifically.810:14:30 Q. Okay. Is ALCO the asset910:14:32 liability committee?1010:14:33 A. I believe so, yes.1110:14:34 Q. And which entity is that a1210:14:36 part of?1310:14:38 A. I'm not sure if that was1410:14:42 Countrywide Bank or Countrywide Home1510:14:45 Loans or both. I don't know.1610:14:46 Q. How about RCC?1710:14:50 MS. CONCANNON: Objection to1810:14:51 form.1910:14:51 Q. Do you know what that stands2010:14:52 for?2110:14:52 A. Actually I don't.2210:14:54 Q. Okay. Under the next2310:14:58 paragraph, it states "risk retention. As2410:15:02 a matter of policy, we do not retain2510:15:04 credit risk on high risk products."

Page 516

1 MICHAEL W. SCHLOESSMANN210:15:07 Did you understand that to be310:15:08 CHL's policy?410:15:10 MS. CONCANNON: Objection;510:15:10 lacks foundation.610:15:13 A. I don't recall that710:15:15 specifically.810:15:18 Q. Okay. Do you recall any910:15:19 discussions during the time period 20051010:15:24 through 2007 suggesting that1110:15:28 Countrywide's policy was not to retain1210:15:31 risk on high risk products?1310:15:33 MS. CONCANNON: Objection.1410:15:35 A. I don't recall this1510:15:38 specifically. This policy. I mean, it's1610:15:41 not entirely surprising to me. I mean,1710:15:46 the email chain includes a reference to1810:15:50 an HSBC transaction where there were, you1910:15:52 know, a number of loans we were buying2010:15:54 back as a result of post-closing due2110:15:57 diligence, and there was concern about2210:15:59 that and some level of surprise within2310:16:04 senior management. And so, you know,2410:16:07 when I take that together with this, it's2510:16:08 not a surprising policy.

Page 517

1 MICHAEL W. SCHLOESSMANN210:16:10 But again, it wasn't one I,310:16:13 you know, recollect, you know,410:16:15 specifically.510:16:16 Q. Okay. If you drop down to the610:16:18 bottom of the page, it says "underwriting710:16:20 approach. Loans must be documented and810:16:26 underwritten such that there is no910:16:28 question that each loan clearly meets all1010:16:30 applicable program guidelines, including1110:16:33 exception guidance, if any. Loan1210:16:35 exceptions are not allowed unless they1310:16:38 can be documented to demonstrate that1410:16:41 they explicitly conform to the exception1510:16:44 guidance."1610:16:45 Do you see that?1710:16:48 A. Yes.1810:16:48 Q. As of mid-2006, Countrywide1910:16:57 Home Loans actually didn't originate2010:17:01 loans that included documentation of how2110:17:09 the loan exceptions conformed to2210:17:12 exception guidance with respect to the2310:17:14 HELOCs and closed end seconds in dispute2410:17:17 here; right?2510:17:19 MS. CONCANNON: Objection.

Page 518

1 MICHAEL W. SCHLOESSMANN210:17:19 Q. Did you understand that310:17:20 question? I know it was a long one.410:17:22 A. I understand what you're510:17:24 asking. I think there's -- you're making610:17:28 an assumption that HELOCs are a part of710:17:33 this high risk product policy. I'm not810:17:36 sure what, you know, loan products this910:17:38 includes.1010:17:39 Q. Okay.1110:17:40 A. The HSBC -- HSBC loans were1210:17:46 not the HELOCs that we were securitizing1310:17:50 with MBIA or other monolines.1410:17:53 Q. Okay. Is it fair to say that1510:17:56 just as a matter of practice as of this1610:17:58 point in time, 2006, Countrywide Home1710:18:01 Loans did not document how loan1810:18:06 exceptions explicitly conformed to1910:18:11 exception guidance?2010:18:12 MS. CONCANNON: Objection;2110:18:13 lacks foundation, assumes facts not2210:18:16 in evidence.2310:18:19 A. Sorry, so we did not -- are2410:18:23 you suggesting, are you asking me to2510:18:25 acknowledge that we did not document how

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1 MICHAEL W. SCHLOESSMANN210:18:27 a loan conformed?310:18:29 Q. To exception guidance.410:18:35 A. What I'm confused about is,510:18:38 are you asking me as a general matter as610:18:40 to Countrywide's originations?710:18:43 Q. Yes, I'm asking you with810:18:44 respect to the HELOCs and closed end910:18:48 seconds in the MBIA securitizations,1010:18:50 which Countrywide Securities Corp.1110:18:52 reviewed as part of its underwriting due1210:18:57 diligence. Isn't it a fact that there1310:18:58 was not full documentation of how1410:19:02 exceptions conformed to any exception1510:19:05 guidance?1610:19:06 MS. CONCANNON: Objection.1710:19:07 A. I don't know to what extent1810:19:10 that's true.1910:19:10 Q. Okay. You just don't know one2010:19:18 way or the other?2110:19:19 MS. CONCANNON: Objection;2210:19:20 mischaracterizes prior testimony.2310:19:22 A. I don't know how to address2410:19:23 that. I don't know to what extent that2510:19:26 is a correct statement.

Page 520

1 MICHAEL W. SCHLOESSMANN210:19:28 Q. Okay.310:19:29 A. How many loans, what410:19:30 percentage of loans, that covers.510:19:32 Q. Okay.610:19:33 A. If at all.710:19:35 Q. Okay. By the way, yesterday810:19:39 you mentioned that you believed the910:19:43 reason MBIA's repurchase demands were not1010:19:46 being granted, except for the few hundred1110:19:50 which have, is that they were of poor1210:19:52 quality.1310:19:55 Have you reviewed any of those1410:19:56 repurchase demands yourself?1510:19:58 MS. CONCANNON: Objection;1610:19:59 mischaracterizes prior testimony.1710:20:01 A. No.1810:20:01 Q. Okay. Who conveyed to you1910:20:03 that the quality of the repurchase2010:20:05 demands coming from MBIA was not -- was2110:20:09 not good?2210:20:10 MS. CONCANNON: Objection.2310:20:10 And I would instruct you not to2410:20:12 answer to the extent that it might2510:20:13 reveal attorney-client

Page 521

1 MICHAEL W. SCHLOESSMANN210:20:14 communications and/or work310:20:16 undertaken in connection with this410:20:17 litigation.510:20:18 MR. SELENDY: Well, no. The610:20:19 witness testified as to a fact.710:20:21 And I'm asking what was your source810:20:24 for that fact.910:20:25 MS. CONCANNON: And I am1010:20:26 instructing him to answer within1110:20:29 the parameters of how I just1210:20:30 defined it.1310:20:34 A. Within those parameters, there1410:20:40 are members of the team, when asked1510:20:44 specific recollection about the most1610:20:45 recent batch of claims that MBIA had1710:20:49 aggregated over many months, I think1810:20:51 there were some, you know, close to 9,0001910:20:54 claims that MBIA asserted at a single, on2010:20:58 a single day in June. In the course of2110:21:02 our initial review, it was discovered2210:21:06 that we were being claimed on loans that2310:21:07 had been paid in full, loans that were2410:21:12 current. And just as a sort of high2510:21:18 level summation of those 8,800 or 9,000

Page 522

1 MICHAEL W. SCHLOESSMANN210:21:24 claims, that was clearly suggestive of,310:21:27 you know, quality, that there was no410:21:30 basis. Without even looking at the loan510:21:33 file, the fact that a loan had been paid610:21:36 in full suggests to me that that is not a710:21:39 particularly thoughtful repurchase810:21:41 attempt by MBIA.910:21:44 So that is, you know, the1010:21:46 basis for or a basis for, you know, my1110:21:50 comment yesterday.1210:21:50 Q. Okay. So the basis was that1310:21:52 there were certain loans within the1410:21:53 repurchase demands as to which the1510:21:55 borrower had already repaid the loan?1610:21:57 MS. CONCANNON: Objection;1710:21:58 mischaracterizes prior testimony.1810:22:02 Q. I just want to understand.1910:22:03 Because you made that very strong2010:22:05 statement of fact.2110:22:07 A. Yes.2210:22:08 Q. And I want to know the basis2310:22:10 for it. So if there is any other basis2410:22:12 for that statement, I would like to know2510:22:13 that as well.

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1 MICHAEL W. SCHLOESSMANN210:22:15 MS. CONCANNON: Objection;310:22:15 asked and answered, argumentative.410:22:18 Q. Okay. You've given me the510:22:19 example certain loans within the610:22:21 population concerned loans that were710:22:24 repaid in full. Other loans you say were810:22:27 performing loans. And you said that910:22:30 that's without regard to the quality of1010:22:32 the analysis as to material breach, it's1110:22:35 simply that without looking at the loan1210:22:37 files, these attributes of the loans1310:22:39 could be identified and were identified1410:22:42 to you as problems in the repurchase1510:22:46 demands. Right?1610:22:47 MS. CONCANNON: Objection;1710:22:47 mischaracterizes prior testimony.1810:22:49 A. Those two examples were cited1910:22:53 to me, and they are two that I recall2010:22:57 specifically being informed of in2110:23:00 connection with the June claim submission2210:23:04 by MBIA. Other discussions that we may2310:23:09 have had would have involved -- around2410:23:14 these claims specifically, would have2510:23:16 involved discussions in consultation with

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1 MICHAEL W. SCHLOESSMANN210:23:18 counsel. And that's why I'm, you know,310:23:21 drawing the line there.410:23:22 Q. Who cited those problems to510:23:25 you? Who specifically?610:23:26 MS. CONCANNON: Objection.710:23:27 A. I don't know if I recall810:23:30 specifically who. I'm actually not sure.910:23:43 Q. Was it a team that brought1010:23:45 that to your attention?1110:23:46 MS. CONCANNON: Objection.1210:23:46 A. It would have been somebody1310:23:49 working on those claims.1410:23:50 Q. Is that part of the monoline1510:23:53 segment of your group?1610:23:54 A. Yes.1710:23:54 Q. And you just don't recall.1810:23:56 Who's in that segment of your1910:23:58 group, generally speaking who would be2010:24:00 responsible for evaluating those loan2110:24:03 files from MBIA?2210:24:07 A. It's an investor audit team2310:24:09 led by Shareef Abdou. And there is a2410:24:15 team in Jacksonville that also works on2510:24:18 the monoline claims. So it could have

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1 MICHAEL W. SCHLOESSMANN210:24:21 been either of those two groups that310:24:22 would have summarized for me, sort of at410:24:26 a high level, you know, the facts that,510:24:29 you know, the loans were current or had610:24:31 been paid in full.710:24:31 Q. How many people are under810:24:33 Shareef Abdou's group?910:24:35 A. I'm not sure.1010:24:36 Q. Do you know any of the other1110:24:38 individuals who are in that group?1210:24:39 A. In Shareef's, no.1310:24:41 Q. How many are in the1410:24:43 Jacksonville group?1510:24:44 A. I believe there, and I'm not1610:24:47 sure, there is probably three or four,1710:24:50 maybe five.1810:24:51 Q. Okay. So the total between1910:24:53 the two groups, about ten people, or you2010:24:56 just don't know?2110:24:56 MS. CONCANNON: Objection;2210:24:57 mischaracterizes prior testimony.2310:24:59 A. I don't know how many are in2410:25:00 Shareef's group. I would imagine it's2510:25:04 twenty to thirty, perhaps more. But I'm

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1 MICHAEL W. SCHLOESSMANN210:25:08 not sure of the number. It's certainly310:25:10 more than the five implied by your410:25:13 comment there.510:25:13 Q. Okay, I appreciate that.610:25:15 MR. SELENDY: The tape is710:25:16 about to run out. Would you like810:25:17 to take a break?910:25:19 MS. CONCANNON: We should1010:25:20 definitely go off the record to1110:25:22 change the tape.1210:25:22 MR. SELENDY: We will go off1310:25:23 the record. I'm happy to continue1410:25:25 in a minute if you want. We can go1510:25:28 off the record.1610:25:29 THE VIDEOGRAPHER: Going off1710:25:29 the record at 10:25 a.m., this1810:25:31 marks the end of tape No. 7.1910:25:53 (A recess was taken.)2010:44:19 MR. SELENDY: Let's mark this2110:44:21 as 577.2210:44:21 (Plaintiff's Exhibit 577 for2310:44:26 identification, document entitled2410:44:27 "notes document entitled2510:44:33 ID099D2520D33CC8D8852575840003631E,"

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Page 527

1 MICHAEL W. SCHLOESSMANN210:44:33 production numbers CWMBIA 15897317310:44:53 through CWMBIA 15897347.)410:44:53 THE VIDEOGRAPHER: We are back510:44:56 on the record at 10:44 a.m., this610:44:59 marks the beginning of tape No. 8.710:45:01 BY MR. SELENDY:810:45:03 Q. I've asked the reporter to910:45:05 mark as Exhibit 577, CWMBIA 158973171010:45:15 through 347. I'm not going to ask you to1110:45:20 read the very small print on the first1210:45:22 couple of pages.1310:45:23 A. Thank you very much.1410:45:24 Q. Unless you really have a1510:45:26 hankering to.1610:45:29 I would like to ask you about,1710:45:31 a few questions about the attachment, the1810:45:34 eighth periodic mortgage fraud case1910:45:36 report.2010:45:45 A. Okay. Depending on your2110:45:47 questions, how carefully do I read this.2210:45:49 Q. Have you seen these case2310:45:51 reports coming from MARI?2410:45:52 MS. CONCANNON: Objection;2510:45:55 vague.

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1 MICHAEL W. SCHLOESSMANN210:45:56 A. I don't know if I've ever seen310:45:58 this. This was not a report I would have410:46:02 regularly reviewed. Not that I haven't,510:46:05 one wouldn't have come across my desk at610:46:07 some point in time.710:46:08 Q. Okay. So this is not810:46:10 something that you tracked in your910:46:11 ordinary course of work?1010:46:13 A. Not that I can recall.1110:46:14 Q. All right. Let's skip that1210:46:16 then.1310:46:24 MR. SELENDY: Let's mark as1410:46:25 578, CWMBIA 13132210 through 15.1510:46:31 (Plaintiff's Exhibit 578 for1610:46:37 identification, email dated June1710:46:44 22, 2006, production numbers CWMBIA1810:46:26 13132210 through CWMBIA 13132215.)1910:47:12 Q. And the subject line, I know2010:47:16 the email is reproduced in an unusual2110:47:18 fashion. The subject line appears in a2210:47:20 few different places, including on page2310:47:23 21, where it says "CWHEQ 2006-E status2410:47:28 update."2510:47:28 Do you see that?

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1 MICHAEL W. SCHLOESSMANN210:47:29 A. I do.310:47:29 Q. And that's one of the MBIA410:47:31 securitizations; right?510:47:33 MS. CONCANNON: Objection.610:47:35 Q. Feel free to take a look at710:47:37 the amended complaint.810:47:39 A. Where is the complaint? If910:47:41 you are really asking me to confirm.1010:47:43 Q. Go ahead and confirm it.1110:47:44 Paragraph 29.1210:48:02 A. Yes, that appears to be one of1310:48:04 the deals in the complaint.1410:48:04 Q. Okay. So on the exhibit, if1510:48:06 you would turn to page 213.1610:48:11 MS. CONCANNON: Have you had a1710:48:12 chance to review the whole1810:48:13 document?1910:48:14 THE WITNESS: No. Let me, I2010:48:17 apologize, let me have just another2110:48:19 two minutes, please.2210:49:16 A. Okay.2310:49:17 Q. The email on page 2132410:49:19 extending on to 214 appears to be one2510:49:22 sent from Chris Sonnycalf at Watterson

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1 MICHAEL W. SCHLOESSMANN210:49:29 Prime to Tonya LyBrand. Does that look310:49:32 right to you?410:49:33 MS. CONCANNON: Objection.510:49:34 A. That's how it appears to me.610:49:37 Q. And in the email itself he710:49:40 says -- and that, by the way, that was810:49:43 one of the third party due diligence910:49:45 outfits that CSC used in connection with1010:49:47 these HELOC securitizations; right?1110:49:49 MS. CONCANNON: Objection;1210:49:49 asked and answered.1310:49:50 A. Correct.1410:49:51 Q. Okay. He states "we've1510:49:53 completed the review of approximately 1101610:49:56 loans at this time. Overall kicks have1710:49:59 been limited primarily to missing1810:50:01 documents and make up about 45 percent of1910:50:04 the loans reviewed. The culprits seem to2010:50:08 be missing HUDs and/or other critical2110:50:12 documents, such as title, verbal VOEs and2210:50:16 some appraisals."2310:50:16 Do you see that?2410:50:18 A. I do.2510:50:18 Q. Do you remember we talked

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1 MICHAEL W. SCHLOESSMANN210:50:19 yesterday about what documents were310:50:20 critical and what were not. Would you410:50:23 agree with Watterson Prime that the HUDs,510:50:27 title and verbal VOEs are critical?610:50:30 MS. CONCANNON: Objection.710:50:33 A. Not necessarily. For810:50:35 instance, I don't know what title refers910:50:39 to. And I think I stated yesterday that1010:50:45 the criticality of a document would1110:50:47 depend on, you know, a number of factors1210:50:50 or could depend on a number of factors in1310:50:52 terms of how we were going to assess the1410:50:54 missing document or any missing document1510:50:56 in the context of a particular loan file.1610:50:59 Q. Do you recall any discussions1710:51:02 between CSC --1810:51:07 MR. SELENDY: Let's just pause1910:51:08 for a second here.2010:51:21 Are you ready?2110:51:22 THE WITNESS: Yes.2210:51:23 Q. Do you recall any discussions2310:51:24 between CSC and Watterson Prime regarding2410:51:27 the identification of critical documents2510:51:29 in the loan files?

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1 MICHAEL W. SCHLOESSMANN210:51:31 MS. CONCANNON: Objection.310:51:33 A. I don't. I don't recall any410:51:35 conversation I ever had with Watterson510:51:38 Prime around that issue.610:51:41 MR. SELENDY: Let mark as --710:51:43 keep that document handy. Let's810:51:44 mark as 579, the CSC executive910:51:48 summary on the same transaction,1010:51:51 CWHEQ 2006-E.1110:51:51 (Plaintiff's Exhibit 579 for1210:51:47 identification, CSC executive1310:51:48 summary for CWHEQ 2006-E,1410:51:48 production numbers CW 00000138331510:52:31 through CW 0000013839.)1610:52:31 Q. And this is the executive1710:52:32 summary that CSC prepared and sent to1810:52:34 MBIA in connection with the due diligence1910:52:35 on the CWHEQ 2006-E transaction; right?2010:52:40 MS. CONCANNON: Objection.2110:52:40 A. I don't know if we had sent2210:52:42 that to MBIA. It appears to be the due2310:52:45 diligence summary for that 2006-E deal.2410:52:48 Q. Okay. And in the summary, it2510:52:51 states, under "scope of diligence," that

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1 MICHAEL W. SCHLOESSMANN210:52:56 "the original credit sample consisted of310:52:59 a random and adverse sample of 200410:53:01 loans."510:53:01 Do you see that?610:53:03 A. I do.710:53:03 Q. And if you still have the810:53:04 other exhibit in front of you, Watterson910:53:08 Prime had said well, the review was only1010:53:11 110 loans; right?1110:53:12 MS. CONCANNON: Objection.1210:53:13 A. Well, I don't know whether --1310:53:16 this was sent out apparently on June1410:53:20 20th, the first sentence says "we've1510:53:22 completed a review of approximately 1101610:53:25 loans at this time." So in my mind1710:53:27 that's not suggesting that the entirety1810:53:29 of the population had been reviewed, but1910:53:31 just it was a status report. That's what2010:53:34 I'm inferring from this note.2110:53:35 Q. Okay. So you would expect in2210:53:37 the ordinary course that if the summary2310:53:40 said 200 loans were part of the sample,2410:53:42 that the due diligence outfit would2510:53:45 actually have looked at 200 loans, not at

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1 MICHAEL W. SCHLOESSMANN210:53:48 say 110?310:53:51 MS. CONCANNON: Objection;410:53:52 argumentative.510:53:53 Q. Is that right?610:53:55 A. If the executive summary710:53:58 indicated that our sample size was 200810:54:02 loans and reported out that we reviewed910:54:05 the 200 and reported the findings on that1010:54:09 200, then yes, I would have expected that1110:54:11 we would have reviewed all the loans1210:54:14 indicated as reviewed in the executive1310:54:15 summary.1410:54:16 Q. Okay. Thank you.1510:54:19 MR. SELENDY: Let's mark as1610:54:19 Exhibit 580, CWMBIA 110299571710:54:26 through 62.1810:54:27 (Plaintiff's Exhibit 580 for1910:54:30 identification, email dated July2010:54:32 24, 2006, production numbers CWMBIA2110:54:23 11029957 through CWMBIA 11029962.)2210:54:51 Q. My first question is whether2310:55:50 this is an email exchange between2410:55:51 yourself, Debora Brown and others, in2510:55:54 July of 2006.

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1 MICHAEL W. SCHLOESSMANN210:55:55 A. It appears to be, yes.310:55:57 MS. CONCANNON: If you haven't410:55:59 completed the document, reviewing510:56:00 the document, please do.610:56:02 THE WITNESS: Okay.710:57:36 A. Okay.810:57:37 Q. Okay. So I'd like to focus910:57:40 your attention on first the email1010:57:43 starting on the third page of the1110:57:44 document, that you send to Josh Adler in1210:57:50 secondary marketing.1310:57:50 Do you see that?1410:57:53 A. Yes.1510:57:53 Q. And you say "in addition to1610:57:57 the CLTV issue, it appears that we1710:58:00 regularly come across a significant1810:58:02 amount of data issues on CHL production."1910:58:09 What were the data issues that2010:58:12 CSC was having with the CHL production at2110:58:17 this time?2210:58:17 A. I don't specifically recall2310:58:19 specific data attributes, other than what2410:58:21 I've read. The CLTV issue that was cited2510:58:26 in the string of emails is familiar to

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1 MICHAEL W. SCHLOESSMANN210:58:29 me. There is a reference also to, you310:58:32 know, margin. But beyond that, I just410:58:35 don't specifically recall.510:58:36 Q. What was the CLTV issue?610:58:39 A. Just that there was, and710:58:42 again, I'm just recollecting specifically810:58:46 by virtue of, you know, the note that I910:58:48 believe I sent out. That CLTV -- that we1010:58:55 had reason to believe CLTVs on1110:58:57 correspondent lending loans, or some1210:58:59 correspondent lending loans were1310:59:01 incorrect.1410:59:03 Q. Do you know, can you describe1510:59:06 the nature of the errors that you saw on1610:59:09 those CLTVs?1710:59:10 MS. CONCANNON: Objection.1810:59:11 Q. In what respect were they1910:59:13 incorrect?2010:59:13 A. Just that they were2110:59:14 inconsistent with what we -- I believe2210:59:17 they were inconsistent with what we had2310:59:20 seen before. And I don't remember if it2410:59:23 was investors' due diligence that brought2510:59:26 the issue up or what called our attention

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1 MICHAEL W. SCHLOESSMANN210:59:31 to it.310:59:31 Q. Did that lead to the reporting410:59:34 of incorrect data by CSC?510:59:36 MS. CONCANNON: Objection.610:59:37 Q. Do you know?710:59:38 A. When you say reporting of810:59:40 incorrect data, to? Reporting to whom?910:59:42 Q. To rating agencies or to1010:59:44 investors.1110:59:45 A. I don't know to what extent1210:59:47 the data we provided, if it was on CHL1310:59:53 loans, again, we would be, again,1410:59:54 providing that data on behalf of CHL.1510:59:58 And I don't know to what extent, you1610:59:59 know, I'm seeing references here to the1711:00:01 data, you know, being fluid, you know,1811:00:04 post-funding. So to what extent that1911:00:06 data, if it was wrong at any point in2011:00:07 time, was corrected before any tape2111:00:09 submission.2211:00:11 Q. Okay. You don't know the2311:00:13 answer?2411:00:13 A. I simply don't know.2511:00:14 Q. Okay. On the first page of

Page 538

1 MICHAEL W. SCHLOESSMANN211:00:17 the document, there is an email from311:00:19 yourself to Garrett Galati. What was his411:00:24 responsibility at this point in time,511:00:26 July 2006?611:00:28 A. As I recall, Garrett Galati711:00:32 was, I know he was in secondary811:00:34 marketing, on the trading desk in911:00:38 secondary. And Garrett worked on second1011:00:42 lien transactions.1111:00:43 Q. Okay. And you're responding1211:00:45 to a short email from him that says1311:00:49 "please see the explanation sent to1411:00:51 Debora below. It is not an analyst1511:00:53 problem as she has insinuated. This is a1611:00:57 widely known issue and CSC needs to add1711:01:00 an extra step to their settlement1811:01:03 process."1911:01:04 And you respond and you say "I2011:01:07 don't think that really addresses the2111:01:08 issue of bad data, e.g. CLD's CLTV data,2211:01:15 as I'm under the impression that those2311:01:18 values would not all have been updates on2411:01:20 the AS 400. Additionally, CLTVs aside,2511:01:24 even though it appears that the data like

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1 MICHAEL W. SCHLOESSMANN211:01:26 margins is getting updated on the system,311:01:28 I think someone should look into why the411:01:30 data is getting incorrectly entered on511:01:32 the front end by production presumably."611:01:36 Do you see that exchange?711:01:38 A. Yes.811:01:38 Q. Was there an ongoing911:01:39 discussion between CSC and CHL as to how1011:01:42 CHL had to improve the data that they1111:01:44 provided on their loan origination?1211:01:46 MS. CONCANNON: Objection.1311:01:48 A. There was constant interaction1411:01:52 between CSC and CHL, we worked very1511:01:55 closely with them. We were there -- you1611:01:57 know, we worked for them on1711:01:59 securitization transactions, we sold1811:02:02 whole loan packages to our clients. And1911:02:04 during the course of all those2011:02:05 transactions -- whole loan packages, by2111:02:07 the way, that involved Countrywide2211:02:08 production.2311:02:09 And so this, you know, this is2411:02:10 one of, I would imagine, any number of2511:02:12 other issues that we were, you know,

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1 MICHAEL W. SCHLOESSMANN211:02:15 confronting, just as you would in the311:02:18 ordinary course of business, you know.411:02:20 And so, you know, I think, you know,511:02:23 again, I can only speak to what I've said611:02:26 in my note and what I've read, because I711:02:29 don't have specific recollection about,811:02:31 you know, this conversation. I do, as I911:02:33 said, have a recollection around the CLTV1011:02:37 issue. But I don't have the proper1111:02:39 context to frame it beyond that.1211:02:41 Q. The CLTV issue was important1311:02:43 because that was one of the primary1411:02:45 indicators of the creditworthiness of1511:02:49 the -- the ability to repay of the1611:02:51 borrower; right?1711:02:51 MS. CONCANNON: Objection;1811:02:52 assumes fact not in evidence.1911:02:54 MR. SELENDY: I'll strike2011:02:54 that.2111:02:55 Q. CLTV was important because2211:02:56 that's one of the primary attributes that2311:02:58 would be evaluated in trying to assess2411:03:00 the credit quality of a loan?2511:03:02 MS. CONCANNON: Objection;

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1 MICHAEL W. SCHLOESSMANN211:03:03 vague, overbroad.311:03:04 A. As I said earlier, you know,411:03:06 there is a general understanding that511:03:07 CLTV is a, you know, loan attribute that611:03:10 you would evaluate in projecting, you711:03:14 know, performance on a loan or sizing811:03:16 credit support, yes.911:03:17 Q. Okay.1011:03:19 MR. SELENDY: Let's mark as1111:03:20 Exhibit 581, document CWMBIA1211:03:28 8782496 through 501.1311:03:28 (Plaintiff's Exhibit 581 for1411:03:41 identification, email dated August1511:03:42 9, 2006, production numbers CWMBIA1611:03:25 8782496 through CWMBIA 8782501.)1711:04:22 Q. This is an exchange between1811:04:23 yourself and Ryan Watts.1911:04:25 A. Give me a second to read the2011:04:26 whole thing.2111:05:16 Okay.2211:05:17 Q. What was Ryan Watts' function2311:05:19 as of August 2006?2411:05:21 A. Ryan managed the collateral2511:05:23 analytics group for the transaction

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1 MICHAEL W. SCHLOESSMANN211:05:25 management group within Countrywide311:05:28 Securities.411:05:28 Q. And he appears very upset in511:05:33 this email that he's writing to you. Do611:05:36 you recall the issue that he was raising?711:05:38 MS. CONCANNON: Objection to811:05:38 the characterization of the911:05:39 document, which speaks for itself.1011:05:41 Q. Let me just ask you, it's1111:05:42 pretty clear he was extremely upset;1211:05:45 isn't it?1311:05:45 MS. CONCANNON: Objection.1411:05:48 A. It would appear from his email1511:05:50 to me that he was a little bothered, yes.1611:05:53 Q. Okay. What was he so upset1711:05:57 about?1811:05:58 MS. CONCANNON: Objection.1911:06:00 A. I don't have a specific2011:06:02 recollection about these -- this event.2111:06:07 Although just from, you know, the note2211:06:10 exchange I would infer that it had to do2311:06:14 with Ryan feeling that he and his group2411:06:18 were being blamed for the delays, you2511:06:21 know, caused by not getting, you know,

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1 MICHAEL W. SCHLOESSMANN211:06:24 timely data. And therefore not marketing311:06:27 the deal when the trading desk, you know,411:06:29 wanted to market the deal.511:06:31 Q. Was that a recurrent problem611:06:32 for the CSC analysts in getting timely711:06:35 data from CHL?811:06:37 MS. CONCANNON: Objection.911:06:45 A. Again, because I don't1011:06:46 recollect specifically, Ryan's obviously1111:06:48 implying or outright saying that, you1211:06:52 know, this is something that they've been1311:06:55 challenged with in the past, in terms of1411:06:57 getting the needed data from secondary1511:06:59 marketing so that they could do their1611:07:01 jobs, and he didn't feel that it was1711:07:03 their job to chase down the data.1811:07:05 Q. Did they need that data in1911:07:07 order to do their part of the due2011:07:10 diligence that Countrywide Securities was2111:07:11 handling?2211:07:13 A. This didn't have to do with2311:07:14 the due diligence, per se. This had to2411:07:16 do, as I've mentioned earlier, they would2511:07:19 construct, at the direction of the

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1 MICHAEL W. SCHLOESSMANN211:07:21 mortgage company, the tape that would go311:07:22 out to the rating agencies, that would411:07:25 allow us to -- and for preparation of the511:07:28 marketing materials for a deal, it was a611:07:31 collateral analyst function to aggregate711:07:33 that data and put together, you know,811:07:35 either the rating agency tape or whatever911:07:37 stratifications we were going to need for1011:07:40 purposes of preparing marketing materials1111:07:44 in which we, you know, marketed, you1211:07:47 know, the bonds on the transactions.1311:07:49 Q. So this group was responsible1411:07:51 for getting the data from CHL that would1511:07:54 be used to put together the package going1611:07:58 to the rating agencies in connection with1711:08:00 the securitizations?1811:08:02 MS. CONCANNON: Objection.1911:08:02 A. In this securitization and2011:08:04 others that we were doing on behalf of2111:08:06 CHL, it was, you know, often the case2211:08:08 where we would put together the tape for2311:08:11 them, and that certainly appears to be2411:08:14 the case here by virtue of the email2511:08:16 string.

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1 MICHAEL W. SCHLOESSMANN211:08:16 Q. Was there tremendous pressure311:08:18 on the analysts because of the huge411:08:22 volume of deals that CHL and CSC were511:08:26 putting together?611:08:27 MS. CONCANNON: Objection;711:08:28 assumes facts not in evidence,811:08:29 vague, overbroad.911:08:32 A. I think as a general1011:08:35 characterization that's correct. There1111:08:37 were pressures on everybody involved in1211:08:39 the transaction process due to timing1311:08:42 and, you know, the volume of the1411:08:44 transactions that we were doing.1511:08:52 MR. SELENDY: Let's mark as1611:08:53 582, CWMBIA 11035434 through 38.1711:08:53 (Plaintiff's Exhibit 582 for1811:09:04 identification, email dated August1911:09:05 12, 2006, production numbers CWMBIA2011:08:55 11035434 through CWMBIA 11035438.)2111:10:46 Q. Okay. This is an August '062211:10:47 email exchange between yourself,2311:10:49 Mr. Watts and Ms. Brown; right?2411:10:51 A. Just give me one more minute,2511:10:53 please.

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1 MICHAEL W. SCHLOESSMANN211:11:21 Okay.311:11:21 Q. This is an email exchange411:11:23 between yourself, Mr. Brown -- Mr. Watts511:11:26 and Ms. Brown; right?611:11:27 A. Yes, appears to be.711:11:29 Q. Okay. In Mr. Watts' email to811:11:33 you, he says "apparently the desks" --911:11:36 I'm sorry. Yes, he says "apparently the1011:11:39 desks have been instructing the prime1111:11:41 analysts to change existing data in WLTs,1211:11:46 consequently due diligence whole loan1311:11:49 trades are funding late."1411:11:50 Do you know what issue he's1511:11:53 referring to there with respect to the1611:11:55 instructions from the desks to change1711:11:57 data?1811:11:59 MS. CONCANNON: Objection.1911:12:00 A. I have a general recollection2011:12:01 of the, you know, the broader issue.2111:12:04 Q. Okay. What was the broader2211:12:05 issue?2311:12:06 A. The broader issue, the data,2411:12:10 as I recall this issue dealt with loans2511:12:16 that we were buying through the conduits

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1 MICHAEL W. SCHLOESSMANN211:12:17 and then later securitizing. The desks311:12:21 involved are the ARM desk that did a lot411:12:24 of these conduit, you know,511:12:25 securitizations.611:12:26 So there was a process by711:12:28 which we would bid on a package, data got811:12:31 entered. If we won the package, we would911:12:33 proceed to do our due diligence and, you1011:12:36 know, manage the other transaction1111:12:38 management components before we closed1211:12:40 the transaction.1311:12:41 In that intervening, call it a1411:12:45 month, you know, the data remained fluid1511:12:48 as we were doing our due diligence. And1611:12:50 we had issues with multiple groups, in1711:12:54 this case, you know, the desk, the1811:12:57 collateral analysts and you had the due1911:13:00 diligence group, and it created confusion2011:13:02 and potential for data integrity issues2111:13:07 when you had, you know, the desk making2211:13:09 changes to data while we were still2311:13:10 completing our due diligence. So you2411:13:13 might have the situation where, you know,2511:13:15 that data would subsequently be

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1 MICHAEL W. SCHLOESSMANN211:13:17 overwritten by the due diligence folks,311:13:20 or vice versa. And so we wanted a period411:13:24 of time in which to lock down the data so511:13:26 that we didn't have data integrity611:13:28 challenges.711:13:30 And that was the general811:13:31 issue.911:13:32 And again, this, as I recall,1011:13:35 was specifically or specifically involved1111:13:38 conduit loans that we purchased as1211:13:40 opposed to CHL loans.1311:13:47 Q. Okay.1411:13:47 MR. SELENDY: Let's mark as1511:13:48 Exhibit 583, a document that you1611:13:53 sent others entitled "omnibus1711:13:57 repurchase policy," dated August1811:13:59 12, 2006.1911:14:00 (Plaintiff's Exhibit 583 for2011:14:03 identification, email dated August2111:14:04 12, 2006, with attachment,2211:14:04 production numbers CWMBIA2311:14:04 00100425061 through CWMBIA2411:14:20 00100425073.)2511:14:20 Q. And let me know when you've

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1 MICHAEL W. SCHLOESSMANN211:14:22 had a chance to read it.311:14:23 A. Okay. Do you want me to411:16:02 review the --511:16:03 Q. Let me ask you questions. If611:16:05 you want to focus in on anything, as711:16:08 always, feel free.811:16:10 A. Sure.911:16:11 Q. First, do you recall this1011:16:13 document?1111:16:13 A. I recall in general, you know,1211:16:16 the process and the notion of coming up1311:16:19 with our, you know, Countrywide1411:16:22 Securities Corp. repurchase policy.1511:16:24 Q. Did you review this in1611:16:25 connection with your preparation for the1711:16:26 deposition?1811:16:28 MS. CONCANNON: Objection.1911:16:29 A. I don't believe I've seen this2011:16:31 as part of my preparation.2111:16:34 Q. Okay. And were you proposing2211:16:35 here a repurchase policy that would2311:16:37 extend to the MBIA securitizations, among2411:16:42 others?2511:16:45 A. I don't -- no, that would not

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1 MICHAEL W. SCHLOESSMANN211:16:49 have been my understanding as it related311:16:53 to what we were trying to bring within411:16:55 our purview at Countrywide Securities.511:16:59 You know, given that the MBIA loans were611:17:03 Countrywide loans, Countrywide711:17:05 securitizations.811:17:06 Q. Well, you say in the second911:17:08 paragraph "I want this to be an omnibus1011:17:12 policy, so we need to ensure that it1111:17:15 contemplates every possible category of1211:17:18 repurchase, i.e. this policy should cover1311:17:21 every type of repurchase transaction in1411:17:23 which the following apply: A, a1511:17:26 Countrywide entity is repurchasing a1611:17:28 loan, and B, CSC has some involvement,1711:17:32 including CSC having securitized the1811:17:36 loan, sold the loan, purchased the loan,1911:17:37 or a business relationship with the2011:17:39 claimant."2111:17:40 Do you see that?2211:17:41 A. Yeah. Which is why I led off2311:17:44 by saying it was my understanding that2411:17:46 this would not have been a, an MBIA2511:17:50 transaction would not have come, you

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1 MICHAEL W. SCHLOESSMANN211:17:51 know, under our purview. It wasn't311:17:53 something we wanted to or felt like we411:17:55 needed to control.511:17:56 What is unclear to me from my611:17:58 own note is including, you know, the711:18:03 Romanette 1, securitize the loan.811:18:05 Q. Right.911:18:06 A. I don't know if I was1011:18:07 intending that to mean broadly speaking1111:18:10 we underwrote the securitization, or we1211:18:12 sponsored, as we often did on all of our1311:18:17 own transactions, where we were1411:18:19 effectively the principal in those1511:18:20 transactions as opposed to just the1611:18:22 underwriter.1711:18:22 My sense is that we were, you1811:18:25 know, again, just based on my general1911:18:28 recollection, that it would not have2011:18:30 included MBIA transactions, although it's2111:18:33 unclear to me in reading this whether I2211:18:35 intended that to be the case or not.2311:18:38 Q. Okay. Because obviously those2411:18:40 MBIA securitizations did involve deals2511:18:43 where a Countrywide entity would be

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1 MICHAEL W. SCHLOESSMANN211:18:44 repurchasing a loan and where CSC311:18:47 securitized the deals.411:18:49 MS. CONCANNON: Objection.511:18:49 A. Well, it's unclear to me.611:18:51 Right --711:18:52 Q. Because you don't know how you811:18:54 meant securitize?911:18:55 A. By securitize, CHL, right,1011:18:58 just understanding the transactions as1111:19:00 they were, CHL securitized the loans, not1211:19:02 us. We were an underwriter. Again, my1311:19:05 general recollection is we would not have1411:19:06 sought to bring those under our purview.1511:19:08 And I think you can read that1611:19:10 consistently with this, if you ascribe1711:19:13 the meaning to securitize that I've1811:19:15 suggested.1911:19:15 Q. Do you know whether the2011:19:17 proposed omnibus repurchase policy was2111:19:19 ever implemented?2211:19:23 A. I don't know. My general2311:19:27 recollection is we did end up with a2411:19:30 policy, whether it was this one, I can't2511:19:33 say for sure.

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1 MICHAEL W. SCHLOESSMANN211:19:35 Q. Okay. And do you know whether311:19:36 the policy that you ended up with was one411:19:39 that in fact would cover deals where CSC511:19:42 acted as underwriter but not sponsor?611:19:45 MS. CONCANNON: Objection.711:19:46 A. No, I do not.811:19:47 Q. You don't know?911:19:48 A. I don't know.1011:19:48 Q. Okay. Here you say, with1111:19:52 respect to the repurchases, if you look1211:19:53 halfway down the page, you say "we1311:19:56 absolutely" -- on the first page. "We1411:20:01 absolutely can never repurchase any loan1511:20:03 from a trust unless such repurchase is1611:20:06 unambiguously contemplated and1711:20:09 specifically permitted by the1811:20:10 securitization documents."1911:20:10 Do you see that?2011:20:13 A. Yes, I do.2111:20:14 Q. And here basically, as part of2211:20:17 the policy, in August '06 you were2311:20:19 suggesting that at this point you're2411:20:21 going to construe any ambiguity against2511:20:24 the repurchase demand; right?

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1 MICHAEL W. SCHLOESSMANN211:20:26 MS. CONCANNON: Objection;311:20:27 mischaracterizes the document.411:20:30 A. Yeah, I don't think I draw the511:20:32 same inference you do.611:20:33 Q. Okay. What did you mean by711:20:35 that statement?811:20:35 A. So this, the reason I made911:20:38 this point emphatically was that we had1011:20:43 concerns, I think I described yesterday,1111:20:45 from an accounting perspective all of1211:20:47 these deals were done as sale1311:20:50 transactions. There was a FAS 140 ruling1411:20:54 that required limited involvement of the1511:20:58 sponsor or seller after the1611:20:59 securitization. These were supposed to1711:21:01 be, as I referred to, quote, braindead,1811:21:05 you know, trusts. So you could not, a1911:21:07 seller, sponsor or servicer could not do2011:21:10 things even if it was what an investor2111:21:13 wanted, for instance, unless that action2211:21:15 was sanctioned by the documents2311:21:19 themselves.2411:21:20 So I did not want people --2511:21:24 for instance, if a trading desk said can

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1 MICHAEL W. SCHLOESSMANN211:21:26 we buy out this loan, you know, as an311:21:28 accommodation, I did not want people just411:21:30 reacting without being very thoughtful,511:21:33 without being very methodical about611:21:34 ensuring that such action was actually711:21:37 contemplated and permitted under the811:21:40 express terms of the securitization911:21:42 documents. So I don't think that's at1011:21:45 all different than what I've described1111:21:47 yesterday.1211:21:47 Q. Okay. So this statement that1311:21:49 the repurchase is unambiguously1411:21:51 contemplated, you regard as consistent1511:21:54 with the statement that the reps were1611:21:56 subjective and they could be read broad1711:21:58 enough to cover repurchases that were,1811:22:02 for example, outside of guidelines or not1911:22:05 prudent origination?2011:22:06 A. Yes, I believe so. To put2111:22:09 another way, or my way, I'm not2211:22:12 suggesting that with respect to2311:22:16 inherently subjective representations and2411:22:19 warranties, we've alluded to a couple,2511:22:22 you know, yesterday, that we couldn't

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1 MICHAEL W. SCHLOESSMANN211:22:24 exercise subjective judgment. And that311:22:27 in order to buy out a loan, you know, I'm411:22:29 not suggesting here, I don't believe,511:22:32 that we had to determine beyond a shadow611:22:38 of a doubt that the rep had been, you711:22:41 know, breached. Especially given its811:22:43 inherent, or some of their inherent911:22:45 subjective quality.1011:22:46 Q. Okay. And then with respect1111:22:55 to the attachment, the policy, the policy1211:23:01 draft, I guess, it states "last reviewed,1311:23:04 revised June 1, 2006. Original authors1411:23:08 R. Malott and M. Nadeau."1511:23:08 Do you see that?1611:23:15 A. Yes.1711:23:16 Q. What were the responsibilities1811:23:17 of R. Malott and M. Nadeau as of June1911:23:21 2006?2011:23:22 A. Rex Malott -- sorry, Rex2111:23:26 Malott and Michael Nadeau were both in my2211:23:30 organization. Michael was in our2311:23:34 post-closing risk management area. I2411:23:36 believe Rex was as well, although I'm not2511:23:37 certain. In any case he had involvement

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1 MICHAEL W. SCHLOESSMANN211:23:39 in, you know, this process.311:23:46 Q. And had you asked them to put411:23:47 together the original draft of the511:23:49 repurchase policy?611:23:51 MS. CONCANNON: Objection.711:23:52 A. I may have charged Debbie with811:23:54 that. But both of them would have been911:23:55 under Debbie's management. So whether I1011:23:58 asked them directly, I recall generally1111:24:01 having, you know, a number of1211:24:03 conversations around this repurchase1311:24:04 policy with both of them as well as1411:24:06 Debbie.1511:24:07 Q. Okay. And this draft is one1611:24:09 that Debbie Brown would have signed off1711:24:11 on? It says she reviewed, revised it.1811:24:15 MS. CONCANNON: Objection;1911:24:16 calls for speculation.2011:24:18 A. I would assume as much given2111:24:20 her role and the fact that this document,2211:24:22 you know, clearly indicates that she's2311:24:23 reviewed and revised the document. But I2411:24:26 don't have knowledge of that2511:24:28 specifically.

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1 MICHAEL W. SCHLOESSMANN211:24:29 Q. Do you recall having any311:24:31 disagreements with the form of the policy411:24:34 as laid out in the draft here?511:24:36 MS. CONCANNON: Objection.611:24:37 A. I haven't studied this711:24:40 carefully. If you'd like me to, I can.811:24:43 I will say we had a number of911:24:46 conversations spanning months over this1011:24:50 repurchase policy and it was being done1111:24:54 at my direction. Now, whether every1211:24:56 draft accurately reflected, you know,1311:24:59 what I had communicated, I don't know.1411:25:00 But I don't recall there being any, you1511:25:03 know, disagreement or dispute amongst our1611:25:05 group over that policy. I think they1711:25:08 were taking my lead and trying to craft a1811:25:10 policy that contemplated what I had1911:25:13 asked.2011:25:13 Q. Well, let me ask you a couple2111:25:15 of specific points on that. First of2211:25:17 all, post-closing risk management, what2311:25:19 was that -- what was that group's2411:25:22 responsibility?2511:25:23 A. Within our transaction, within

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1 MICHAEL W. SCHLOESSMANN211:25:26 our transaction management group, they311:25:30 would have handled any of the411:25:32 responsibilities that came about, you511:25:36 know, after loans were -- and this was611:25:39 principally in connection with our711:25:41 conduit purchase activity. So where we811:25:44 bought loans in, post-closing there were911:25:49 a number of things that needed to be1011:25:51 tended to, including servicing transfers,1111:25:54 you know, enforcement of, you know, early1211:25:58 payment defaults and a variety of other1311:26:02 things I can't recall specifically.1411:26:06 Q. Okay. And under 4.2.4.2 of1511:26:11 the draft, it's on page 065, it says1611:26:17 "repurchase reason, evaluate the1711:26:19 repurchase request to identify one of the1811:26:21 following repurchase reasons." And then1911:26:24 it lists due diligence kick, rep and2011:26:27 warranty breach, early payment default,2111:26:30 rate and term modifications.2211:26:30 Do you see that?2311:26:33 A. Yes.2411:26:33 Q. Were those the four basic2511:26:37 reasons for repurchase requests as of

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1 MICHAEL W. SCHLOESSMANN211:26:42 that time, August '06?311:26:43 MS. CONCANNON: Objection;411:26:44 vague, overbroad, lacks foundation.511:26:48 Q. For securitizations in which611:26:50 CSC was involved.711:26:51 MS. CONCANNON: Objection;811:26:52 vague, overbroad.911:26:54 A. This doesn't refer to1011:26:56 securitizations specifically. And I1111:27:00 haven't had a chance to think through the1211:27:02 implications of securitization.1311:27:05 As I said, the group was1411:27:06 principally charged with post-closing1511:27:09 activities around our whole loan purchase1611:27:12 program.1711:27:19 Q. Okay. Would these same four1811:27:21 reasons be applicable to HELOC1911:27:23 securitizations, do you know?2011:27:24 MS. CONCANNON: Objection;2111:27:25 lacks foundation, assumes facts not2211:27:27 in evidence.2311:27:27 A. Well, certainly some would not2411:27:29 be. There was no concept of, you know,2511:27:34 post-closing due diligence as there was

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1 MICHAEL W. SCHLOESSMANN211:27:37 in some select whole loan transactions,311:27:39 as I indicated previously. There was no411:27:42 early payment default protection or511:27:45 covenant in any of the HELOC documents,611:27:47 so far as I can recollect. And the711:27:52 modifications, I'm not sure if that811:27:55 related to the HELOC deals or not.911:28:00 Q. Okay. I show you a document1011:28:12 previously marked as Exhibit 175.1111:29:34 A. Okay.1211:29:34 Q. Okay. What does this document1311:29:36 reflect?1411:29:38 A. This document appears to1511:29:39 reflect the challenge in procuring1611:29:44 documentation on full spectrum lending1711:29:47 loans, which were, you know, our subprime1811:29:51 first lien, you know, loans. I don't1911:29:53 believe it has any, you know, impact or2011:29:56 relevance to the HELOCs in my2111:30:00 recollection.2211:30:02 But in short, it was a2311:30:04 challenge, again, operationally based,2411:30:07 not as a product of underwriting, getting2511:30:10 timely documentation for purposes of

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1 MICHAEL W. SCHLOESSMANN211:30:13 completing our due diligence reviews.311:30:15 And I expressed to Scott, as I did to411:30:18 others on a number of occasions, just the511:30:21 challenges we were having from a process611:30:22 standpoint getting timely documentation711:30:27 so we could complete our review.811:30:29 Q. You said in your email to911:30:31 Scott Kurzban, "Scott, this is preventing1011:30:34 us from performing the level of due1111:30:36 diligence required of securities1211:30:38 underwriters. I am concerned about1311:30:40 having to in effect cut corners because1411:30:43 we don't get complete files from CHL to1511:30:46 review."1611:30:47 When you made that statement1711:30:48 and you referred to complete files, were1811:30:50 you referring to complete mortgage files1911:30:52 from CHL?2011:30:54 MS. CONCANNON: Objection.2111:30:58 A. I was referring to, I believe2211:30:59 I was referring to complete origination2311:31:01 files.2411:31:01 Q. Okay. And the problem is that2511:31:02 if you didn't have the complete

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1 MICHAEL W. SCHLOESSMANN211:31:06 origination files, they were missing311:31:10 documents, and that impaired the due411:31:12 diligence that CSC had to do on those511:31:15 transactions; right?611:31:16 MS. CONCANNON: Objection;711:31:16 mischaracterizes the document.811:31:21 A. It really goes to, you know,911:31:24 delaying the process, in that we were1011:31:26 forced to chase those down from a variety1111:31:28 of sources as opposed to having them, you1211:31:30 know, delivered in a, you know, complete1311:31:32 file the first time around.1411:31:34 Q. Is it the problem that you1511:31:36 couldn't complete the due diligence until1611:31:38 you had the missing documents?1711:31:40 MS. CONCANNON: Objection.1811:31:41 A. As I generally recollect on1911:31:43 full spectrum, it had to do with2011:31:47 appraisals, for instance, that were2111:31:49 imaged, for reasons I can't recall2211:31:52 specifically, imaged in a separate2311:31:54 database. And so what we were asking,2411:31:57 knowing that that was how full spectrum2511:32:01 imaged their documentation heading into

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1 MICHAEL W. SCHLOESSMANN211:32:05 these deals, we knew we would have to311:32:07 tap, you know, multiple sources to get411:32:09 complete files.511:32:11 So I think it was, if not611:32:13 universally the case on the full spectrum711:32:16 loans, on a significant, you know, part811:32:18 of those loans that we'd be reviewing911:32:19 that we wouldn't have appraisals and1011:32:22 perhaps other documents without going to1111:32:23 other sources.1211:32:24 Q. When you said you were1311:32:25 concerned about having to cut corners1411:32:27 because you don't get complete files,1511:32:30 what did you mean by that?1611:32:31 A. Well, my sense is that I was1711:32:35 trying to impress upon secondary1811:32:37 marketing, you know, the need for action.1911:32:40 And in terms of referencing cutting2011:32:44 corners, my sense is that we were2111:32:46 concerned about delays and having to push2211:32:50 our due diligence review into a2311:32:53 post-closing phase, as we did on a number2411:32:55 of these transactions, given the2511:32:57 limitation in timing, as well as, you

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1 MICHAEL W. SCHLOESSMANN211:33:00 know, some of the doc challenges.311:33:01 Q. How does cutting corners411:33:03 relate to delay? Isn't cutting corners511:33:07 skipping steps?611:33:08 MS. CONCANNON: Objection;711:33:09 mischaracterizes the document and811:33:10 prior testimony.911:33:12 A. As I said, I don't know if I1011:33:14 was referring to anything in particular.1111:33:16 I was, you know, trying to perhaps being1211:33:19 a little provocative because I wanted --1311:33:22 these were issues we had challenges with1411:33:26 secondary marketing, the rest of the1511:33:28 mortgage company, that we wanted, you1611:33:30 know, perhaps greater level of1711:33:32 responsiveness in terms of helping us do1811:33:35 our jobs.1911:33:36 Q. When you're referring to the2011:33:37 mortgage company, you're referring to2111:33:38 CHL?2211:33:38 A. CHL, yes.2311:33:40 Q. Okay. Let me show you a2411:34:10 document previously marked as Exhibit2511:34:12 162.

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1 MICHAEL W. SCHLOESSMANN211:35:13 A. Okay.311:35:13 Q. Okay. This is another411:35:15 exchange about missing documents from511:35:16 Countrywide Home Loans; right?611:35:18 MS. CONCANNON: Objection.711:35:19 A. Yes, it appears to be.811:35:21 Q. And this time it does concern911:35:22 the HELOCs and the seconds; right?1011:35:26 MS. CONCANNON: Objection.1111:35:26 A. Yes, the correspondence1211:35:29 references 2006-G.1311:35:31 Q. Okay. And this is an email1411:35:34 exchange between Tonya LyBrand and1511:35:37 yourself, among others, in September1611:35:39 2006?1711:35:40 A. Yes.1811:35:40 Q. She states to you1911:35:42 "historically, our HELOC deals and2011:35:45 seconds have been our biggest challenge2111:35:47 in terms of procuring missing documents."2211:35:51 As of that point in time, was2311:35:52 that correct?2411:35:53 MS. CONCANNON: Objection.2511:35:54 A. I don't have reason to believe

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1 MICHAEL W. SCHLOESSMANN211:35:56 it wasn't.311:35:57 Q. Okay. And she states "we411:36:00 always seem to run against the clock to511:36:02 get things cleared and meet deadline611:36:05 expectations from the desk, still leaving711:36:07 a long list of loans that can't be811:36:09 completed for review. We need to discuss911:36:11 because I don't have a resolution to1011:36:14 propose."1111:36:15 Do you recall discussions with1211:36:16 Ms. LyBrand about this problem of missing1311:36:19 data and having to close deals where the1411:36:23 long list of loans can't be completed?1511:36:25 MS. CONCANNON: Objection;1611:36:26 mischaracterizes the document.1711:36:28 A. I certainly have general1811:36:30 recollection of this being an ongoing1911:36:33 topic of discussion, you know, with Tonya2011:36:37 and others in the due diligence group,2111:36:40 regarding, I think you said missing data,2211:36:42 regarding missing documentation, as is2311:36:46 suggested here.2411:36:53 Q. Were you able to find out why2511:36:54 there was a problem in getting the

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1 MICHAEL W. SCHLOESSMANN211:36:56 documents from CHL for these HELOC and311:36:59 second deals?411:37:00 MS. CONCANNON: Objection.511:37:01 A. Certainly so some of the611:37:04 reasons that were explained to us and711:37:07 that we came to know as second liens were811:37:11 often done in conjunction with a first911:37:13 lien. And so you had, you didn't1011:37:15 necessarily have duplicative1111:37:17 documentation. These were simultaneous1211:37:19 first and second liens that were done1311:37:22 together. And so oftentimes some of the1411:37:25 missing documentation existed in the1511:37:27 first lien file.1611:37:30 There were issues, as I1711:37:31 described yesterday, of inherent trailing1811:37:33 documents, like the HUD1, that would --1911:37:36 weren't required to be completed by the2011:37:38 closing agent until, you know, three days2111:37:41 after closing. And so those would follow2211:37:43 and get imaged on a separate database2311:37:45 outside of the imaged files. I'm sure2411:37:47 there were a variety of other reasons2511:37:49 that explained, you know, the missing

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1 MICHAEL W. SCHLOESSMANN211:37:51 documentation. Those are two that come311:37:53 to mind.411:37:54 Q. Can you think of any other511:37:55 reasons?611:37:56 MS. CONCANNON: Objection.711:37:58 A. Other reasons, you know, could811:38:00 have been, again, other trailing911:38:02 documents, other documents that for one1011:38:07 reason or another got imaged separately,1111:38:10 or separate and apart from the1211:38:11 origination file. And that could have to1311:38:14 do with timing as well.1411:38:15 Q. What about documents that were1511:38:17 never in the application to begin with?1611:38:19 MS. CONCANNON: Objection;1711:38:22 assumes facts not in evidence.1811:38:23 A. Documentation that weren't --1911:38:25 that were never procured as part of the2011:38:27 origination?2111:38:28 Q. Yes.2211:38:29 A. I'm not sure how to answer2311:38:31 that.2411:38:31 Q. Was that also a problem, that2511:38:33 there were documents that were simply not

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1 MICHAEL W. SCHLOESSMANN211:38:35 part of the origination file that you311:38:38 wanted to see as part of your due411:38:40 diligence?511:38:40 MS. CONCANNON: Objection.611:38:41 A. I testified yesterday as to711:38:45 our ongoing experience contending with811:38:49 some of these missing document issues, in911:38:51 that when we had embarked on an effort to1011:38:56 procure the documents, that it was, in1111:39:00 the case -- in most of the cases it was a1211:39:03 matter of being able to procure the1311:39:04 document as opposed to the document never1411:39:07 having existed.1511:39:09 And so we had developed, as I1611:39:11 alluded to this body of experience, we1711:39:15 knew from having done so many of those1811:39:19 transactions, while very frustrating, we1911:39:22 knew that the missing documents were a2011:39:24 function of process and not the2111:39:27 underwriting of the loan itself. I'll2211:39:31 leave it at that.2311:39:32 Q. Are there any2411:39:36 contemporaneous -- I mean as of '06, '07,2511:39:38 any contemporaneous memoranda or reports

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Page 571

1 MICHAEL W. SCHLOESSMANN211:39:40 reflecting the conclusion you've just311:39:42 given, do you know?411:39:43 MS. CONCANNON: Objection.511:39:44 A. I don't know.611:39:44 Q. Okay. Because I haven't seen711:39:47 any, that's why I'm asking. Do you know811:39:49 whether CSC came to some kind of a911:39:52 written report saying well, we're okay1011:39:57 with missing documents from CHL because1111:40:01 we have an experience that these are just1211:40:02 process issues, not substance issues?1311:40:05 MS. CONCANNON: Objection to1411:40:05 the form of the question; calls for1511:40:07 speculation, incomplete1611:40:08 hypothetical.1711:40:09 A. I'm not aware of documents --1811:40:13 excuse me, documentation, per se, that1911:40:16 would exist. I do have specific2011:40:18 recollection around having conversations2111:40:21 that here is our thought process, I think2211:40:23 I walked you through that yesterday,2311:40:24 where we had due diligence that we needed2411:40:27 to complete and we were missing documents2511:40:32 and we would, you know, proceed to

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1 MICHAEL W. SCHLOESSMANN211:40:34 attempt to identify a subset of those to311:40:36 make sure that the documents in fact411:40:38 existed and they didn't change or alter511:40:40 in any material respect the ultimate611:40:42 underwriting decision.711:40:44 And it was those instances, I811:40:46 would imagine, that led to this, you911:40:48 know, this body of experience and the1011:40:50 conclusion we drew from that experience1111:40:52 about the documentation issue not being a1211:40:56 problem insofar as the docs never have1311:40:58 been obtained as part of the1411:41:00 underwriting, but simply a post-closing,1511:41:02 you know, process challenge.1611:41:04 Q. Wasn't there also pressure1711:41:05 from Countrywide Home Loans and for that1811:41:08 matter CFC to close the deals that were1911:41:11 built on CHL loans?2011:41:13 MS. CONCANNON: Objection;2111:41:14 vague, overbroad.2211:41:16 A. I think, as I alluded to2311:41:19 before, I think it's a fair and general2411:41:22 characterization to say that at the2511:41:24 period of time in question, there were --

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1 MICHAEL W. SCHLOESSMANN211:41:27 there was unprecedented, yeah, loan311:41:30 volume at Countrywide and every other411:41:31 originator.511:41:32 And yes, within my group at611:41:34 least there was a significant amount of,711:41:37 you know, pressure in terms of just the811:41:39 time demands of the job and the time911:41:42 frames and the sheer volume of work that1011:41:44 we were all tasked with doing.1111:41:47 Q. On the second page of this1211:41:50 document, there is a statement by, it1311:41:56 looks like Ms. LyBrand to you, saying --1411:42:03 sorry. Is that to you? Are you1511:42:07 forwarding it to Darren Bigby and Garrett1611:00:31 Galati, is this you saying our doc1711:42:17 exceptions are extremely high?1811:42:19 A. It looks as though that's my1911:42:21 email.2011:42:21 Q. And say "our doc exceptions2111:42:24 are extremely high on this HELOC deal and2211:42:26 likely others as well, which renders the2311:42:28 comfort letter process insignificant.2411:42:30 i.e. there is no value having the2511:42:32 accountants verify the integrity of our

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1 MICHAEL W. SCHLOESSMANN211:42:35 data if they're unable to determine a311:42:38 good chunk of it."411:42:40 What did you mean by that511:42:41 statement?611:42:43 A. Beyond what I just described?711:42:49 I'm not trying to be flip here.811:42:50 Q. You meant what you said;911:42:51 right?1011:42:52 MS. CONCANNON: Objection.1111:42:54 Q. The question is, you did mean1211:42:55 what you said; right?1311:42:56 MS. CONCANNON: Objection.1411:43:01 A. I would like to think so, yes.1511:43:09 MR. SELENDY: Let's mark as1611:43:11 584, CWMBIA 8743084 through 3091.1711:43:11 (Plaintiff's Exhibit 584 for1811:43:29 identification, minutes of the1911:43:30 meeting of the credit risk2011:43:31 management committee, September 28,2111:43:44 2006, production numbers CWMBIA2211:43:20 8743084 through CWMBIA 8743091.)2311:43:48 Q. This is entitled "minutes of2411:43:50 the meeting of the credit risk management2511:43:53 committee of Countrywide Financial

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Page 575

1 MICHAEL W. SCHLOESSMANN211:43:54 Corporation, dated September 28, 2006,"311:43:58 and you are listed as attending.411:44:02 And just take a moment to511:44:04 review the document, I'll ask you a few611:44:06 specific questions.711:44:40 A. Is there a part of this you811:44:41 want me to focus on?911:44:42 Q. Yeah, I'll just ask you about1011:44:44 the second page, actually, the top of the1111:44:48 second page.1211:44:48 My first question, though, is1311:44:50 whether in fact you were present at this1411:44:53 quarterly meeting of the credit risk1511:44:56 management committee?1611:44:59 A. I don't have specific1711:45:02 recollection of this meeting. There was1811:45:05 a time where I sat on this and the fact1911:45:08 that they've noted me as present, I don't2011:45:11 have reason to question that.2111:45:11 Q. Do you know whether you ever2211:45:12 reviewed the minutes of the meeting?2311:45:14 A. I don't recall.2411:45:15 Q. Okay. My question really is,2511:45:19 at the top of the page, with reference to

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1 MICHAEL W. SCHLOESSMANN211:45:22 the statements made by David Walker.311:45:27 What was his responsibility as of this411:45:29 point in time?511:45:30 A. All I remember is Dave had an611:45:34 executive position at Countrywide Bank.711:45:37 And I can't remember specifically what it811:45:39 was.911:45:40 Q. It states that "Mr. Walker1011:45:44 next presented the actual versus1111:45:45 predicted performance for pay options."1211:45:48 This is at the top of page 2. "Reporting1311:45:51 that each vintage's delinquency rate had1411:45:54 been progressively higher than the1511:45:57 previous due to more lenient underwriting1611:45:59 guidelines."1711:46:00 Do you recall any discussion1811:46:02 about delinquency rates rising due to1911:46:05 more lenient underwriting guidelines?2011:46:08 MS. CONCANNON: Objection;2111:46:09 vague, overbroad, mischaracterizes2211:46:10 the document.2311:46:12 A. I don't recall specifically.2411:46:16 Q. Do you recall that being a2511:46:19 general issue, that delinquency rates

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1 MICHAEL W. SCHLOESSMANN211:46:20 were rising as more lenient guidelines311:46:23 were adopted for underwriting of loans?411:46:25 MS. CONCANNON: Objection.511:46:27 A. Well, separating the two, I611:46:30 have general recollection, obviously, of711:46:32 what was unfolding, whether it was811:46:35 exactly at this time or not, I don't911:46:37 know. But there obviously was a point in1011:46:39 time where, you know, delinquency rates1111:46:41 across a number of, you know, product1211:46:44 types were on the rise.1311:46:47 Q. And do you recall any1411:46:48 assessment of whether that increase was a1511:46:51 function in part of more lenient1611:46:54 underwriting guidelines?1711:46:55 MS. CONCANNON: Objection.1811:46:55 Q. Loan underwriting guidelines?1911:46:57 MS. CONCANNON: Objection;2011:46:58 vague and overbroad.2111:46:59 A. I don't recall specifically.2211:47:00 I mean, again, general understanding of,2311:47:04 you know, collateral performance is it's2411:47:07 dependent on the, you know, program2511:47:10 parameters. I mean, that was a, and

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1 MICHAEL W. SCHLOESSMANN211:47:13 still remains a driver of collateral311:47:15 performance.411:47:17 Essentially, you know, the511:47:18 loan attributes that, you know, a loan611:47:21 possesses is going to impact its711:47:23 performance. And so as credit was811:47:27 liberalized, as investors were willing to911:47:29 buy, you know, higher LTV, lower FICO1011:47:32 loans, right, that buy box increased and1111:47:35 that, you know, I think it's generally1211:47:37 understood, as we talked about earlier,1311:47:39 that, you know, there are loan risk1411:47:41 attributes that can influence the1511:47:43 performance of the loan.1611:47:45 Q. You would expect to see a1711:47:47 higher level of delinquencies if you have1811:47:49 weaker guidelines, in general?1911:47:51 MS. CONCANNON: Objection;2011:47:52 asked and answered,2111:47:52 mischaracterizes testimony, calls2211:47:54 for speculation.2311:47:54 Q. Isn't that fair?2411:47:55 MS. CONCANNON: Objection.2511:47:56 A. Weaker is not my term.

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Page 579

1 MICHAEL W. SCHLOESSMANN211:47:58 Q. More lenient, excuse me. If311:48:01 you have more lenient guidelines you411:48:03 would expect to see --511:48:04 MS. CONCANNON: Objection.611:48:05 A. Specifically there are loan711:48:06 attributes that are generally viewed as811:48:09 impacting our influencing performance;911:48:14 risk of default, prepays, et cetera.1011:48:16 Loan to value ratios, FICOs, doc types1111:48:21 and assorted other variables, right, are1211:48:24 generally understood to impact1311:48:25 performance.1411:48:26 So as you increase the level1511:48:30 of risk by virtue of the loan attributes,1611:48:33 then yes, you would expect that1711:48:37 everybody's models assume that that would1811:48:40 have an impact on performance.1911:48:41 Q. And that could happen either2011:48:43 from adopting more lenient -- that could2111:48:46 happen from adopting more lenient2211:48:49 underwriting guidelines, lenient2311:48:51 specifically meaning broader tolerances2411:48:53 with respect to CLTV or FICO score or the2511:48:56 like; right?

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1 MICHAEL W. SCHLOESSMANN211:48:57 MS. CONCANNON: Objection.311:48:57 A. Yes.411:48:57 Q. It could also happen if the511:48:59 loan originator simply disregarded the611:49:02 underwriting guidelines; right?711:49:03 MS. CONCANNON: Objection.811:49:04 Q. Either way you would have a911:49:06 situation where CLTVs were higher or FICO1011:49:09 scores were lower and so forth?1111:49:11 MS. CONCANNON: Objection;1211:49:11 calls for speculation,1311:49:20 argumentative.1411:49:21 A. In both cases, whether it was1511:49:23 the expansion of underwriting guidelines1611:49:25 or, to use your characterization,1711:49:28 disregarding guidelines, it really, in my1811:49:32 mind, goes to the loan attributes1911:49:34 themselves. Guidelines aside, if you2011:49:37 look at the principal, what is generally2111:49:40 understood to be the principal drivers of2211:49:41 performance, again, LTV, FICOs, doc type,2311:49:45 occupancy, then the fact that you were2411:49:50 doing loans with higher LTVs, lower2511:49:55 FICOs, reduced documentation, would have

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1 MICHAEL W. SCHLOESSMANN211:49:57 a bearing on performance. And again,311:50:00 that is just generally understood by the411:50:02 marketplace.511:50:03 Anybody who had a risk based611:50:05 model which the monolines all had, we711:50:08 had, any other market participant had,811:50:11 would have had to one degree or another911:50:14 those factors built into how they1011:50:16 evaluated risk.1111:50:18 Q. Okay.1211:50:26 MR. SELENDY: Let's mark as1311:50:27 585, CWMBIA 10828824 through 8826.1411:50:34 (Plaintiff's Exhibit 585 for1511:50:40 identification, document entitled1611:50:40 "notes document ID1711:50:40 FF860549D092CE3385257693006E89E8,"1811:50:28 production numbers CWMBIA 108288241911:50:33 through CWMBIA 10828826.)2011:52:10 A. Okay.2111:52:11 Q. Okay. This document reflects2211:52:12 your comments in late September 2006 on a2311:52:17 proposed Bank of America/Countrywide2411:52:21 repurchase process; correct?2511:52:22 MS. CONCANNON: Objection.

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1 MICHAEL W. SCHLOESSMANN211:52:23 A. It appears to.311:52:24 Q. And this is obviously before411:52:26 the merger between Bank of America and511:52:28 Countrywide; right?611:52:30 MS. CONCANNON: Objection;711:52:31 irrelevant.811:52:32 A. Certainly before the merger911:52:34 and specifically having to do with --1011:52:37 nothing to do with that, but rather just1111:52:40 our ongoing business relationship with1211:52:43 Bank of America in terms of loan packages1311:52:46 that we sold them.1411:52:52 Q. And your comment on the1511:52:55 proposal, in the first line you state1611:52:57 "Ron, Cindy, this proposal seems entirely1711:52:59 reasonable."1811:53:00 Do you see that? Is that you?1911:53:03 A. It's hard for me to decipher2011:53:06 this kind of format. But it seems, it2111:53:13 seems like that came from me, just from2211:53:15 what I'm looking at here.2311:53:16 Q. Okay. And in the proposal it2411:53:17 states that --2511:53:18 A. Let me step back, because I'm

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Page 583

1 MICHAEL W. SCHLOESSMANN211:53:20 actually confused by the message after,311:53:26 that Rod, Cindy reference.411:53:28 Q. Okay.511:53:29 A. It says forwarded by, and then611:53:31 it has a to. To be honest with you, I'm711:53:41 not sure if that's me or not.811:53:42 Q. It says 1, alarm, 2911:53:44 appointment type. I actually don't know1011:53:46 this format either, this is how it was1111:53:48 produced to us.1211:53:49 I notice in the section I1311:53:52 read, right after those four lines, it1411:53:55 says "forwarded by Michael Schloessmann."1511:53:59 And then below that there appears to be1611:54:02 an email that's sent to you from Michael1711:54:07 Sorensen. Is that right?1811:54:09 A. Yeah. I mean, as I look at1911:54:11 this more carefully, that appears to be2011:54:14 the case. The bottom of the page appears2111:54:18 to be Mike Sorensen's note. The top of2211:54:21 the page would appear, the first four2311:54:23 lines would appear to be my note.2411:54:25 Q. Okay. And so then the2511:54:27 proposal you were commenting on was the

Page 584

1 MICHAEL W. SCHLOESSMANN211:54:29 attachment, the next page, 8826; correct?311:54:35 A. That's what it appears, yes.411:54:37 Q. In that proposal, at line 5,511:54:39 it states "CWHL should respond to all611:54:44 initial repurchase requests within 30 to711:54:46 45 days."811:54:48 Just as a general matter, did911:54:50 you believe that was a reasonable time1011:54:52 period for Countrywide Home Loans to1111:54:55 respond to repurchase requests?1211:54:57 MS. CONCANNON: Objection.1311:54:58 A. I think this should be viewed1411:55:01 within the context that it is. And that1511:55:05 is, we had, Bank of America was a very1611:55:09 large buyer of loans. We had encountered1711:55:13 challenges and disagreements in the1811:55:17 repurchase process. And as a condition1911:55:18 to doing future business with us, they2011:55:21 insisted that we come up with a protocol2111:55:23 that was satisfactory to them.2211:55:30 So in an effort to facilitate2311:55:32 that business relationship, this2411:55:33 proposal, I think, was initially produced2511:55:36 by them and it was our job or

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1 MICHAEL W. SCHLOESSMANN211:55:38 responsibility to do -- to get credit311:55:41 risk management's, you know, buy in or at411:55:43 least have, if we had objections to any511:55:45 of it, comment and suggest revisions.611:55:49 But that was, you know, my711:55:51 view within that context, yes.811:55:52 Q. Is it a more aggressive time911:55:55 period than was typical for Countrywide1011:56:00 Home Loans to respond to repurchase1111:56:01 requests?1211:56:02 MS. CONCANNON: Objection;1311:56:02 lacks foundation, vague as to time1411:56:04 period.1511:56:05 A. I didn't have responsibility1611:56:06 for that area. I don't know exactly what1711:56:10 their normal turn around times were.1811:56:12 Q. Okay.1911:56:17 MR. SELENDY: Let's show you a2011:56:18 document previously -- well, it2111:56:20 hasn't been marked in our case.2211:56:22 Let's mark this as Exhibit 586,2311:56:26 CWMBIA-G81387 through 98.2411:56:33 (Plaintiff's Exhibit 586 for2511:56:38 identification, document entitled

Page 586

1 MICHAEL W. SCHLOESSMANN211:56:38 "enterprise wide asset311:56:39 securitization," dated September411:56:41 29, 2006, production numbers511:56:28 CWMBIA-G81387 through611:56:32 CWMBIA-G81398.)711:57:40 A. Do you want to start asking811:57:43 questions and I'll know what to zero in911:57:45 on.1011:57:46 Q. You've seen this document1111:57:47 before; right?1211:57:47 A. I believe I have, yes.1311:57:48 Q. And what is the document?1411:57:49 A. It's an internal audit review1511:57:54 of part of our business, which includes1611:57:57 my area, or at least part of my area.1711:58:00 Q. Okay. So when it says1811:58:02 "enterprise wide asset securitization,"1911:58:04 that is securitization across2011:58:06 Countrywide?2111:58:07 MS. CONCANNON: Objection.2211:58:09 Q. Is that right?2311:58:10 A. Yes.2411:58:10 Q. So it includes, obviously,2511:58:12 certain of the activities of Countrywide

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1 MICHAEL W. SCHLOESSMANN211:58:14 Securities Corporation?311:58:14 A. Yes.411:58:14 Q. If you could turn to page 6 of511:58:21 that report. The first finding states611:58:30 "the executive summary within the CSC711:58:34 deal file does not adequately document811:58:37 and represent the results of underwriting911:58:40 due diligence or conclusions of CSC1011:58:44 management."1111:58:44 Do you see that?1211:58:46 A. Yes, I do.1311:58:46 Q. And we've reviewed a few of1411:58:48 those executive summaries in the course1511:58:50 of this deposition; right?1611:58:51 MS. CONCANNON: Objection.1711:58:52 A. Yes.1811:58:52 Q. Those are summaries of the1911:58:54 third party due diligence analysis;2011:58:57 right?2111:58:57 MS. CONCANNON: Objection to2211:58:58 form.2311:58:58 Q. Isn't that right?2411:59:00 MS. CONCANNON: Objection.2511:59:00 A. Summaries of Countrywide

Page 588

1 MICHAEL W. SCHLOESSMANN211:59:04 Securities' due diligence review, which311:59:06 included using third party contractors to411:59:08 underwrite the files, yes.511:59:10 Q. Okay. And would you agree611:59:12 with internal audit's statement that711:59:14 there are four aspects to the due811:59:15 diligence process, credit review,911:59:18 compliance review, an agreed upon1011:59:21 procedures review and a property review,1111:59:26 or would you put it differently?1211:59:27 MS. CONCANNON: Objection;1311:59:28 compound.1411:59:29 A. You think that's, you know, it1511:59:31 may not be exactly right. To the extent,1611:59:34 for instance, we did or did not do1711:59:36 property review. But I think in general1811:59:38 that probably suffices.1911:59:40 Q. Okay. And the next paragraph,2011:59:42 it states that "in the credit, compliance2111:59:47 and property reviews, the external vendor2211:59:49 contracted to perform the review is2311:59:51 responsible for assigning a saleability2411:59:53 code, which in general is a conclusion if2511:59:59 the loan meets the deal documentation

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1 MICHAEL W. SCHLOESSMANN212:00:01 requirements."312:00:01 Do you see that?412:00:03 A. Yes.512:00:03 Q. What is a saleability code?612:00:06 A. I believe what is referred to712:00:11 is something I talked about yesterday,812:00:15 and that is when the underwriters, the912:00:18 third party underwriting firm underwrote1012:00:21 or reunderwrote the loans, they would1112:00:23 make a determination as to whether the1212:00:24 loans conformed to guidelines, and if1312:00:29 they were outside of guidelines, whether1412:00:30 there were compensating factors present.1512:00:32 So there were codes that corresponded to1612:00:35 each of those scenarios.1712:00:38 Q. Okay. In the next sentence,1812:00:42 they state "however, there is no1912:00:43 documentation or analysis supporting the2012:00:46 acceptance of loans with identified2112:00:48 concerns, in which the vendor has2212:00:51 concluded the loan is in. Even though2312:00:54 the concerns noted may be similar to2412:00:56 loans that are identified as out."2512:00:58 Do you understand the

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1 MICHAEL W. SCHLOESSMANN212:00:59 criticism that internal audit is raising312:01:02 here?412:01:02 MS. CONCANNON: Objection.512:01:03 A. I have a specific recollection612:01:06 about an issue they had with our process.712:01:13 And it had to do with the lack of812:01:16 documentation or what they thought was912:01:18 the lack of documentation or documenting1012:01:21 our thought process as to, you know,1112:01:24 which loans -- how we analyzed the1212:01:26 results from our third party due1312:01:29 diligence vendor and made the ultimate1412:01:32 decision or assessment on that loan.1512:01:36 They believed that the1612:01:37 documentation was lacking. I think we,1712:01:39 or as I recall, there was a lot of back1812:01:42 and forth with audit around this issue1912:01:45 because of the very iterative nature of,2012:01:49 you know, the process. That there was a2112:01:51 process by which the results were2212:01:54 reviewed and vetted and determinations2312:01:57 made. And I think our team felt like to2412:02:02 have to document each and every part of2512:02:04 that, that thought process, that

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Page 591

1 MICHAEL W. SCHLOESSMANN212:02:07 iterative process, was onerous and312:02:09 unnecessary. Even if we ended up, you412:02:12 know, agreeing to some management plan.512:02:15 That's my recollection around612:02:16 this issue.712:02:20 Q. And you did in fact agree to812:02:22 provide a management action plan on912:02:24 finding 1; right?1012:02:26 MS. CONCANNON: Objection.1112:02:27 A. Let me see exactly what we1212:02:29 did.1312:02:29 By the way, do we know whether1412:02:31 this is the final report or a draft? I'm1512:02:36 not sure.1612:02:38 Q. You can't tell from looking at1712:02:40 it? This is how it was produced to us.1812:02:44 I notice certain parts of this have been1912:02:47 redacted. We don't know what was taken2012:02:50 out in the redactions.2112:02:53 A. So I do see the reference to,2212:02:56 you know, for providing a management, or2312:03:04 me being -- I don't know if it I'm2412:03:07 agreeing to it. But it just says Mike2512:03:09 Schloessmann will provide management

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1 MICHAEL W. SCHLOESSMANN212:03:11 action plan.312:03:11 Q. Do you recall putting together412:03:12 an action plan on this issue of512:03:14 documenting the basis for including loans612:03:18 that had identified concerns?712:03:20 A. I don't recall, nor would I812:03:23 have put that together. That would have912:03:26 been under Debbie's area of1012:03:28 responsibility. She and her team would1112:03:30 have been charged with responding1212:03:32 appropriately to investor -- excuse me,1312:03:35 internal audit's finding.1412:03:37 MR. SELENDY: We've been asked1512:03:38 to change the tape. I would like1612:03:40 to just continue on.1712:03:44 THE VIDEOGRAPHER: We're going1812:03:46 off the record at 12:03 p.m., this1912:03:49 marks the end of tape No. 8.2012:03:52 (A recess was taken.)2112:08:02 THE VIDEOGRAPHER: We are back2212:08:06 on the record at 12:08 p.m., this2312:08:09 marks the beginning of tape No. 9.2412:08:11 BY MR. SELENDY:2512:08:12 Q. Do you recall ever expressing

Page 593

1 MICHAEL W. SCHLOESSMANN212:08:13 any disagreement with the finding made by312:08:16 internal audit as to the lack of adequate412:08:22 documentation in the executive summary?512:08:24 MS. CONCANNON: Objection;612:08:24 vague, overbroad.712:08:26 Q. You know, at the time period812:08:28 involved here.912:08:29 A. I do, as I testified1012:08:33 previously, I do recall having1112:08:34 conversations. What I don't recall1212:08:36 specifically is whether it was simply1312:08:38 within my group, you know, my interaction1412:08:43 directly with internal audit. But in my1512:08:46 recollection, whether it was me or1612:08:48 someone in my group, we clearly expressed1712:08:51 the -- an issue with what they were1812:08:55 asking for, or at least expressed, you1912:08:58 know, the challenges in documenting every2012:09:00 single step of the thought process.2112:09:03 Q. Beyond expressing that it's a2212:09:06 challenge to document it, was there a2312:09:10 specific disagreement with the factual2412:09:12 finding that the documentation wasn't2512:09:14 adequate?

Page 594

1 MICHAEL W. SCHLOESSMANN212:09:14 MS. CONCANNON: Objection;312:09:16 mischaracterizes prior testimony.412:09:18 A. No, I think we -- well,512:09:24 internal audit was suggesting that we did612:09:26 not document every aspect of the process712:09:30 by which we considered the results from812:09:34 the third party and we ultimately made912:09:36 our assessment. And so as a factual1012:09:39 matter, putting aside, you know, whether1112:09:41 we thought that was, you know, a business1212:09:44 necessity or even desirable, I think that1312:09:47 was probably correct.1412:09:51 Q. It was correct that the1512:09:52 documentation wasn't completed as1612:09:56 internal audit believed it should be?1712:09:57 MS. CONCANNON: Objection;1812:09:58 asked and answered,1912:09:58 mischaracterizes prior testimony.2012:10:01 A. Internal audit, by virtue of2112:10:06 this audit report, to my mind is clearly2212:10:10 suggesting that the documentation around2312:10:14 that process wasn't as robust as they2412:10:17 would like to see. Or felt it should be.2512:10:21 Q. Do you know how internal audit

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Page 595

1 MICHAEL W. SCHLOESSMANN212:10:23 reached that finding, the process by312:10:27 which they reached the finding?412:10:29 MS. CONCANNON: Objection.512:10:29 A. Not specifically.612:10:31 Q. Do you have a general712:10:32 understanding of how internal audit812:10:33 reached their factual findings as to,912:10:37 let's focus on the executive summaries?1012:10:39 A. Yes.1112:10:40 Q. Okay.1212:10:41 A. They -- well, let's talk more1312:10:44 generally if we could, because I'm not1412:10:46 sure I have a specific, you know,1512:10:48 recollection as to how they handled this1612:10:50 particular issue, because I don't.1712:10:54 But in general when they1812:10:55 performed audits, they would engage with1912:10:57 the business unit, they would ask, right,2012:11:00 they would sit down, they would interview2112:11:02 those involved in the various processes2212:11:04 that they were going to be auditing.2312:11:07 And, you know, with an eye towards2412:11:09 developing an understanding of how it2512:11:10 worked so that they could, you know,

Page 596

1 MICHAEL W. SCHLOESSMANN212:11:12 offer their assessment on, you know, the312:11:16 adequacy of that process from an audit412:11:19 standpoint.512:11:20 Q. Would you characterize the612:11:21 internal audit review process as a robust712:11:24 one?812:11:25 MS. CONCANNON: Objection.912:11:26 A. As a robust one?1012:11:30 Q. Was it thorough?1112:11:31 MS. CONCANNON: Objection.1212:11:32 A. What I recollect, and I always1312:11:36 personally welcome these audits as a1412:11:38 means of improving the, you know, the1512:11:42 activities of our group. The sort of one1612:11:46 issue we typically had with internal1712:11:49 audit is because they were not embedded1812:11:52 in the line of business, they would come1912:11:54 in, they would do a review over a2012:11:56 relatively short span of time, was, you2112:11:58 know, whether or not they could2212:12:00 sufficiently immerse themselves so as to2312:12:03 develop a real understanding for the2412:12:04 business in order to be able to make2512:12:06 assessments along the lines of what they

Page 597

1 MICHAEL W. SCHLOESSMANN212:12:08 did.312:12:09 And that I always viewed as,412:12:11 you know, certainly not a fatal flaw, but512:12:14 an inherent shortcoming of the internal612:12:17 audit process, at least as existed at712:12:19 Countrywide.812:12:20 Q. Isn't that true of any audit912:12:21 process, the auditors will come in, they1012:12:24 won't be embedded in the business,1112:12:25 they'll come in from outside, take the1212:12:27 time necessary to assess whatever they're1312:12:33 there to assess, and then reach their1412:12:35 conclusions? Isn't that inherent in an1512:12:37 audit function?1612:12:38 MS. CONCANNON: Objection.1712:12:38 A. I can't speak to -- look, I1812:12:40 have limited experience, I have the1912:12:42 experience I've had with Countrywide.2012:12:46 And I will simply say that that was a2112:12:49 challenge that we felt. And again, not a2212:12:51 fatal one, it did not mean to me that2312:12:53 they had nothing useful to offer. I2412:12:56 always, as I said, looked at it as an2512:12:58 opportunity to improve our process.

Page 598

1 MICHAEL W. SCHLOESSMANN212:13:01 Q. And in fact you did agree to312:13:03 adopt an action plan in response to the412:13:06 finding number 1; right?512:13:08 MS. CONCANNON: Objection;612:13:09 asked and answered.712:13:10 A. It says that I will provide812:13:11 one. So, you know, one could infer that912:13:17 I agreed to do so. And I don't have any1012:13:19 reason to question that.1112:13:20 Q. If you turn to page 4, there1212:13:22 is a finding at the bottom of the page.1312:13:27 Page 8, I'm sorry. Finding number 4 at1412:13:30 the bottom of the page.1512:13:31 A. Okay.1612:13:31 Q. It states "current staffing1712:13:34 levels within SMD are inadequate given1812:13:37 the high volume of securitizations1912:13:39 executed on a monthly and quarterly2012:13:42 basis."2112:13:43 First, what is SMD?2212:13:45 A. I believe that's secondary2312:13:46 marketing division.2412:13:48 Q. Okay. Do you recall any2512:13:50 discussions about the secondary marketing

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Page 599

1 MICHAEL W. SCHLOESSMANN212:13:53 division having inadequate staff to312:13:55 handle all of the requirements for the412:13:57 high volume of securitizations?512:14:00 MS. CONCANNON: Objection.612:14:00 A. I don't specifically, nor712:14:02 would that have been under my scope of812:14:04 responsibilities. So it's not an issue912:14:06 that they would have taken up with me.1012:14:08 Q. Okay. Then if you'll turn to1112:14:11 page 10, finding number 6 states1212:14:15 "policies and procedures for the SMD and1312:14:19 CSC asset securitization process have not1412:14:22 been updated to reflect current1512:14:25 practices."1612:14:25 Do you see that?1712:14:26 A. Yes.1812:14:26 Q. And then for CSC specifically,1912:14:29 it states that "a current approved2012:14:33 comprehensive policy and procedures2112:14:34 manual that defines responsibilities,2212:14:37 requirements, operational procedures and2312:14:39 oversight for all aspects of the CSC2412:14:42 asset securitization process is not in2512:14:44 place."

Page 600

1 MICHAEL W. SCHLOESSMANN212:14:44 Do you see that?312:14:46 A. Yes.412:14:46 Q. And the recommendation, if you512:14:50 turn to the next page, recommendation612:14:51 number 6, is that "management should712:14:54 establish complete policies and812:14:55 procedures governing all aspects of the912:14:59 securitization process."1012:14:59 Do you see that?1112:15:02 A. Yes.1212:15:02 Q. And the response of CSC was,1312:15:06 you specifically agreed with this1412:15:09 recommendation; correct?1512:15:10 MS. CONCANNON: Objection.1612:15:11 A. I do see that reference.1712:15:12 Q. And did you in fact agree with1812:15:14 the recommendation?1912:15:15 A. I don't have reason to believe2012:15:16 I didn't if it indicates my agreement.2112:15:18 Q. Do you know whether CSC did2212:15:20 adopt a comprehensive policy and2312:15:22 procedures manual with respect to the2412:15:25 securitization process?2512:15:27 A. My general understanding was

Page 601

1 MICHAEL W. SCHLOESSMANN212:15:30 or is that we, you know, the whole notion312:15:33 of documenting our policies and412:15:37 procedures was an evolving one. So it512:15:39 was -- when I sort of think back in612:15:42 general terms about audit findings, it712:15:45 was, you know, probably, you know, more812:15:48 than any substantive defect, I think the912:15:51 thing that I recall being cited more1012:15:53 often than not is just, not that we1112:15:56 weren't doing what we were supposed to1212:15:57 do, it's just that we had not, you know,1312:15:59 documented, you know, as thoroughly as1412:16:02 investor -- excuse me, internal audit1512:16:03 thought we should, you know, the process.1612:16:06 So that was the case here. I1712:16:08 was a proponent of, and very supportive1812:16:10 of having written policies and1912:16:13 procedures, it was an evolving process.2012:16:15 It was one in which we're balancing the2112:16:17 work load and also trying to devote the2212:16:19 necessary time to, you know, to do what2312:16:22 is, you know, can be a pretty labor2412:16:25 intensive undertaking.2512:16:31 MR. SELENDY: Let's mark as

Page 602

1 MICHAEL W. SCHLOESSMANN212:16:32 Exhibit 587, CWMBIA 11053508312:16:38 through 3512.412:16:40 (Plaintiff's Exhibit 587 for512:16:43 identification, email dated612:16:45 September 29, 2006, production712:16:34 numbers CWMBIA 11053508 through812:16:34 CWMBIA 11053512.)912:18:48 A. I haven't read carefully page1012:18:50 3, but if it's okay I'll wait for you to1112:18:53 question.1212:18:53 Q. Okay. This reflects a back1312:18:55 and forth exchange between yourself and1412:18:58 internal audit in connection with CSC's1512:19:00 response to the findings of internal1612:19:05 audit that we just discussed; correct?1712:19:07 MS. CONCANNON: Objection.1812:19:07 A. Yes, I believe so.1912:19:08 Q. Okay. And you notice -- by2012:19:12 the way, Derrek Michelson, what was his2112:19:16 function within internal audit?2212:19:17 A. I believe he worked, I'm not2312:19:19 sure, but I believe he worked on Paul2412:19:22 Abate's team in internal audit, and he2512:19:27 was somebody we would have interacted

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Page 603

1 MICHAEL W. SCHLOESSMANN212:19:28 with in the course of their audit or312:19:31 audits.412:19:31 Q. Was Paul Abate the senior512:19:35 auditor there?612:19:35 A. I don't know if he was the712:19:37 senior most manager, I believe Derrek was812:19:39 on his team, although I'm not sure.912:19:41 Q. Do you notice Mr. Michelson1012:19:43 makes the statement, "our general point1112:19:45 is this, should a third party ever review1212:19:48 the due diligence results, we certainly1312:19:50 would not want them to get the idea that1412:19:52 absolutely no consideration is being1512:19:53 given to the results because I do not1612:19:55 believe that to be the case. However,1712:19:57 based on the level of documentation1812:19:59 currently in place, I would be afraid1912:20:01 that would be the impression others would2012:20:03 have."2112:20:03 Do you see that?2212:20:05 A. Yes.2312:20:05 Q. And this is supporting their2412:20:07 recommendation that you have to document2512:20:10 the process by which loans are accepted,

Page 604

1 MICHAEL W. SCHLOESSMANN212:20:15 in particular with respect to exception312:20:17 loans; right?412:20:18 MS. CONCANNON: Objection.512:20:20 A. That's what this is referring612:20:22 to.712:20:23 Q. And then in your email, this812:20:26 is -- the email from Paul Abate to you,912:20:39 on page 3, let me ask you, is there --1012:20:44 A. Just a second. I don't see1112:20:46 this on page 3. Are you referring --1212:20:48 Q. Okay.1312:20:50 A. Which page?1412:20:50 Q. How does the -- who drafted1512:20:55 the text on page 3, which is 3510?1612:21:00 A. So I'm looking at on page 2 a1712:21:05 note that appears to be from Derrek to1812:21:09 me, starts out "hi, Mike." So I don't --1912:21:15 it would appear to be from Derrek to me.2012:21:20 Now, above that --2112:21:21 Q. Right, it says you've included2212:21:23 your comments in red.2312:21:24 A. In red.2412:21:25 Q. And unfortunately we don't get2512:21:27 them produced in red and your counsel

Page 605

1 MICHAEL W. SCHLOESSMANN212:21:28 said it's not retained on the system in312:21:30 red. So the comments on page 3 would412:21:34 appear to be both yours and Derrek512:21:38 Michelson's; right?612:21:40 A. That is what I would believe712:21:43 to be the case. Do we want to go through812:21:47 this?912:21:47 Q. I'm not going to ask you to go1012:21:49 through the whole thing. But let me ask1112:21:51 you a couple of points.1212:21:53 A. Okay.1312:21:53 Q. There is a statement1412:21:59 approximately fourteen lines down or so1512:22:02 saying "while the concerns noted may be1612:22:06 similar for a loan determined to be1712:22:09 saleable, i.e. outside of guidelines, but1812:22:13 sufficient compensating factors present1912:22:15 to justify guideline exceptions as a loan2012:22:20 determined to be unsaleable, the process2112:22:22 of determining the difference between2212:22:25 saleable (4) and unsaleable (5) is highly2312:22:33 subjective."2412:22:35 Do you know who wrote that2512:22:36 sentence?

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1 MICHAEL W. SCHLOESSMANN212:22:36 MS. CONCANNON: I would just312:22:37 instruct you to the extent this is412:22:38 a confusing document in black and512:22:41 white, that to the extent you need612:22:42 to review the entire email chain in712:22:44 order to respond to that question,812:22:45 that you please do so.912:22:47 MR. SELENDY: Of course.1012:24:34 Q. That was your statement,1112:24:35 wasn't it?1212:24:36 A. It's really hard for me to say1312:24:37 definitively, but I believe, having1412:24:40 gotten a little bit more context around1512:24:41 this, that that is mine. As is the1612:24:44 sentence or two beginning about five1712:24:50 lines up.1812:24:51 Q. Right. And did in fact -- did1912:24:55 you in fact regard the difference, the2012:24:58 process of determining the difference2112:25:00 between the saleable and unsaleable loan2212:25:02 as highly subjective?2312:25:04 MS. CONCANNON: Objection.2412:25:06 A. I think -- yes, I do. And I2512:25:09 think I testified as much yesterday as

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Page 607

1 MICHAEL W. SCHLOESSMANN212:25:12 well.312:25:12 Q. I believe you go on to say a412:25:17 few lines down, that "the analysis you512:25:20 referred to as lacking is the list of612:25:25 compensating factors, et cetera, cited by712:25:27 the underwriter. It would be812:25:28 unnecessarily burdensome to the process912:25:30 and unconventional to require someone to1012:25:34 provide written documentation summarizing1112:25:37 our analysis on each loan approved for1212:25:40 purchase. I don't think it is reasonable1312:25:43 to require this procedure."1412:25:45 That's your statement; right?1512:25:47 A. I believe it is.1612:25:48 Q. And did you in fact regard it1712:25:50 as unduly burdensome to have to document1812:25:55 the compensating factors that might1912:25:57 justify including a loan that was an2012:25:59 exception to guidelines?2112:26:00 MS. CONCANNON: Objection to2212:26:01 form; mischaracterizes the2312:26:05 document.2412:26:06 A. I think I just testified that2512:26:11 it did, it was onerous I thought to

Page 608

1 MICHAEL W. SCHLOESSMANN212:26:14 document every aspect of the process.312:26:16 This statement is consistent with that.412:26:17 I don't know if I intended to512:26:21 suggest that there shouldn't be any sort612:26:24 of recitation of compensating factors712:26:27 from the underwriter. We would have812:26:29 expected, as I recall our process, the912:26:33 underwriter who was assigning those1012:26:36 preliminary saleability codes, at least1112:26:37 in their judgement, would have included a1212:26:41 list of compensating factors for why a1312:26:43 loan was a 4 versus a 5.1412:26:46 Q. Well, so what did you mean by1512:26:48 saying that the list of compensating1612:26:54 factors would be, it would be too1712:26:56 burdensome to include that?1812:26:57 MS. CONCANNON: Objection.1912:27:05 A. I believe that the2012:27:08 requirement, should one exist, that our2112:27:13 employee have to document how they came2212:27:16 to a decision, right, by citing every2312:27:20 component part or every input to that2412:27:23 decision, was burdensome. That's my2512:27:25 belief, you know, today as well.

Page 609

1 MICHAEL W. SCHLOESSMANN212:27:28 I do recall that part of the312:27:32 data that the underwriters gathered would412:27:35 have included a text field, I think I512:27:38 alluded to this yesterday as well, that612:27:40 would have cited some of the compensating712:27:43 factors around the loan. So a discussion812:27:47 or documentation of how each of those912:27:49 compensating factors was evaluated in1012:27:51 connection with the assessment, I1112:27:53 believe, and I'm just, this is a number1212:27:56 of years old, I believe that's the aspect1312:27:59 of the documentation that I took issue1412:28:02 with.1512:28:03 Q. Okay. In other words, it's1612:28:05 proper and appropriate to include the1712:28:08 list of compensating factors, but you1812:28:10 didn't think there should have to be some1912:28:13 discussion as to all the reasons why2012:28:15 those compensating factors were2112:28:18 sufficient in light of the exceptions?2212:28:20 MS. CONCANNON: Objection;2312:28:21 mischaracterizes prior testimony.2412:28:22 Q. Isn't that fair?2512:28:23 MS. CONCANNON: Asked and

Page 610

1 MICHAEL W. SCHLOESSMANN212:28:24 answered.312:28:24 A. In part, yes. The one thing I412:28:28 would clarify is the -- my operating512:28:32 assumption is that the third party612:28:33 underwriters, or the ones doing the712:28:36 reunderwriting, that they in the data812:28:38 file they would have sent back to us,912:28:42 which included the loan attributes they1012:28:44 verified as well as certain text comments1112:28:47 around the loan, would have included, in1212:28:51 terms of a, you know, concluding their1312:28:51 loan was outside guidelines but with1412:28:53 compensating factors, would have recited1512:28:56 some of the compensating factors that1612:28:57 they used in coming to their decision.1712:28:59 For our guys to go in and then1812:29:01 offer up their own compensating factors1912:29:03 or, you know, insight specifically in2012:29:06 terms of how they thought about each loan2112:29:08 in making the assessment, is what I was2212:29:10 considering unduly burdensome.2312:29:13 Q. And the third party2412:29:14 underwriters, such as Clayton or MDMC or2512:29:17 Watterson Prime, they were reunderwriting

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Page 611

1 MICHAEL W. SCHLOESSMANN212:29:19 loans that had already been underwritten312:29:21 by the loan originator; correct?412:29:24 A. Yes.512:29:24 Q. And so as a standard practice612:29:29 for loan origination, the compensating712:29:32 factors should already have been noted in812:29:34 the file; right?912:29:35 MS. CONCANNON: Objection.1012:29:36 Q. The list of factors.1112:29:38 A. They may or may not have. I1212:29:40 mean, the factors, right, can be derived1312:29:43 from any review, whether it's the1412:29:46 underwriting review or a reunderwriting1512:29:48 review. The factors that we've, I've1612:29:50 just cited by way of example, aren't1712:29:53 dependent on there being a list from the1812:29:56 loan originator or underwriter who1912:29:59 originated the loan. Right, I mean, it2012:30:02 can be gleaned from just a review of the2112:30:05 facts concerning each loan.2212:30:06 Q. Would you not have expected to2312:30:07 see the compensating factors identified2412:30:09 in the loan origination file?2512:30:12 MS. CONCANNON: Objection;

Page 612

1 MICHAEL W. SCHLOESSMANN212:30:12 vague, overbroad, lacks foundation.312:30:14 Q. I'm trying to distinguish412:30:15 between there are three different512:30:18 processes of review here, there is the612:30:20 origination, there is the third party712:30:21 underwriting, and then, as you've812:30:23 described it, there is CSC's review of912:30:25 the third party underwriting or1012:30:27 reunderwriting results. Correct? Sorry,1112:30:31 you need to verbalize.1212:30:33 A. Yes.1312:30:34 Q. With respect to the first1412:30:35 part, the origination, isn't it standard1512:30:40 sort of reasonably prudent practice to1612:30:43 document the compensating factors even if1712:30:46 there is no discussion about the reasons1812:30:50 by which those factors justify the1912:30:53 exceptions?2012:30:53 MS. CONCANNON: Objection;2112:30:54 lacks foundation, vague and2212:30:56 overbroad.2312:30:57 A. So you're asking me for my2412:31:00 opinion on what's prudent in terms of the2512:31:03 underwriting, the original underwriting

Page 613

1 MICHAEL W. SCHLOESSMANN212:31:04 of the loan. What I can tell you is what312:31:08 we sought to do, okay, in our experience412:31:11 in looking at these files, is512:31:14 compensating factors were documented to612:31:16 varying degrees, you know, loan by loan.712:31:21 And our job, we believed, was to812:31:23 reunderwrite that loan and make an912:31:25 independent assessment.1012:31:26 So irrespective of whether1112:31:28 there was a, you know, a comprehensive1212:31:30 recitation of all the compensating1312:31:32 factors, again, as part of our1412:31:33 independent reunderwriting, we would,1512:31:37 you're putting together a story on every1612:31:39 loan that has its own unique facts and1712:31:42 circumstances. So we would look at all1812:31:43 the factors that were relevant in1912:31:45 determining whether there was sufficient2012:31:47 compensating factors. And again, that2112:31:49 could be gleaned from the file with or2212:31:51 without the benefit of a list from the2312:31:53 origination underwriter.2412:31:54 Q. So you don't have a view as to2512:31:56 whether that list of factors ought to be

Page 614

1 MICHAEL W. SCHLOESSMANN212:31:59 included in the original origination312:32:01 file?412:32:02 MS. CONCANNON: Objection;512:32:02 asked and answered.612:32:04 A. No, I don't think that's712:32:05 particularly relevant when we're going812:32:08 back and reunderwriting a file. Even if912:32:12 that list is there, our underwriters1012:32:14 would be making their own assessment. So1112:32:17 even if it's -- the mere fact you have1212:32:20 the compensating factors listed in and of1312:32:22 itself does not suggest that, you know,1412:32:25 that they were sufficient, right. Yes,1512:32:28 it's insight into what the loan1612:32:30 originator, you know, was thinking,1712:32:32 perhaps. And to that extent, yes, it1812:32:34 makes it easier to sort of divine that,1912:32:37 you know, sort process at the time of2012:32:38 origination.2112:32:39 But again, we were2212:32:41 reunderwriting after the fact and trying2312:32:43 to come up with our own independent2412:32:44 assessment of the loans.2512:32:46 Q. Don't you want to have the

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Page 615

1 MICHAEL W. SCHLOESSMANN212:32:47 list, though, to make sure that it's312:32:50 clear that compensating factors were412:32:55 considered as opposed to an exception512:32:57 loan simply being approved?612:32:58 MS. CONCANNON: Objection.712:33:00 A. Well, it is certainly more812:33:04 convenient to have a list where you,912:33:09 right, where you at least have some clear1012:33:12 insight into what the underwriter was1112:33:15 thinking. The absence of a list does1212:33:17 not, however, mean the underwriter did1312:33:19 not give thought and consideration to the1412:33:22 totality of the loan file they were1512:33:24 originating.1612:33:26 And so as I said, you would1712:33:27 see or observe that sort of documentation1812:33:30 to varying degrees, but again, it doesn't1912:33:35 go to proving or suggesting whether or2012:33:37 not that consideration was given to those2112:33:39 factors.2212:33:41 Q. Would you agree that it's2312:33:43 better practice to list the compensating2412:33:46 factors if you're approving a loan that2512:33:48 otherwise would be an exception loan?

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1 MICHAEL W. SCHLOESSMANN212:33:49 MS. CONCANNON: Objection;312:33:50 asked and answered, lacks412:33:51 foundation, calls for an opinion.512:33:55 A. Look, if I was an underwriter,612:33:58 and I'm not, I would, just my nature712:34:02 being my nature, I would probably812:34:04 document the thought process. Or at912:34:07 least cite the facts.1012:34:08 But again, that's -- what1112:34:11 we're talking about our role is1212:34:14 reunderwriting the loans. And so even1312:34:16 though, you know, an underwriter were to,1412:34:18 you know, have demonstrated by listing1512:34:21 all the factors, it doesn't mean you1612:34:24 would, as somebody reunderwriting the1712:34:26 file, would accept those factors.1812:34:27 Q. I agree with that, even if you1912:34:29 have a list you want to make sure that2012:34:30 it's a justifiable list; right?2112:34:33 MS. CONCANNON: Objection to2212:34:33 form.2312:34:34 Q. That's your point?2412:34:34 A. Yes.2512:34:35 MR. SELENDY: Let's mark as

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1 MICHAEL W. SCHLOESSMANN212:34:37 588, CWMBIA 9553311 through 15.312:34:42 (Plaintiff's Exhibit 588 for412:34:51 identification, email dated October512:34:53 30, 2006, production numbers CWMBIA612:34:39 9553311 through CWMBIA 9553315.)712:36:48 A. Okay, I've just given the812:36:50 issue list a cursory once over.912:36:51 Q. Okay. What is this document?1012:36:54 A. This was a document, just1112:36:56 judging from the email from me to Kevin,1212:37:01 Michael and Greg, was in anticipation of1312:37:03 a meeting we were going to have with1412:37:05 correspondent lending on some of the1512:37:08 issues we were having with, you know, the1612:37:11 two organizations, you know, working1712:37:13 together.1812:37:14 Q. What were the positions held1912:37:15 as of October 30, 2006 by Kevin Doyle,2012:37:19 Michael Julius and Greg Jacobson?2112:37:22 A. Kevin Doyle, I believe at the2212:37:26 time was the senior trader on our ABS2312:37:30 trading desk.2412:37:33 Mike Julius was a senior2512:37:36 trader on our fixed rate or CMO trading

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1 MICHAEL W. SCHLOESSMANN212:37:40 desk.312:37:43 And Greg, he -- I'm trying to412:37:49 remember what he did. He had some512:37:56 function within the sales organization.612:37:59 He wasn't a salesperson specifically, but712:38:04 was there to assist the sales team in812:38:09 some fashion I can't remember.912:38:12 Q. Okay. And why were you1012:38:13 writing to the traders with respect to1112:38:15 the issues that CSC had with CLD?1212:38:20 MS. CONCANNON: Objection.1312:38:21 A. Because some of those issues1412:38:23 impacted, you know, their businesses.1512:38:26 Q. Okay. And what issues had you1612:38:28 identified as problems?1712:38:29 MS. CONCANNON: Objection.1812:38:35 A. Issues that, and I think, I'm1912:38:37 not sure who prepared this, I'd presume2012:38:46 would have been someone on my team given2112:38:48 that most of these issues impact the2212:38:50 transaction management realm. Sorry.2312:38:53 Q. Okay. Were the issues2412:38:54 reflected in the attachment?2512:38:56 A. I don't, by virtue of this

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1 MICHAEL W. SCHLOESSMANN212:38:57 note I was trying to expand upon this312:38:59 list to make sure we were also including412:39:01 those issues that the trading desks had.512:39:06 And so I'm not sure this is a612:39:08 comprehensive, you know, list of those712:39:12 issues, at least from the trading desk812:39:14 perspective.912:39:16 Q. What's the issue referred to1012:39:19 under the second bullet point, point 2,1112:39:22 where it states "CLD purchased several1212:39:26 pools from a CSC account and asked the1312:39:29 client to keep that information from1412:39:33 CSC."1512:39:34 A. Where are you reading that?1612:39:36 Q. This is page 1.1712:39:37 A. Oh, I got it, sorry.1812:39:45 So there was a running tension1912:39:46 between the two businesses, in that we2012:39:49 were both involved in purchasing loans.2112:39:51 And, you know, correspondent historically2212:39:54 had been a business about buying loans on2312:39:59 an individual basis. Sort of what we2412:40:01 referred to, onesy, twosy, loans come in,2512:40:03 and then they started to buy, you know,

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1 MICHAEL W. SCHLOESSMANN212:40:06 mini bulk packages. Whereas it we312:40:09 transacted on a bulk basis.412:40:11 So anyway, because of that,512:40:13 that inherent potential conflict where612:40:16 we'd be competing against one another, we712:40:18 came up with a, you know, $10 million812:40:21 demarkation between anything under,912:40:24 packages under that would be, you know,1012:40:27 CLD's to bid, packages over that would be1112:40:29 CSC's to bid. And we would not be1212:40:32 competing with each other, the same1312:40:35 company overall, on packages.1412:40:39 And my recollection is,1512:40:42 notwithstanding that relatively clear1612:40:44 line of demarkation, we continued to have1712:40:47 challenges with how they operated.1812:40:50 Q. Okay. If you'll turn to the1912:40:56 second page of the attachment, there is a2012:40:59 heading "due diligence, credit and2112:41:03 compliance." And under point 1 of that2212:41:05 it states "CLD, correspondent lending,2312:41:09 may not follow established protocol for2412:41:12 CSC underwriting standards. CSC has had2512:41:14 to reunderwrite several loans as a

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1 MICHAEL W. SCHLOESSMANN212:41:16 result. CLD standards for sample size,312:41:22 due diligence and credit and compliance412:41:24 requirements are not as strong as CSC."512:41:24 Do you see that?612:41:28 A. Yes.712:41:28 Q. And what's the issue that this812:41:32 is dealing with?912:41:33 MS. CONCANNON: Objection.1012:41:37 A. So I believe I testified1112:41:38 yesterday to the fact that CLD was1212:41:44 conducting due diligence on our behalf,1312:41:46 and these would be common clients that,1412:41:49 you know, we didn't want to subject to1512:41:50 two different purchase processes, because1612:41:52 they were quite different.1712:41:56 And so we had over a span of I1812:41:58 think a number of months had engaged with1912:42:01 CLD to ensure that if they were going to2012:42:03 be the funding mechanism for loans that2112:42:06 were coming in to our position, then we2212:42:10 needed to ensure that the protocols they2312:42:14 were using were consistent with our own.2412:42:17 And so there was, you know, conflict in2512:42:22 terms of our protocols and their own

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1 MICHAEL W. SCHLOESSMANN212:42:24 protocols. I mean, they would tell you312:42:27 theirs were perfectly sufficient.412:42:29 We, all I can say from my512:42:31 recollection, and just a cursory review612:42:33 of this, in various aspects, inconsistent712:42:38 with our own, and we wanted to insist812:42:41 upon them following our protocol since we912:42:43 were going to be the ultimate, you know,1012:42:46 buyer of that loan. Or those loans.1112:42:50 Q. And do you know whether there1212:42:51 were any loans procured through CLD that1312:42:57 ended up in the MBIA securitizations?1412:42:59 MS. CONCANNON: Objection;1512:43:00 vague, overbroad, mischaracterizes1612:43:02 prior testimony.1712:43:02 Q. The fifteen deals that we have1812:43:04 here.1912:43:04 A. If there are -- well, there2012:43:08 certainly are correspondent loans, which2112:43:09 is one of the three origination channels2212:43:14 at Countrywide, in MBIA's fifteen deals,2312:43:17 as well as, you know, every other HELOC2412:43:19 deal.2512:43:19 Q. Okay.

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1 MICHAEL W. SCHLOESSMANN212:43:20 MR. SELENDY: Let's mark as312:43:23 589, CWMBIA 11068600 through 8603.412:43:29 (Plaintiff's Exhibit 589 for512:43:33 identification, email dated612:43:35 November 22, 2006, production712:43:24 numbers CWMBIA 11068600 through812:43:24 CWMBIA 11068603.)912:45:47 A. Okay.1012:45:47 Q. Okay. What does this document1112:45:49 reflect?1212:45:50 MS. CONCANNON: Objection;1312:45:51 foundation.1412:45:57 A. This email chain, part of the1512:46:02 chain, you know, is a note from Josh1612:46:04 Adler in secondary marketing seeking our1712:46:09 input on, you know, what is referred to1812:46:20 in these emails as manufacturing issues1912:46:23 or problems. And so we were asked, as2012:46:29 someone who's interacted a great deal2112:46:32 with their loans, you know, what our2212:46:34 thoughts were.2312:46:35 And Debbie summarized a few in2412:46:37 her note to me, which I forwarded on to2512:46:42 Josh, as you can see from the top of page

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1 MICHAEL W. SCHLOESSMANN212:46:44 1.312:46:46 Q. Okay. And these were emails412:46:50 that you exchanged with Josh Adler, among512:46:54 others, in November 2006; is that right?612:46:58 A. It appears to be the case,712:47:00 yes.812:47:00 Q. And the first line of the912:47:04 email at the top on the first page, it1012:47:07 says "Josh, I'm assuming you guys will1112:47:09 use these findings as part of Bartlett's1212:47:12 efforts to fix the manufacturing plant."1312:47:15 What were you referring to1412:47:16 there by Bartlett's efforts to fix the1512:47:19 manufacturing plant?1612:47:20 A. Going back to Josh's note1712:47:25 further down in the email string, he's1812:47:27 reaching out to us for our input, I don't1912:47:30 know if he says specifically, but2012:47:32 presumably at least in response to what2112:47:35 Kevin is trying to do in terms of2212:47:37 identifying and remediate issues around,2312:47:42 you know, the manufacturing process,2412:47:44 including data issues, I presume, since2512:47:48 we provided some feedback on data.

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1 MICHAEL W. SCHLOESSMANN212:47:51 Q. And this concerns specifically312:47:54 problems with loan origination by412:47:56 Countrywide Home Loans; correct?512:47:58 MS. CONCANNON: Objection;612:47:58 mischaracterizes the document and712:48:00 prior testimony.812:48:01 A. It is around the origination912:48:06 process of Countrywide loans, yes.1012:48:08 Q. In the email at the bottom of1112:48:13 the first page, it states, and this is1212:48:17 the email that Debbie Brown sends to you,1312:48:21 cc'ing others, "from my experience, LTV,1412:48:25 CLTV, junior and senior lien amounts and1512:48:29 life caps on HELOCs are the areas we see1612:48:32 the most frequent issues. Secondary1712:48:36 (Kurzban) indicated they are aware of the1812:48:39 frequent CLTV discrepancies between1912:48:42 systems, which seems to be related to the2012:48:44 timing of receipt of data, not recording2112:48:48 piggyback seconds." Then she goes on to2212:48:51 say "here is a summary of issues."2312:48:55 Do you see all that?2412:48:56 A. Yes.2512:48:56 Q. So is she saying to you that

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1 MICHAEL W. SCHLOESSMANN212:48:59 the most frequent problems you had with312:49:00 respect to the CHL data concerned data412:49:04 relating -- with respect to HELOCs,512:49:08 relating to LTV, CLTV, junior and senior612:49:11 lien amounts, and life caps?712:49:13 MS. CONCANNON: Objection;812:49:14 calls for speculation, the document912:49:16 speaks for its eventually.1012:49:19 A. I don't know what -- she1112:49:21 appears to be responding to my request to1212:49:25 provide feedback on what we were seeing1312:49:26 on CHL. I don't know if this was1412:49:29 specific to any product or was just sort1512:49:34 of in broad strokes, you know, what we1612:49:36 were observing across the board with CHL.1712:49:38 So it's hard for me to say.1812:49:40 Q. Wasn't this focused on HELOCs,1912:49:42 this particular reference?2012:49:44 MS. CONCANNON: Objection.2112:49:45 A. Debbie's opening sentence is,2212:49:50 appears to be, you know, limited to2312:49:52 HELOCs, yes.2412:49:53 Q. And then on the second page,2512:49:58 at the end of her email, she says "a

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1 MICHAEL W. SCHLOESSMANN212:50:00 primary concern is securitization deals312:50:03 if we are repping CLTV."412:50:06 Do you know what she meant by512:50:08 that statement?612:50:08 MS. CONCANNON: Objection;712:50:09 lacks foundation, calls for812:50:11 speculation.912:50:12 A. I think she's simply, I'm1012:50:18 inferring from this note, based on what I1112:50:21 know, she is, or my general1212:50:24 understanding, she is suggesting that,1312:50:27 you know, CLTV, the CLTV data issue may1412:50:32 be problematic if we are making a1512:50:36 representation and warranty around that1612:50:39 data field.1712:50:40 Q. Is that what she meant by1812:50:43 securitization deals, that it would be1912:50:45 deals where you're making representations2012:50:47 and warranties, or is it more generally2112:50:49 any deal where you're acting as an2212:50:51 underwriter?2312:50:53 MS. CONCANNON: Objection;2412:50:54 compound.2512:50:54 MR. SELENDY: Strike that.

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1 MICHAEL W. SCHLOESSMANN212:51:04 Q. Let me refer you to the last312:51:06 email, which is coming from Mark Hanlon412:51:11 at CSC. And he's writing to you, and512:51:13 says "Mike, many customers have asked for612:51:16 DTI and CLTV information. Most, if not712:51:21 all of CWL's competitors give this812:51:24 information out, specifically RFC, First912:51:28 Horizon and Wells. Not distributing this1012:51:30 information is putting us at a1112:51:32 competitive disadvantage."1212:51:32 Do you see that?1312:51:36 A. Yes.1412:51:36 Q. Do you know why CSC was not1512:51:42 giving DTI information, or was it CHL1612:51:46 that was not giving it?1712:51:47 MS. CONCANNON: Objection;1812:51:48 compound.1912:51:48 MR. SELENDY: Let me ask the2012:51:49 question.2112:51:49 Q. Was it Countrywide Home Loans2212:51:51 or CSC that was not distributing the DTI2312:51:55 information?2412:51:56 MS. CONCANNON: Objection;2512:51:57 assumes facts not in evidence.

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1 MICHAEL W. SCHLOESSMANN212:51:59 A. Any -- it would have been with312:52:02 respect to CHL originations, it would412:52:04 have been CHL's decision what data they512:52:07 wanted to disseminate.612:52:08 Q. Do you know why CHL was not712:52:11 distributing DTI information?812:52:14 A. My general recollection is912:52:17 there was a concern about, you know, that1012:52:20 the reliability of that. And we didn't1112:52:23 feel sufficiently comfortable to1212:52:25 communicate that data, and did not1312:52:29 believe we were required to in connection1412:52:30 with our securitization activity.1512:52:32 Q. Was there a similar problem1612:52:36 with respect to the CLTV information?1712:52:38 MS. CONCANNON: Objection;1812:52:39 vague.1912:52:41 A. We've seen, you know,2012:52:44 anecdotal evidence of that in the2112:52:47 various, you know, emails that you've put2212:52:51 forth. So to what degree, I can't tell.2312:52:54 But clearly, you know, there are2412:52:56 references to CLTV data integrity2512:53:00 challenges, timing and so forth.

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1 MICHAEL W. SCHLOESSMANN212:53:32 MR. SELENDY: Last document312:53:33 before we break. Let's show you412:53:35 Exhibit 169.512:54:00 Q. My only question here is if612:54:02 you are familiar with the issue that is712:54:04 being discussed by Tonya LyBrand and812:54:11 Keith Werber, specifically the issue that912:54:15 is raised at the bottom of the first1012:54:18 page.1112:54:19 MS. CONCANNON: Objection to1212:54:20 the characterization of the1312:54:21 document.1412:54:55 A. So I'm not familiar with this1512:54:58 email chain. Do you want my -- are you1612:55:02 asking for my, what I infer from it?1712:55:05 Q. Yeah, do you understand what1812:55:06 she says when she's writing to Keith and1912:55:09 says "the same applies for the S9 deal.2012:55:12 We both know that results will likely2112:55:14 come back unfavorable. You might want to2212:55:17 rethink your decision on giving the 18th2312:55:19 as a deadline, unless you were2412:55:21 comfortable with Clayton's findings as2512:55:24 our final kicks and post-closing

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1 MICHAEL W. SCHLOESSMANN212:55:27 cleanup."312:55:29 Do you understand what that's412:55:30 about?512:55:30 MS. CONCANNON: Objection;612:55:31 calls for speculation.712:55:36 A. Again, I would be offering812:55:38 speculation.912:55:40 Q. Are you aware of any issues1012:55:42 about relying solely on Clayton's1112:55:45 findings?1212:55:47 MS. CONCANNON: Objection;1312:55:48 vague.1412:55:48 Q. I'll refer you to the second1512:55:49 page, there is a statement "please note1612:55:51 that the due date of the 18th will not1712:55:53 allow for any cures/rebuttals, and will1812:55:58 rely solely on Clayton's findings."1912:56:03 Are you aware of any issues2012:56:05 where the timing was so tight that CSC2112:56:07 had to basically rely on Clayton's2212:56:09 findings without a further process of2312:56:11 reunderwriting?2412:56:12 MS. CONCANNON: Objection;2512:56:13 vague, overbroad, mischaracterizes

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1 MICHAEL W. SCHLOESSMANN212:56:14 the document.312:56:15 A. I'm not aware of, specifically412:56:19 aware of any deals where we did not have512:56:23 the back and forth review and assessment,612:56:27 you know, once we got the findings with712:56:30 our third party firm.812:56:31 MR. SELENDY: We can take a912:56:32 break now, it's 12:55. And so1012:56:36 we'll resume at 1:45.1112:56:38 THE WITNESS: Thanks, guys.1212:56:40 THE VIDEOGRAPHER: We are1312:56:40 going off the record at 12:56 p.m.,1412:56:42 this marks the end of tape No. 1.1512:56:47 (Luncheon recess: 12:56 p.m.)16171819202122232425

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1 MICHAEL W. SCHLOESSMANN212:56:47 A F T E R N O O N S E S S I O N313:52:56 1:52 p.m.413:52:56 THE VIDEOGRAPHER: We are back513:52:57 on the record at 1:52 p.m., this613:53:00 marks the beginning of tape No. 10.713:53:02 MR. SELENDY: Mark this as813:53:05 590, please, CWMBIA 8947488 to 489.913:53:05 (Plaintiff's Exhibit 590 for1013:53:18 identification, email dated1113:53:23 December 26, 2006, production1213:53:07 numbers CWMBIA 8947488 through1313:53:07 CWMBIA 8947489.)14 M I C H A E L W.15 S C H L O E S S M A N N,16 resumed, having been previously duly17 sworn, was examined and testified18 further as follows:19 CONTINUED EXAMINATION2013:53:33 BY MR. SELENDY:2113:53:33 Q. And if you would,2213:53:35 Mr. Schloessmann, I would like to focus2313:53:36 your attention on the second page of the2413:53:38 document. Feel free to review as much as2513:53:40 you want.

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1 MICHAEL W. SCHLOESSMANN213:54:46 A. Okay.313:54:47 Q. The email, first of all, this413:54:50 is an email exchange between Tonya513:54:52 LyBrand and Kathryn Martin at secondary613:54:56 marketing on December 26, 2006; right?713:55:01 A. That appears to be the case,813:55:04 yes.913:55:04 Q. And CWHEQ 2006-S9 is another1013:55:08 one of the MBIA deals; right?1113:55:16 A. Yes.1213:55:20 Q. Okay. Ms. LyBrand states1313:55:23 "there is a high incident rate of missing1413:55:25 documents for the reference deal.1513:55:28 However, in light of timing and1613:55:30 exhaustive efforts in curing, the desk1713:55:34 has agreed to waive the loans in and1813:55:36 would like to continue to cure1913:55:37 post-closing."2013:55:39 What was the process -- first2113:55:41 of all, do you see that?2213:55:43 A. Yes.2313:55:43 Q. What was the process by which2413:55:45 it was acceptable for CSC to waive loans2513:55:48 in even where there was a high incident

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1 MICHAEL W. SCHLOESSMANN213:55:51 rate of missing documents?313:55:52 MS. CONCANNON: Objection;413:55:53 lacks foundation, mischaracterizes513:55:55 the document, asked and answered.613:55:57 Q. You can answer it.713:55:59 A. I'm sorry, can you restate the813:56:02 question?913:56:02 Q. Yeah. Did you approve a1013:56:04 process by which CSC could waive loans in1113:56:08 even where there was a high incident rate1213:56:10 of missing documents for the reference1313:56:12 deal?1413:56:12 MS. CONCANNON: Objection.1513:56:13 A. Are you referring to the1613:56:16 post-closing due diligence? Which this1713:56:21 seems to imply.1813:56:22 Q. At this point it states that,1913:56:24 in the email, that the desk has agreed to2013:56:28 waive the loans in. There is a2113:56:30 suggestion that there will be a continued2213:56:32 effort to cure post-closing.2313:56:35 But I'm focusing specifically2413:56:37 on the decision to waive the loans in as2513:56:38 of the closing date, notwithstanding the

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1 MICHAEL W. SCHLOESSMANN213:56:41 high incident rate of missing documents.313:56:44 Had you approved that type of process for413:56:47 Countrywide Securities?513:56:49 MS. CONCANNON: Objection.613:56:50 A. I don't have specific713:56:51 recollection of approving, you know, this813:56:55 process or, excuse me, this transaction.913:56:58 My general recollection is that there was1013:57:00 a recognition that while not ideal, that1113:57:04 due diligence could be done and would be1213:57:07 done on a post-closing basis if1313:57:10 necessary, given the time constraints of1413:57:14 the transactions.1513:57:14 Q. Well, what if you discovered1613:57:16 post-closing that you had the same high1713:57:18 incident rate of missing documents as you1813:57:21 had when CSC waived the loans into the1913:57:23 deal?2013:57:24 MS. CONCANNON: Objection;2113:57:25 incomplete hypothetical, assumes2213:57:26 facts not in evidence.2313:57:29 A. Just to repeat my testimony2413:57:33 from yesterday. The process was such2513:57:37 that we agreed to a post-closing due

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1 MICHAEL W. SCHLOESSMANN213:57:41 diligence construct in light of the313:57:43 timing and the fact that we were not able413:57:44 to complete the due diligence, on the513:57:47 assumption that, you know, based on our613:57:49 significant experience dealing with this713:57:52 type of issue with CHL, that these were813:57:55 in fact going to be curable to a high913:57:59 degree, and therefore we would do so on a1013:58:02 post-closing basis.1113:58:03 And we had a comfort level1213:58:05 that we would not find anything in our1313:58:09 process post-closing that would create an1413:58:12 issue of materiality in terms of the1513:58:19 offering document.1613:58:20 If, to follow on your1713:58:23 hypothetical, if we were to find anything1813:58:25 at the conclusion of due diligence1913:58:26 post-closing that did, it would have2013:58:28 necessitated stickering the book in order2113:58:31 to reflect the change in disclosure2213:58:36 necessitated by the ultimate findings.2313:58:39 Q. What do you mean by stickering2413:58:46 the book?2513:58:46 A. It's a process where the

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1 MICHAEL W. SCHLOESSMANN213:58:48 prospectus supplement is essentially313:58:51 revised or amended and recirculated to413:58:53 investors.513:58:53 Q. If CSC could not cure the613:58:56 missing documents post-closing for some713:58:58 number of loans, would those loans then813:59:00 be the proper subject of repurchase913:59:02 requests?1013:59:04 MS. CONCANNON: Objection;1113:59:05 incomplete hypothetical, assumes1213:59:06 facts not in evidence.1313:59:07 Q. Again, for these HELOC1413:59:09 transactions, specifically the ones1513:59:11 referenced here where there is a high1613:59:13 incident rate of missing documents as of1713:59:15 the closing.1813:59:16 MS. CONCANNON: Same1913:59:16 objections. Also mischaracterizes2013:59:19 Exhibit 590.2113:59:20 A. As I've indicated before, the2213:59:23 due diligence results, once final, a full2313:59:27 assessment of the transaction would have2413:59:31 been handled. In terms of whether a loan2513:59:33 would have been repurchased as a result

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1 MICHAEL W. SCHLOESSMANN213:59:37 of that would have depended on whether we313:59:39 had discovered a breach of our, one of413:59:41 our rep and warrants. This is not the513:59:43 post-closing due diligence that we've613:59:45 seen reference to on whole loan deals,713:59:47 which by their very terms were distinctly813:59:50 different than these securitization913:59:52 transactions.1013:59:52 Q. Don't the reps and warrants1113:59:54 require the inclusion of all of the1213:59:56 specified documents in the origination1314:00:00 files?1414:00:00 MS. CONCANNON: Objection.1514:00:01 Q. We looked at I think one of1614:00:03 those reps and warrants yesterday on the1714:00:05 purchase agreement.1814:00:05 MS. CONCANNON: Objection;1914:00:06 vague, overbroad.2014:00:07 A. Well, it would depend on the2114:00:09 specific reps and warrants in a2214:00:13 transaction. The rep and warrant, as I2314:00:16 recall, that you are alluding to had to2414:00:18 do with the mortgage file, which is2514:00:21 defined, I believe, relates to the

Page 640

1 MICHAEL W. SCHLOESSMANN214:00:22 collateral file and the collateral, the314:00:25 key collateral documents, including the414:00:27 note and the mortgage, not the514:00:29 origination file and all the credit614:00:31 documents.714:01:34 MR. SELENDY: Let's mark as814:01:35 Exhibit 591, CWMBIA-G88567914:01:51 through -- there are multiple1014:01:53 numbers on this document. Let's1114:01:54 use the one that runs -- last page1214:02:16 is 10828868. We're going to figure1314:02:21 out --1414:02:21 MS. CONCANNON: It actually1514:02:22 looks like you have an attachment1614:02:24 that does not belong with the prior1714:02:28 document. Because you have1814:02:35 CWMBIA-G88567.1914:02:37 MR. SELENDY: Let's stop it at2014:02:39 71. Rip off the remaining pages.2114:02:43 567 through 71.2214:02:44 (Plaintiff's Exhibit 591 for2314:02:48 identification, email dated January2414:03:08 8, 2007, production numbers2514:01:39 CWMBIA-G88567 through

Page 641

1 MICHAEL W. SCHLOESSMANN214:01:37 CWMBIA-G88571.)314:03:09 Q. There is very little text in414:03:11 this document, you might just read the514:03:12 whole thing.614:04:29 A. Okay.714:04:30 Q. Okay. The subject line of the814:04:32 email on the third page states "monthly914:04:35 meeting with Mike."1014:04:38 Did you have monthly meetings1114:04:39 with Ms. Brown and Ms. Sumner, do you1214:04:46 recall, as of this point in time?1314:04:47 A. I'm not sure at this point in1414:04:48 time, but I did have a, for a time, a1514:04:52 monthly meeting routine with Debbie and1614:04:55 her team, or parts of her team.1714:04:57 Q. Okay. And this is January of1814:05:00 2007; is that right?1914:05:01 A. It appears to be the case.2014:05:07 Q. Okay. In the email that2114:05:09 Ms. LyBrand sends to Ms. Brown and2214:05:13 Ms. Sumner, she states "I would like to2314:05:16 request to have the two items listed2414:05:18 below revisited in one of your upcoming2514:05:21 meetings with Mike. 1, missing

Page 642

1 MICHAEL W. SCHLOESSMANN214:05:23 documents. A, approximately 30 to 40314:05:26 percent of the loans being underwritten414:05:28 are failing for various reasons. This514:05:31 virtually across all CW originated614:05:35 products." Let me stop right there.714:05:37 As of January 2007, were you814:05:40 aware that 30 to 40 percent of loans914:05:44 being underwritten were failed -- were1014:05:47 failing across virtually all of1114:05:50 Countrywide's originated products?1214:05:52 MS. CONCANNON: Objection;1314:05:52 mischaracterizes the document,1414:05:54 assumes facts not in evidence.1514:05:58 A. I don't have specific1614:06:02 recollection of those percentages you1714:06:04 cite. I do have a general recollection1814:06:06 of a recurring, you know, issue or1914:06:10 challenge around the missing documents.2014:06:13 Q. The missing documents with2114:06:15 respect to loans originated by2214:06:16 Countrywide Home Loans?2314:06:17 MS. CONCANNON: Objection.2414:06:18 A. Yeah, correct.2514:06:19 Q. And then on the second page,

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1 MICHAEL W. SCHLOESSMANN214:06:22 under the heading "regulatory314:06:25 compliance," subpart A states "revisit414:06:28 our compliance internal policy with514:06:31 regard to securitizing loans that have614:06:34 missing compliance documents that cannot714:06:36 be completed for review. The desk and814:06:39 secondary continue to make the argument914:06:41 that loans of this nature should stay in1014:06:43 the pool regardless of what the street is1114:06:47 doing." And then she continues, "in an1214:06:50 earlier meeting, Mike said he was on the1314:06:52 fence about our current process and risk1414:06:55 exposure."1514:06:56 Do you understand what1614:06:57 Ms. LyBrand is referring to here?1714:06:58 MS. CONCANNON: Objection;1814:06:59 lacks foundation, calls for1914:07:00 speculation.2014:07:01 A. I have a general2114:07:06 understanding, yes, although I don't have2214:07:08 a specific recollection of this exchange.2314:07:10 Q. Okay. What's your general2414:07:12 understanding?2514:07:13 A. My general understanding is,

Page 644

1 MICHAEL W. SCHLOESSMANN214:07:16 and I think we got into it a little bit314:07:19 yesterday, is that when dealing with414:07:21 compliance issues, specifically, you514:07:25 know, the presence -- excuse me, the614:07:28 absence of a document, was not714:07:31 necessarily indicative of a compliance814:07:33 failure or a compliance violation. And914:07:36 so, you know, the general question as to1014:07:38 whether you would exclude a loan because1114:07:41 of the missing document, you know, absent1214:07:45 knowing more about it, was the question1314:07:47 at issue.1414:07:49 And taken at face value,1514:07:51 because I don't remember having this1614:07:52 exchange specifically with Tonya, she is1714:07:55 implying that I'm, you know, on the fence1814:07:59 or deciding what, you know, route we1914:08:02 should take.2014:08:03 Q. Do you remember as of January2114:08:04 2007 if you were on the fence about the2214:08:09 process in any particular respects?2314:08:11 MS. CONCANNON: Objection;2414:08:12 vague.2514:08:13 A. I don't have a specific

Page 645

1 MICHAEL W. SCHLOESSMANN214:08:14 recollection about this, other than the314:08:17 general understanding of the issue that I414:08:18 just recited.514:08:20 Q. Do you know what Tonya's614:08:25 referring to by the desk and secondary?714:08:28 MS. CONCANNON: Objection;814:08:28 foundation.914:08:34 A. Typically reference to the1014:08:35 desk is the trading desk, or one of our1114:08:37 trading desks at CSC.1214:08:39 Q. And secondary would be1314:08:40 secondary marketing at Countrywide Home1414:08:42 Loans?1514:08:42 MS. CONCANNON: Objection to1614:08:43 form.1714:08:43 A. That would be my understanding1814:08:45 from her reference.1914:08:45 Q. Okay. As of January 2007, was2014:08:48 the rest of the street excluding loans2114:08:52 that had missing compliance documents, as2214:08:56 far as you know?2314:08:57 MS. CONCANNON: Objection;2414:08:58 lacks foundation.2514:08:59 A. I don't have specific

Page 646

1 MICHAEL W. SCHLOESSMANN214:09:00 knowledge of what the street was doing at314:09:02 this time with respect to this particular414:09:03 issue.514:09:04 Q. Do you recall any discussions614:09:06 with Ms. LyBrand regarding other firms714:09:11 having a stricter policy with regard to814:09:14 compliance documents than Countrywide914:09:17 had?1014:09:17 MS. CONCANNON: Objection.1114:09:18 A. I don't have a specific1214:09:20 recollection of any conversation with1314:09:22 Tonya as it relates to, you know, this1414:09:25 compliance issue and what other street1514:09:26 firms were doing.1614:09:27 Q. Okay. And is that true as of1714:09:29 any point in time?1814:09:30 MS. CONCANNON: Objection;1914:09:31 overbroad.2014:09:31 A. As to this --2114:09:33 Q. As to this issue.2214:09:34 A. As to this issue, I don't have2314:09:35 a specific recollection on this2414:09:37 particular issue, other than the general2514:09:38 understanding that I just talked about.

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1 MICHAEL W. SCHLOESSMANN214:09:41 Q. Was Ms. LyBrand concerned, do314:09:47 you recall that Countrywide ought to have414:09:49 a stricter policy with respect to missing514:09:52 compliance documents?614:09:52 MS. CONCANNON: Objection;714:09:53 assumes facts not in evidence,814:09:55 mischaracterizes prior testimony.914:09:57 Q. That's a question. You can1014:09:58 answer.1114:09:58 A. I don't know what Tonya's1214:10:01 thinking was behind this issue other than1314:10:03 what I see expressed in her email.1414:10:05 Q. Okay. You don't recall any1514:10:06 other instances in which she expressed a1614:10:08 view that there ought to be a tighter1714:10:10 compliance policy at Countrywide1814:10:13 Securities with regard to missing1914:10:14 compliance documents on Countrywide2014:10:16 loans?2114:10:16 MS. CONCANNON: Objection;2214:10:17 mischaracterizes prior testimony.2314:10:19 A. I don't recall specifically2414:10:21 Tonya recommending or bringing to me a2514:10:26 recommendation to tighten our compliance

Page 648

1 MICHAEL W. SCHLOESSMANN214:10:29 policy as it related to this issue.314:10:34 Q. But you do recall that there414:10:35 was a general issue with missing514:10:37 compliance documents for the Countrywide614:10:39 originated loans?714:10:40 A. I have testified that I have a814:10:44 general understanding or had a general914:10:45 understanding of the missing doc or1014:10:50 recurring missing document issues and1114:10:53 challenges that we were confronted with1214:10:55 in trying to complete due diligence.1314:11:07 MR. SELENDY: Let's show you a1414:11:09 document that I would like marked1514:11:10 as 592. It's CWMBIA 132221641614:11:19 through 182, plus the attachments.1714:11:28 (Plaintiff's Exhibit 592 for1814:11:29 identification, email dated1914:11:30 February 9, 2007, with attachments,2014:11:13 production numbers CWMBIA 132221642114:11:19 through CWMBIA 13222182.)2214:13:25 A. Is there something in the2314:13:27 securitization due diligence protocol2414:13:28 you'd like me to --2514:13:29 Q. Yeah, I'll turn to that.

Page 649

1 MICHAEL W. SCHLOESSMANN214:13:31 Let's start with the email at the front314:13:33 briefly. This is an email exchange414:13:34 between Tonya LyBrand and James Baker;514:13:36 right?614:13:37 A. Yes.714:13:38 Q. And do you know what James814:13:39 Baker's function was as of February 2007?914:13:43 A. James was with -- James was in1014:13:47 Debbie's organization, as I recall, and1114:13:49 in operations capacity of some sort. I1214:13:52 don't recall the specifics, though.1314:13:53 Q. And when you refer to Debbie's1414:13:56 operation, which operation was that?1514:13:58 A. Debbie Brown's organization.1614:13:59 Q. And therefore, which group?1714:14:01 A. It included the due diligence1814:14:03 operations, post-closing risk management.1914:14:07 Q. Okay. Now, on the second2014:14:10 page, Ms. LyBrand states "it does make2114:14:12 sense. I would add that overall risk2214:14:15 exposure is assessed based on the results2314:14:17 from the due diligence review and reps2414:14:19 and warrants can also be relied on2514:14:21 providing investors with recourse."

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1 MICHAEL W. SCHLOESSMANN214:14:21 Do you see that?314:14:26 A. Yes.414:14:26 Q. Are you familiar with the514:14:28 suggestion that reps and warrants could614:14:32 be relied on providing investors with714:14:34 recourse?814:14:34 MS. CONCANNON: Objection;914:14:35 vague, overbroad, lacks foundation.1014:14:36 Q. In this context.1114:14:37 A. Honestly I don't have the1214:14:39 context to understand. I certainly1314:14:42 understand the statement reps and1414:14:44 warrants can be relied upon. But I don't1514:14:47 understand the context in which it's1614:14:48 being --1714:14:50 Q. At the end of this email1814:14:52 sequence there is a reference to a credit1914:14:53 underwriting results and findings from2014:14:55 MDMC showing, among other things, a 22.342114:15:03 percent of the loans couldn't be2214:15:06 completed for review due to missing2314:15:08 documentation. And is it your2414:15:12 understanding that CSC took comfort in2514:15:17 the reps and warrants to deal with issues

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1 MICHAEL W. SCHLOESSMANN214:15:19 of missing documentation?314:15:21 MS. CONCANNON: Objection.414:15:22 Q. Insofar as it was due514:15:24 diligencing these transactions?614:15:25 MS. CONCANNON: Objection;714:15:26 lacks foundation, mischaracterizes814:15:27 the document.914:15:33 A. So I'm having trouble1014:15:35 connecting this particular aspect of the1114:15:37 email chain to reps and warrants.1214:15:53 Q. If you turn to the1314:15:56 attachments. There is a securitization1414:16:02 due diligence protocol, and also an1514:16:06 Exhibit B, which is an executive summary1614:16:09 example.1714:16:10 Do you see both of those in1814:16:13 these documents?1914:16:14 A. Yes, I do.2014:16:28 Q. Okay. Starting with the2114:16:29 securitization due diligence protocol,2214:16:31 this is -- this states that it was last2314:16:35 reviewed/revised on January 31, 2007 by2414:16:40 Tonya LyBrand and approved by Lynn2514:16:44 Sumner, effective as of the same date.

Page 652

1 MICHAEL W. SCHLOESSMANN214:16:44 Do you see that?314:16:47 A. Yes.414:16:47 Q. And does this reflect the514:16:49 securitization due diligence protocol for614:16:51 CSC as of this point in time?714:16:54 MS. CONCANNON: Objection;814:16:55 lacks foundation.914:16:56 Q. As it states at the top of the1014:16:57 page.1114:16:58 MS. CONCANNON: Objection.1214:17:03 You can ask him what he knows1314:17:05 rather than just reading the1414:17:06 document.1514:17:06 Q. You can answer the question.1614:17:07 A. I don't know specifically,1714:17:09 other than inferring from, you know, the1814:17:12 policy status being active and approved.1914:17:15 Again, just taking that at face value, I2014:17:20 don't have specific recollection or2114:17:21 knowledge around this particular document2214:17:22 being our policy at the time.2314:17:24 Q. You were ultimately2414:17:27 responsible for Countrywide Securities'2514:17:29 due diligence protocol at this point in

Page 653

1 MICHAEL W. SCHLOESSMANN214:17:30 time; right?314:17:31 MS. CONCANNON: Objection.414:17:31 A. Yes.514:17:32 Q. Would this have been approved614:17:35 without your having some involvement in714:17:38 it?814:17:38 MS. CONCANNON: Objection;914:17:39 calls for speculation,1014:17:40 mischaracterizes prior testimony.1114:17:42 A. I would say, as I have as to1214:17:45 other policies and protocols, that they1314:17:48 were constantly evolving. That I had1414:17:50 hundreds of conversations with Debbie,1514:17:53 Lynn and others over the course of years.1614:17:56 And so clearly, you know, had opportunity1714:17:59 to provide input.1814:18:00 But in terms of specific1914:18:01 recollections about a particular policy2014:18:03 at a particular point in time, it is, you2114:18:06 know, very difficult for me to, you know,2214:18:09 remember.2314:18:10 Q. Do you have any reason to2414:18:11 doubt that this was in fact the protocol2514:18:14 for CSC's due diligence for HELOC and

Page 654

1 MICHAEL W. SCHLOESSMANN214:18:17 closed end second transactions, among314:18:19 others, as of this point in time?414:18:20 MS. CONCANNON: Objection.514:18:21 A. No reason comes to mind as to614:18:24 why it wouldn't or couldn't be.714:18:27 Q. Okay. And if you turn to the814:18:30 Exhibit B, the executive summary example.914:18:35 Do you know whether this was intended to1014:18:39 be a representative example of how the1114:18:42 executive summaries should be written?1214:18:44 MS. CONCANNON: Objection;1314:18:45 lacks foundation. Also vague.1414:18:52 A. Having not looked at this1514:18:56 carefully, I don't know whether it's --1614:18:59 Q. Just take a moment. I'll note1714:19:04 that the heading states "executive1814:19:08 summary sample," if that's helpful.1914:19:24 A. Okay. This protocol by its2014:19:29 terms represents Exhibit B as an example2114:19:32 of what the executive summary should look2214:19:34 like.2314:19:34 Q. Okay. If you would take a2414:19:36 look at section 5, there is a change in2514:19:40 this compared to some of the executive

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1 MICHAEL W. SCHLOESSMANN214:19:42 summaries we looked at before.314:19:44 Specifically there is the sentence414:19:50 referring to missing documentation, which514:19:53 is the second to last sentence in the614:19:55 first paragraph.714:19:56 And it states "based on the814:19:58 positive trend on the 48 loans, CSC was914:20:02 able to get comfortable that the1014:20:03 remaining 42 loans with missing1114:20:06 documentation would have the same1214:20:08 results, and overall risk exposures for1314:20:12 those loans that were underwritten1414:20:14 outside guidelines. CSC did not find the1514:20:18 issues material enough to remove from the1614:20:20 security."1714:20:20 Do you see that?1814:20:22 A. Yes.1914:20:22 MS. CONCANNON: Object to the2014:20:23 characterization of the document2114:20:25 and the prior exhibits, for the2214:20:27 record.2314:20:27 MR. SELENDY: I'm trying to2414:20:28 ask a question.2514:20:30 MS. CONCANNON: You did a long

Page 656

1 MICHAEL W. SCHLOESSMANN214:20:31 preamble, I was waiting for the314:20:33 question. That's my objection. I414:20:39 object to the preamble. "Do you514:20:41 see that" is acceptable.614:20:49 Q. Was the inclusion of a714:20:51 statement referring to the number of814:20:54 documents with missing documentation a914:20:58 response to the internal audit1014:20:59 recommendation, consistent with the1114:21:02 documents we previously reviewed today?1214:21:04 MS. CONCANNON: Objection;1314:21:05 lacks foundation.1414:21:07 A. I have no idea whether that1514:21:11 statement as to the missing documents1614:21:13 contained in Exhibit B was there by1714:21:16 design or it happened to be because this1814:21:20 was a recent due diligence summary. So I1914:21:23 don't know the basis for that statement2014:21:25 being in there, other than it appears to2114:21:27 be from an actual deal that we had2214:21:29 completed.2314:21:31 Q. Okay. So you don't recall2414:21:32 whether there was an effort to improve2514:21:35 the quality of the disclosures in the

Page 657

1 MICHAEL W. SCHLOESSMANN214:21:37 executive summaries by specifically314:21:39 detailing how CSC evaluated the missing414:21:42 documents in the sample?514:21:44 MS. CONCANNON: Objection.614:21:44 A. I don't recall specifically.714:21:46 I don't, you know, reject the notion. I814:21:48 just don't have, you know, a factual914:21:51 basis to make that statement.1014:21:53 Q. Okay. I would like to show1114:22:31 you a document previously marked as 235.1214:23:23 A. Okay.1314:23:24 Q. Okay. CWHEQ 2007-S1, that's1414:23:30 another MBIA deal; right?1514:23:33 A. It appears to be from your1614:23:35 copy of the complaint, yes.1714:23:36 Q. Okay. And the subject of this1814:23:39 February 21, 2007 email is missing1914:23:43 documents in connection with that deal;2014:23:45 right?2114:23:46 MS. CONCANNON: Objection.2214:23:47 A. It does reference missing2314:23:48 documents in the deal.2414:23:52 Q. What was Stacey Casebolt's2514:23:54 responsibility as of this point in time?

Page 658

1 MICHAEL W. SCHLOESSMANN214:23:57 A. I can see from her title that314:23:59 she would have been within, you know, my414:24:01 organization, and specifically within514:24:04 Debbie Brown's organization. I don't614:24:06 know Stacey or I don't remember who714:24:09 Stacey is.814:24:11 Q. Okay. And she states "with914:24:13 respect to the referenced second lien1014:24:15 deal, we are seeing a high incident rate1114:24:17 of various missing document issues.1214:24:19 Although we have been able to satisfy1314:24:21 some, we still have a high percentage of1414:24:24 missing documents that we were unable to1514:24:26 cure. The vendor and I have gone back to1614:24:30 verify on imaging, VLF, fraud detector1714:24:35 and in the senior lien loan files. We1814:24:37 need secondary's assistance to help cure1914:24:40 and possibly reduce the number of issues2014:24:41 so that we can get to an acceptable2114:24:43 tolerance."2214:24:43 Do you see that?2314:24:45 A. Yes.2414:24:45 Q. Were you aware as of this2514:24:47 point in time that even post-closing,

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Page 659

1 MICHAEL W. SCHLOESSMANN214:24:50 after efforts to cure, there was an314:24:52 unacceptable number of issues with414:24:54 respect to missing documents?514:24:55 MS. CONCANNON: Objection;614:24:56 vague, overbroad, mischaracterizes714:24:58 the document.814:24:59 Q. You can answer.914:25:01 A. I don't know if I would1014:25:05 characterize the incidence as1114:25:08 unacceptable.1214:25:12 Q. Ms. Casebolt said that more1314:25:15 work had to be done to reduce the number1414:25:17 of issues to an acceptable level; right?1514:25:20 MS. CONCANNON: Objection.1614:25:21 A. So as a general matter, our1714:25:24 due diligence employees were charged with1814:25:28 conducting and completing the due1914:25:29 diligence process. And so it was part of2014:25:31 their job to, to the best of their2114:25:36 ability, procure any missing documents so2214:25:39 as to help facilitate the completion of2314:25:42 the due diligence.2414:25:43 There were instances, you2514:25:45 know, where notwithstanding those efforts

Page 660

1 MICHAEL W. SCHLOESSMANN214:25:47 due to time or otherwise, the documents314:25:50 were not obtained. And, you know, any414:25:53 reference to acceptable or unacceptable514:25:57 would have been made, you know, in light614:26:00 of the total deal and what we thought the714:26:02 implications were for the transaction.814:26:05 I think we spent a lot of time914:26:07 talking about, you know, the missing1014:26:09 documents, I've tried to take you1114:26:10 through, you know, how we thought about1214:26:12 missing documents in the context of1314:26:15 materiality. I think the MDMC memo bears1414:26:20 out that, our thinking behind, you know,1514:26:23 the missing documents, as one example.1614:26:26 Q. Ms. Casebolt's email on the1714:26:29 SWHEQ 2007 deal suggests that even after1814:26:33 the post-closing curing effort, there was1914:26:38 still a high percentage of missing2014:26:40 documents.2114:26:41 Do you know whether there was2214:26:43 any restickering of this transaction, as2314:26:45 you suggested earlier?2414:26:46 MS. CONCANNON: Objection;2514:26:47 mischaracterizes the document,

Page 661

1 MICHAEL W. SCHLOESSMANN214:26:48 assumes facts not in evidence.314:26:50 MR. SELENDY: The document414:26:51 speaks for itself.514:26:53 MS. CONCANNON: Same614:26:53 objections.714:26:54 A. To answer your question, I814:26:56 don't know whether this transaction or914:26:58 the disclosure documents for this1014:27:01 transaction was stickered for reasons1114:27:03 related to this note or otherwise. I1214:27:05 don't know whether, you know, and what1314:27:07 the final results were on the1414:27:09 documentation and to what extent we1514:27:12 thought that was, you know, had a1614:27:14 material impact on that disclosure.1714:27:16 This note doesn't answer1814:27:18 either of those questions for me.1914:27:23 Q. Okay, this is February 21,2014:27:26 2007. I'm going to show you a document a2114:27:28 couple of weeks later, March 6, 2007,2214:27:30 also making reference to the same2314:27:33 transaction.2414:27:34 MR. SELENDY: Let's mark that2514:27:35 as 593.

Page 662

1 MICHAEL W. SCHLOESSMANN214:27:39 (Plaintiff's Exhibit 593 for314:27:43 identification, email dated March414:27:45 6, 2007, with attachment,514:27:45 production numbers CWMBIA614:27:45 0008084603 through CWMBIA714:28:07 0008084606.)814:28:07 Q. I'm actually just going to ask914:28:10 you --1014:28:10 THE WITNESS: Can I just make1114:28:11 a note to myself?1214:28:12 MS. CONCANNON: Something1314:28:13 deposition related or something not1414:28:15 deposition related?1514:28:17 THE WITNESS: Something I was1614:28:18 reminded of. I won't remember at a1714:28:21 break.1814:28:22 MR. SELENDY: Your counsel1914:28:23 doesn't want you to write it down2014:28:25 because then I'm entitled to look2114:28:27 at it.2214:28:28 MS. CONCANNON: Even if it2314:28:29 says pick up dry cleaning.2414:28:55 Q. So I'm only going to ask you2514:28:57 about the first page. We produced the

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1 MICHAEL W. SCHLOESSMANN214:28:59 attachment so you had comfort that you314:29:01 had the full document.414:29:05 A. Okay.514:29:06 Q. There is a statement here in614:29:10 the email from Ms. LyBrand, in the middle714:29:16 of the page, "please note, transaction814:29:18 management group, TMG, was able to get914:29:21 comfortable with the missing document1014:29:22 exceptions for inclusion to the1114:29:25 securitizeable pool based on the overall1214:29:27 risk exposure to the security and1314:29:30 sufficient amount of loans we were able1414:29:32 to cure without any material findings."1514:29:32 Do you see that?1614:29:36 A. Yes.1714:29:36 Q. Do you recall any discussion1814:29:38 about how TMG was able to get comfortable1914:29:43 given a reported high incident of missing2014:29:47 documents even after post-closing efforts2114:29:51 just two weeks before?2214:29:52 MS. CONCANNON: Objection;2314:29:53 mischaracterizes Exhibit 235, asked2414:29:57 and answered.2514:29:58 Q. Or do you not recall any

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1 MICHAEL W. SCHLOESSMANN214:29:59 discussions about this issue at the time?314:30:02 MS. CONCANNON: Objection.414:30:03 A. Well, I can't recall514:30:04 specifically at this time, but I have614:30:09 testified previously to discussions and714:30:10 thinking around missing documents. I814:30:12 testified yesterday, for instance, that914:30:15 we had -- I referred to the substantial1014:30:19 body of experience in dealing with1114:30:21 Countrywide issues like missing1214:30:24 documents, and that it was our experience1314:30:26 that when we had identified a document as1414:30:29 missing and sought to expend the time and1514:30:36 effort to procure the document, we had a1614:30:37 very high success rate in so doing.1714:30:40 So what this note -- this note1814:30:42 would appear to me to be entirely1914:30:44 consistent with the approach I2014:30:45 articulated yesterday, in which if we2114:30:49 had, for instance, fifty loans with2214:30:52 missing documents and on the first 25 we2314:30:55 sought to procure we had a very high2414:30:57 success rate, the belief was that there2514:31:00 was no reason to think we wouldn't have a

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1 MICHAEL W. SCHLOESSMANN214:31:02 similar degree of success procuring the314:31:05 remaining documents, and therefore given414:31:08 time constraints or otherwise, we could514:31:10 get comfortable in concept with the idea614:31:14 of not having to go procure every single714:31:17 missing document because of that814:31:19 experience and the conclusions we drew914:31:21 from that experience.1014:31:22 Q. In light of that statement,1114:31:23 are you surprised by the statement in1214:31:25 Exhibit 235 that even after this effort1314:31:27 to cure post-closing there was still a1414:31:30 high percentage of missing documents and1514:31:33 even more work had to be done to get to1614:31:35 an acceptable tolerance?1714:31:37 MS. CONCANNON: Objection;1814:31:38 mischaracterizes Exhibit 235.1914:31:39 Q. It's a little inconsistent2014:31:41 with the other exhibit; isn't it?2114:31:43 MS. CONCANNON: Argumentative.2214:31:44 A. I guess I don't see the same2314:31:46 inconsistency.2414:31:48 Q. Well, you suggested you could2514:31:50 have -- you hoped for a high success rate

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1 MICHAEL W. SCHLOESSMANN214:31:52 in post-closing curing. But that's not314:31:55 what's shown on the immediate exhibit414:31:57 that I gave you, 235, wherein Ms.514:32:00 Casebolt says even after the curing614:32:03 effort, we still have a high incident of714:32:06 missing documents.814:32:07 MS. CONCANNON: Objection;914:32:08 mischaracterizes Exhibit 235.1014:32:11 Mischaracterizes prior testimony,1114:32:12 asked and answered and1214:32:12 argumentative.1314:32:15 A. Sorry, so where are you, I1414:32:17 apologize?1514:32:18 Q. Exhibit 235 was the preceding1614:32:20 document from Ms. Casebolt.1714:32:36 A. Look, I don't know what Casey1814:32:38 or Stacey, rather, was alluding to in1914:32:41 terms of tolerances. The due diligence2014:32:43 employees were charged with trying to2114:32:45 procure missing documents, and they had2214:32:48 tolerance levels they were trying to2314:32:50 operate within. And to the extent we2414:32:53 were outside of any such tolerance, there2514:32:55 would be an analysis and a determination

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1 MICHAEL W. SCHLOESSMANN214:32:58 made as to materiality, and what would be314:33:02 factored into that materiality analysis414:33:04 would be issues such as our experience in514:33:09 procuring missing documents.614:33:12 And did we have any714:33:13 significantly observed experience of814:33:18 finding that documents were not provided914:33:21 at origination, and did we -- and1014:33:25 moreover, did we find that even when we1114:33:27 found the documents, that there would be1214:33:29 material findings within those documents.1314:33:31 I think this exhibit, 593,1414:33:35 suggests and supports what I've testified1514:33:38 to both today and yesterday. That we did1614:33:44 not believe it to be a material issue,1714:33:45 the mere fact that we were missing1814:33:47 documentation. That's not to suggest it1914:33:50 wasn't our desire and intention to2014:33:51 procure every missing document. It would2114:33:54 have been our preference had every2214:33:56 document been there. It was a tremendous2314:33:59 amount of resources we expended in the2414:34:02 course of our due diligence review.2514:34:06 So I'm expressing, yeah, a

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1 MICHAEL W. SCHLOESSMANN214:34:09 preference to have it in there. But the314:34:10 files are the files, and we had to make414:34:13 determinations and risk assessments514:34:15 around the files as they existed.614:34:17 Q. And your preference was to714:34:19 close the deal if you could; right?814:34:20 MS. CONCANNON: Objection;914:34:21 mischaracterizes prior testimony,1014:34:23 argumentative.1114:34:23 Q. Isn't that fair? Wasn't the1214:34:27 imperative of Countrywide Securities to1314:34:30 close as many of these transactions as1414:34:32 possible based on Countrywide Home Loans?1514:34:36 MS. CONCANNON: Objection;1614:34:37 vague, overbroad.1714:34:38 A. Look, I would say with respect1814:34:40 to every transaction participant, be it1914:34:43 issuer, underwriter, investor, monoline2014:34:46 insurer, everybody was participating in2114:34:47 these deals for reasons. So yes, I think2214:34:50 that's a fair characterization that all2314:34:52 transaction participants desired the deal2414:34:54 to close.2514:34:54 Q. Would CSC be paid its fee if

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1 MICHAEL W. SCHLOESSMANN214:34:57 the deal did not close?314:34:59 MS. CONCANNON: Objection;414:35:00 vague, overbroad.514:35:01 Q. You referred to a fee614:35:05 yesterday, I don't recall if it was 25714:35:07 basis points or something else. Was that814:35:09 it?914:35:09 A. An underwriting fee of1014:35:11 typically 25 basis points.1114:35:12 Q. Right. Would CSC be paid its1214:35:15 fee if the deal did not close?1314:35:17 MS. CONCANNON: Objection;1414:35:17 vague, overbroad.1514:35:18 A. We didn't ever have to1614:35:21 necessarily deal with that issue that I1714:35:23 can remember. But our fee was paid out1814:35:25 of the proceeds of the bonds. If there1914:35:28 was no deals, I think you can extend that2014:35:31 to the conclusion that there would be no2114:35:34 fee to take out of the bond proceeds.2214:35:36 Q. Referring back to the first2314:35:39 page of this document, Ms. LyBrand states2414:35:44 at the top, "a total of 22 loans should2514:35:47 be excluded from the pool."

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1 MICHAEL W. SCHLOESSMANN214:35:50 And that was 22 loans out of,314:35:52 if you look toward the bottom, out of the414:35:55 credit sample of 200 loans; right?514:35:57 MS. CONCANNON: Objection;614:35:59 calls for speculation.714:36:04 A. I see the reference to 200814:36:07 loans in the credit sample from Tonya's914:36:09 note, and the 22 recommendation -- 221014:36:12 loans being removed from the pool.1114:36:14 Q. Would in excess of 10 percent1214:36:17 be a high percentage in your view?1314:36:20 MS. CONCANNON: Objection;1414:36:21 vague, overbroad, lacks foundation.1514:36:26 A. I've tried to state all along1614:36:28 that every assessment was done on a1714:36:30 deal-by-deal basis looking at the1814:36:32 totality of the findings, the nature of1914:36:35 the findings, the risk that we perceived,2014:36:39 you know, each finding to imply. And2114:36:42 therefore that, you know, if in fact the2214:36:45 finding rate was 22 out of 200, it would2314:36:51 depend on -- just over 10 percent of it2414:36:55 would depend on the nature of those2514:36:57 issues.

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1 MICHAEL W. SCHLOESSMANN214:36:57 Q. If the sample was chosen to be314:36:59 representative of the population as a414:37:01 whole, would it be fair for us to514:37:03 conclude from this that the expectation614:37:06 was that in excess of 10 percent of the714:37:10 loans would be ineligible for exclusion814:37:13 in the securitization based on the sample914:37:15 results of 22 loans excluded?1014:37:18 MS. CONCANNON: Objection;1114:37:19 incomplete hypothetical, asked and1214:37:21 answered.1314:37:21 A. That wouldn't be my1414:37:22 characterization. The 22 loan finding1514:37:26 does not necessarily speak to eligibility1614:37:29 or ineligibility in the pool. I mean, if1714:37:33 it's a missing document, it doesn't1814:37:35 necessarily render that loan ineligible.1914:37:38 And in our view, as I've2014:37:40 stated previously, you know, particularly2114:37:42 where we've had a substantial amount of2214:37:44 experience that told us that the2314:37:45 documents did in fact exist even if they2414:37:48 were hard to procure, and that once2514:37:50 procured they most often did not reveal

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1 MICHAEL W. SCHLOESSMANN214:37:53 any material fact that would have altered314:37:56 our determination or assessment of that414:37:58 particular loan.514:37:59 Q. Well, although I said I wasn't614:38:01 going to ask you to look at the714:38:03 attachments, I think I have to in light814:38:05 of that response.914:38:06 There is an attachment that1014:38:12 follows after page CW 8084606. The file1114:38:22 was produced natively and then we printed1214:38:24 it out. After this page.1314:38:26 A. Yup.1414:38:26 Q. Then there is a rather large1514:38:28 file.1614:38:29 And that has a listing of1714:38:31 loans, including loans with initial and1814:38:33 final saleability codes. Do you see that1914:38:40 page?2014:38:40 MS. CONCANNON: Objection.2114:38:41 A. Yes.2214:38:41 Q. And the saleability codes here2314:38:43 range from 7 to 5; correct?2414:38:45 MS. CONCANNON: Objection.2514:38:53 Q. Just on this page.

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1 MICHAEL W. SCHLOESSMANN214:38:54 A. The initial or final saleable?314:38:59 Q. Yes. Both initial and final414:39:01 saleability codes for what's on this514:39:05 page.614:39:05 A. I would agree that the report714:39:08 that is a range from 5 to 7.814:39:12 Q. Okay, and 5 to 7, whether it's914:39:15 5, 6 or 7, that means that the loan was1014:39:19 unsaleable using the ranking that CSC1114:39:22 used; correct?1214:39:22 A. I can't recall what the, you1314:39:25 know, I think it I remember what the1414:39:27 saleability code 5 was. I don't know1514:39:32 about 6 and 7.1614:39:33 Q. The number had to be less than1714:39:36 5 for it to be acceptable for inclusion1814:39:39 in this securitization?1914:39:41 MS. CONCANNON: Objection;2014:39:42 asked and answered.2114:39:42 Q. Whatever 6 and 7 meant?2214:39:44 MS. CONCANNON: Objection;2314:39:45 asked and answered.2414:39:45 A. I don't recall the saleability2514:39:46 codes being a rank ordering of issues

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1 MICHAEL W. SCHLOESSMANN214:39:50 necessarily. But I would have to see314:39:52 what the, you know, what the descriptions414:39:56 of each code are.514:39:57 Q. Well, there is some614:39:59 description in the column to the right,714:40:04 "for each of these loans," and let's just814:40:06 take a look at them. Under "CR-EXP-CMT."914:40:11 First of all, do you know what1014:40:12 that means, that heading?1114:40:19 A. I don't believe I do.1214:40:20 Q. Okay. Are you familiar with1314:40:22 this form of report?1414:40:24 A. Not particularly. I don't1514:40:27 know if I've ever, I mean, I wouldn't put1614:40:30 it beyond me ever having seen it. But1714:40:33 there is nothing that, noteworthy about1814:40:36 it that looks familiar.1914:40:37 Q. It's an underwriting summary;2014:40:40 correct?2114:40:40 MS. CONCANNON: Objection to2214:40:41 the characterization of the2314:40:42 document, asked and answered.2414:41:12 Q. If it helps in the cover2514:41:15 email, Ms. LyBrand refers to an

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1 MICHAEL W. SCHLOESSMANN214:41:16 underwriting summary_final as an314:41:22 attachment in the middle of the page. I414:41:25 don't know if that helps.514:41:32 A. Okay. I'm not sure what614:41:33 you're looking for me to.714:41:35 Q. Okay. Well, staying with this814:41:38 column on the front page, are these short914:41:40 summaries of the findings for those1014:41:41 loans?1114:41:42 MS. CONCANNON: Objection;1214:41:43 lacks foundation, calls for1314:41:45 speculation.1414:43:03 THE WITNESS: Are you waiting1514:43:04 for me?1614:43:05 MR. SELENDY: Yes.1714:43:06 Q. Is that column on the right a1814:43:07 short summary of the findings for these1914:43:10 loans?2014:43:10 MS. CONCANNON: Objection;2114:43:11 lacks foundation, calls for2214:43:12 speculation.2314:43:13 A. I don't prepare this,2414:43:14 obviously. So are you asking me just2514:43:18 to --

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1 MICHAEL W. SCHLOESSMANN214:43:18 Q. Is that your understanding?314:43:19 MS. CONCANNON: Objection.414:43:20 Q. I mean, as someone who was in514:43:22 the industry for 28 years, I don't know614:43:28 how many years.714:43:29 A. I'm not that old, thank you.814:43:31 Look, if somebody handed me914:43:33 this report, I would assume that each1014:43:36 line item relates to a single loan. And1114:43:41 that any comments would relate to the1214:43:45 loan indicated in the left most column.1314:43:48 Q. Just you did start in the1414:43:51 industry in '93; didn't you? Am I1514:43:53 mistaken?1614:43:54 MS. CONCANNON: Objection.1714:43:55 Q. Which actually was 28 years1814:43:57 ago.1914:43:57 A. 18. Don't date me. 18 years.2014:44:02 Q. 18 years, you're right.2114:44:04 Sorry. Forgive me. That's the year I2214:44:12 graduated from law school, so that would2314:44:14 have dated me too.2414:44:18 Can you tell whether these2514:44:19 loans on the first page were included or

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1 MICHAEL W. SCHLOESSMANN214:44:21 excluded from the deal, do you have any314:44:23 idea?414:44:24 MS. CONCANNON: Objection;514:44:24 lacks foundation, calls for614:44:26 speculation.714:44:31 A. Just by reviewing the report814:44:32 or taken together with --914:44:33 Q. Taken together with the email1014:44:35 at the front.1114:44:39 MS. CONCANNON: And don't1214:44:40 guess.1314:44:41 A. Then I can't say for certain.1414:44:44 Q. What's your best1514:44:45 understanding?1614:44:46 MS. CONCANNON: Objection.1714:44:48 Based on his reading of the1814:44:50 document he's never seen before?1914:44:51 Q. Yes, based on your reading2014:44:53 given your 18 years expertise and your2114:44:55 position as head of the transaction2214:44:56 management group responsible for the due2314:44:58 diligence and underwriting of these2414:44:59 securitizations and the fact that this is2514:45:01 a report sent by your subordinate, Tonya

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1 MICHAEL W. SCHLOESSMANN214:45:04 LyBrand, I'm sure you've seen various314:45:07 forms of this, you know, countless times.414:45:10 MS. CONCANNON: Objection;514:45:11 mischaracterizes prior testimony.614:45:12 Q. So in light of that, what's714:45:13 your best understanding?814:45:14 MS. CONCANNON: Objection;914:45:15 mischaracterizes prior testimony,1014:45:16 mischaracterizes the document,1114:45:19 which he is not a recipient of,1214:45:22 calls for speculation and1314:45:23 incredibly argumentative.1414:45:24 Q. You can still answer. What's1514:45:29 your best understanding?1614:45:39 MS. CONCANNON: Objection.1714:45:57 THE WITNESS: Am I supposed to1814:45:59 answer the question?1914:45:59 MR. SELENDY: Yes.2014:45:59 MS. CONCANNON: If you can.2114:46:02 A. So if I received this, and I2214:46:07 didn't, I'm supposed to -- you want me to2314:46:09 tell you what my understanding would be?2414:46:13 Q. Yes.2514:46:14 A. If in fact these were

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1 MICHAEL W. SCHLOESSMANN214:46:15 attachments to that?314:46:17 Q. Yes.414:46:18 A. Well, I would -- if in fact514:46:22 there are 22 loans on this report, I'm614:46:25 not sure there is, I'm trying to count714:46:27 quickly, it seems like there is only 21.814:46:30 Q. That's what I count also.914:46:31 A. So that was kind of, again, if1014:46:34 I was consuming this information had it1114:46:39 been sent to me, I would have made that1214:46:41 assumption likely. If the 22 loans tied1314:46:45 out with the schedule, it doesn't for one1414:46:49 reason or another, and I have no idea1514:46:51 why. So, you know, perhaps it calls out1614:46:55 in the questions, I don't know.1714:46:57 Q. Is a missing appraisal a1814:46:58 reason to kick a loan, just going through1914:47:00 some of these reasons? Missing2014:47:03 appraisal, no reserves required per2114:47:06 CLUES.2214:47:06 MS. CONCANNON: Objection;2314:47:08 lacks foundation.2414:47:09 Q. Would that be an adequate2514:47:10 basis to kick a loan?

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1 MICHAEL W. SCHLOESSMANN214:47:12 MS. CONCANNON: Objection;314:47:08 lacks foundation, calls for414:47:13 speculation.514:47:13 Q. From one of these HELOC614:47:15 transactions?714:47:15 MS. CONCANNON: Overbroad,814:47:16 vague.914:47:16 MR. SELENDY: Let me finish1014:47:17 the question.1114:47:17 MS. CONCANNON: Let me get my1214:47:19 objection.1314:47:19 MR. SELENDY: Your obligation1414:47:20 is to wait until I finish my1514:47:22 question.1614:47:22 MS. CONCANNON: I thought you1714:47:23 were done.1814:47:23 Q. So with respect to the HELOC1914:47:25 transaction here, SWHEQ 2007-S1, would a2014:47:29 missing appraisal and no reserves2114:47:32 required per CLUES be a sufficient basis2214:47:34 to kick the loan?2314:47:35 MS. CONCANNON: Objection;2414:47:36 lacks foundation, calls for2514:47:38 speculation, incomplete

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1 MICHAEL W. SCHLOESSMANN214:47:39 hypothetical.314:47:41 A. I've tried to communicate it a414:47:45 number of times that being presented with514:47:48 a finding in isolation without knowing614:47:51 more about the loan is an insufficient714:47:53 basis for me sitting here, many years814:47:56 later, to tell you whether it should have914:47:58 been included or not. You know, there is1014:48:02 nothing that I can see in a cursory1114:48:06 review of this or there are some things1214:48:08 in here that clearly in my mind are not,1314:48:12 you know, dispositive of, you know, to1414:48:15 your term, eligibility, ineligibility.1514:48:18 So you can't make a determination just1614:48:20 reading these comments without knowing1714:48:23 more about the loan. Or at least I1814:48:26 can't.1914:48:26 Q. Okay. And is that true for2014:48:28 all of the comments here, none of these2114:48:30 would be in your view sufficient, just2214:48:32 based on the limited information you2314:48:35 have, to say that loan should not have2414:48:37 been included?2514:48:37 MS. CONCANNON: Objection;

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1 MICHAEL W. SCHLOESSMANN214:48:38 mischaracterizes prior testimony,314:48:43 asked and answered.414:48:43 Q. Is that fair?514:48:46 MS. CONCANNON: Objection.614:48:47 A. If you would like to know my714:48:48 professional opinion as a nonunderwriter.814:48:53 Q. No, what I'm trying to get at914:48:55 is whether the descriptions here, whether1014:48:57 any of them might be sufficient to give1114:48:58 you comfort to say right, that loan1214:49:00 shouldn't be included. And I take your1314:49:02 point that you'd want to see a lot more1414:49:04 information.1514:49:05 So if your answer is the same1614:49:06 for all the others as it is for the top1714:49:08 column, no matter what it says you would1814:49:11 still need more information, then I'm not1914:49:13 going to pester you with the lower2014:49:16 columns.2114:49:16 MS. CONCANNON: Objection.2214:49:17 A. Sorry, lower columns?2314:49:19 Q. Everything after the first2414:49:20 entry. I asked you about the first2514:49:22 entry, missing appraisal, no reserves

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1 MICHAEL W. SCHLOESSMANN214:49:24 required per CLUES. And you said you314:49:26 can't answer just based on that limited414:49:28 amount of data.514:49:31 A. Okay.614:49:31 MS. CONCANNON: Objection.714:49:32 A. In that case, no, I restate my814:49:36 point, that is insufficient basis to914:49:38 determine whether a loan has to be or1014:49:40 could be included or excluded from a1114:49:42 transaction.1214:49:43 Q. Okay.1314:50:06 MR. SELENDY: Let's mark as1414:50:07 594, CWMBIA 10722613 through 615.1514:50:17 615 is a TIF placeholder, which is1614:50:24 reprinted out in part.1714:50:24 (Plaintiff's Exhibit 594 for1814:50:28 identification, email dated March1914:50:29 30, 2007, with attachment,2014:50:08 production numbers CWMBIA 107226132114:50:12 through CWMBIA 10722615.)2214:50:54 Q. I'm just going to ask you2314:50:55 about the first page of the document.2414:50:56 A. Okay.2514:53:12 Just the first page?

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1 MICHAEL W. SCHLOESSMANN214:53:14 Q. Yes. That's all I'll ask you314:53:15 about.414:53:16 A. Okay.514:53:16 Q. In the second full614:53:18 paragraph -- first of all, this is an714:53:19 email from Debora Brown to you, dated814:53:22 March 30, 2007; right?914:53:23 A. It appears to be, yes.1014:53:24 Q. Okay. In the second1114:53:27 paragraph, Debora Brown makes the1214:53:28 statement "LandSafe used a 10 percent1314:53:33 tolerance level and CSC used a 15 percent1414:53:37 tolerance from the appraised value, which1514:53:40 accounts for four of the seven loans1614:53:42 passing."1714:53:43 Do you have an understanding1814:53:44 of what she meant by the 10 percent1914:53:46 tolerance level and the 15 percent2014:53:48 tolerance level?2114:53:49 MS. CONCANNON: Objection;2214:53:50 lacks foundation, calls for2314:53:52 speculation.2414:53:55 A. My general understanding of2514:53:57 our process of conducting property

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1 MICHAEL W. SCHLOESSMANN214:53:58 valuation due diligence was that we had314:54:01 established tolerances given that414:54:04 appraised values are statements of514:54:06 opinion, there is invariably614:54:09 discrepancies that you find between two714:54:11 appraisers looking at the same property,814:54:13 as well as the fact that when you're914:54:15 doing AVMs or broker's price opinions,1014:54:21 instead of an origination appraisal where1114:54:23 an appraiser goes to the site and1214:54:26 actually inspects the inside and outside1314:54:28 of the property, there are potentially1414:54:30 inherent shortcomings of these other more1514:54:33 limited valuation techniques.1614:54:35 And so we had tolerances that1714:54:37 we would, you know, establish. And my1814:54:40 recollection is we had them, and those1914:54:41 tolerances would depend on the LTV of the2014:54:45 loan, with higher LTVs having smaller2114:54:49 tolerances for what should be obvious2214:54:52 reasons.2314:54:53 In any event, when we would do2414:54:55 our property valuation, loans, whatever2514:55:00 tool we were using, to the extent the

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1 MICHAEL W. SCHLOESSMANN214:55:02 results came back with a value within314:55:06 tolerance, there would typically be no414:55:10 further review. If the value was outside514:55:12 of tolerance, that would either result in614:55:15 either a rejection or additional due714:55:17 diligence done on the loan. I'm stating814:55:19 just, you know, the process as I knew it914:55:22 very generally.1014:55:22 Q. And the 15 percent tolerance1114:55:26 would mean if the AVM value came in 151214:55:31 percent below the appraised value that1314:55:35 was in the file, that would be the limit1414:55:37 that CSC used?1514:55:38 MS. CONCANNON: Objection.1614:55:38 Q. If it was a 15 percent1714:55:40 tolerance level.1814:55:41 MS. CONCANNON: Objection.1914:55:42 A. Again, just based on my2014:55:43 understanding and not trying to determine2114:55:46 what Debbie meant.2214:55:48 Q. Right.2314:55:49 A. If, whether it's an AVM value2414:55:52 or anything else, in the normal course of2514:55:55 things we, to my understanding, didn't

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1 MICHAEL W. SCHLOESSMANN214:55:57 kick out loans solely based on their AVMs314:56:00 just because of their inherent414:56:02 reliability issues, you're not looking at514:56:04 the property, you're tapping a public614:56:06 database of, you know, recent sales and714:56:08 the like.814:56:08 But if you were within, if the914:56:10 tolerance was 15 percent, and you were1014:56:12 within that, then the loan would be1114:56:14 deemed to, you know, pass that filter,1214:56:18 anyway.1314:56:19 Q. And when you said the1414:56:22 acceptable tolerances for that difference1514:56:25 between the AVM or other valuation and1614:56:27 the reported appraised value in the file,1714:56:33 depended on LTV, do you recall what the1814:56:36 range of tolerances was?1914:56:37 MS. CONCANNON: Objection.2014:56:38 Q. Any recollection of that?2114:56:39 A. I don't. I stated what, the2214:56:42 most I can specifically recollect is the2314:56:45 higher the LTV, the smaller the2414:56:47 tolerance. I don't remember how many2514:56:48 gradations we had. I seem to recall

Page 688

1 MICHAEL W. SCHLOESSMANN214:56:50 there being two. But that's the extent314:56:54 of it.414:56:54 Q. Do you recall if the other514:56:56 tolerance level was above or below 15614:56:58 percent?714:56:59 MS. CONCANNON: Objection.814:57:00 Q. You said you seem to recall914:57:02 two.1014:57:02 MS. CONCANNON: Objection.1114:57:03 A. Yeah, I don't -- well, my -- I1214:57:11 don't have a specific recollection of1314:57:12 what the two tolerance levels were. I1414:57:15 just, I know for some period of time,1514:57:19 perhaps a long period of time, we had,1614:57:21 again, tolerances that were LTV1714:57:23 dependent. And I can't speak to1814:57:25 specifics.1914:57:25 Q. Was that documented somewhere,2014:57:28 the tolerance for particular LTVs, do you2114:57:32 know?2214:57:32 MS. CONCANNON: Objection.2314:57:33 Q. As some kind of a guideline or2414:57:36 criteria?2514:57:36 MS. CONCANNON: Objection.

Page 689

1 MICHAEL W. SCHLOESSMANN214:57:37 A. I would have expected it to be314:57:38 in our due diligence policies and414:57:39 procedures. But I can't say for sure.514:57:42 Q. So it might be in that due614:57:44 diligence protocol we looked at before?714:57:46 A. I don't -- that -- it could814:57:49 be, it could be in other policies and914:57:51 procedures, particularly those involving1014:57:55 whole loan purchases.1114:57:56 Q. Okay. Okay. Farther down on1214:58:38 the same page, Debora Brown makes a1314:58:41 statement, this is about eight lines up1414:58:43 from the bottom, "we see a lot of1514:58:45 LandSafe appraisals that we do not agree1614:58:48 on value and kick or materially revalue."1714:58:48 Do you see that?1814:58:52 A. Yes.1914:58:52 Q. And then she says "CAMCO," I2014:58:56 don't know what CAMCO is, do you?2114:58:58 MS. CONCANNON: Objection.2214:58:58 Q. C-A-M-C-O?2314:59:00 A. CAMCO was one of our trading2414:59:02 desks that purchased distressed2514:59:05 residential assets. So that would mean

Page 690

1 MICHAEL W. SCHLOESSMANN214:59:09 scratch and dent or nonperforming314:59:11 collateral typically.414:59:12 Q. Is that Countrywide Asset514:59:15 Management Co.?614:59:16 A. Yes.714:59:16 Q. And do you have a general814:59:21 recollection of problems with LandSafe914:59:25 appraisals that CSC did not agree on1014:59:28 value and either kicked or materially1114:59:30 revalued?1214:59:31 MS. CONCANNON: Objection;1314:59:32 vague, overbroad, mischaracterizes1414:59:34 the document.1514:59:35 A. I have a general1614:59:38 recollection -- I have a general1714:59:39 recollection of the subject of this1814:59:44 email, in our efforts to consider using,1914:59:46 you know, LandSafe or LandSafe products2014:59:49 as part of our property value scope. And2114:59:52 I also have a general recollection that2214:59:53 there were times where we or our process2314:59:56 would have called into question some of2414:59:59 the values. But I would not characterize2515:00:01 it as a perception of a problem, just

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61 (Pages 691 to 694)

Page 691

1 MICHAEL W. SCHLOESSMANN215:00:04 that, you know, the value tools that we315:00:06 used, you know, would sometimes identify,415:00:10 you know, loans that were appraised by515:00:13 LandSafe.615:00:15 Q. Do you regard it as not a715:00:17 problem that there were a lot of LandSafe815:00:20 appraisals, according to Debora Brown, as915:00:23 to which CSC did not agree on value and1015:00:26 kicked or materially revalued?1115:00:28 MS. CONCANNON: Objection;1215:00:29 mischaracterizes the document.1315:00:31 Q. That's what she says, right,1415:00:33 we see a lot of appraisals that we do not1515:00:35 agree on value?1615:00:36 MS. CONCANNON: Objection.1715:00:36 A. I have -- look, I don't know1815:00:38 what a lot of appraisals mean. What I do1915:00:41 know is in the course of our due2015:00:45 diligence, you know, of all sorts of2115:00:47 different lenders, appraisers, we had due2215:00:51 diligence, you know, findings. And so,2315:00:54 again, I don't know the context within,2415:00:56 you know, this reference to a lot, I2515:00:58 don't know what that means.

Page 692

1 MICHAEL W. SCHLOESSMANN215:00:59 Q. Well, a lot means more than a315:01:00 little; doesn't it?415:01:01 MS. CONCANNON: Objection.515:01:02 A. But is that a lot meaning in615:01:06 absolute numbers without regard to what715:01:07 percentage of the LandSafe appraisals we815:01:09 looked at? I simply don't know. I915:01:12 can't -- I can read like you can. If I1015:01:15 was reading that and I read a lot, I1115:01:18 would ask further questions of, you know,1215:01:22 the person, you know, describing it that1315:01:25 way.1415:01:25 Q. Well, Debora Brown did send1515:01:28 this to you saying a lot. Do you recall1615:01:29 whether you asked her, well, how many1715:01:31 were there?1815:01:31 MS. CONCANNON: Objection;1915:01:32 argumentative.2015:01:33 A. I wouldn't dismiss the2115:01:35 possibility of me following up with2215:01:37 further questioning. I have no specific2315:01:39 recollection of engaging with Debbie on2415:01:43 this particular email.2515:01:45 Q. Okay.

Page 693

1 MICHAEL W. SCHLOESSMANN215:02:06 MR. SELENDY: You are not315:02:06 going to have to read every page415:02:08 unless your counsel makes you.515:02:12 Let's mark this as 595. It's615:02:16 CWMBIA 8472354 through 2358,715:02:24 together with various attachments.815:02:34 I'm sorry, through 23 -- oh, I see.915:02:49 Through 456. And then the1015:02:51 attachments begin with a1115:02:54 reproduction of the TIF file that's1215:02:56 printed out, and that TIF file is1315:02:59 2357 and 58.1415:03:09 MS. CONCANNON: I may be1515:03:11 misreading the document, but I1615:03:13 don't have what you have, I don't1715:03:15 think.1815:03:15 MR. SELENDY: I think your1915:03:16 colleague found it.2015:03:17 MS. CONCANNON: What I have is2115:03:19 CWMBIA 8472354.2215:03:26 MR. SELENDY: Correct.2315:03:27 MS. CONCANNON: Through 56.2415:03:29 And then my document picks up on2515:03:32 8472365, with a gap in the Bates

Page 694

1 MICHAEL W. SCHLOESSMANN215:03:37 numbers.315:04:02 MR. SELENDY: I think that415:04:03 corresponds to the TIF files. As I515:04:06 mentioned, 57, 58, are TIF files.615:04:09 And I believe if we look through715:04:11 this we're going to see the same815:04:13 thing for each of the other numbers915:04:14 until we get to 65. Yup.1015:04:18 MS. CONCANNON: So what we1115:04:19 have is --1215:04:20 MR. SELENDY: So the way in1315:04:21 which you produced it to us, you1415:04:22 stamped pages 54 through 56, and1515:04:27 then gave us a series of TIF files,1615:04:29 and then continued to stamp from 651715:04:32 until the end.1815:04:34 MS. CONCANNON: I'm not1915:04:35 objecting to the fact that we2015:04:36 produced it to you as a TIF file.2115:04:38 What I'm objecting to is the fact2215:04:39 that its the fact that it's not in2315:04:42 sequentially numbered order. To2415:04:44 the extent you don't intend to ask2515:04:46 any questions about the attachments

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62 (Pages 695 to 698)

Page 695

1 MICHAEL W. SCHLOESSMANN215:04:47 anyway, I think we can look past315:04:50 that.415:04:50 MR. SELENDY: Well, I'm going515:04:51 to ask one question about the615:04:52 attachment, which is -- no, you're715:04:55 right, not about the TIF file.815:05:02 (Plaintiff's Exhibit 595 for915:05:05 identification, email dated March1015:05:06 30, 2007, with the attachments.)1115:05:32 Q. So as you look at this, I am1215:05:34 going to ask you about the first page.1315:05:49 But feel free to look at whatever you1415:05:51 want in there.1515:06:20 A. Okay.1615:06:20 Q. The top of the document1715:06:22 reflects an email that you sent to Brian1815:06:27 Kuelbs on March 30, 2007. Is that right?1915:06:30 A. Appears to be, yes.2015:06:31 Q. How do you say his name?2115:06:32 A. Kuelbs.2215:06:34 Q. Kuelbs, okay.2315:06:37 And the subject line is, from2415:06:40 an email that you're forwarding, "CWABS2515:06:45 2007-S2 fixed seconds, missing docs." Is

Page 696

1 MICHAEL W. SCHLOESSMANN215:06:51 that right?315:06:51 A. Yes.415:06:51 Q. And do you recall why you sent515:06:54 this to Brian Kuelbs?615:06:57 A. I sent it in an effort to give715:07:06 Brian Kuelbs, who is in secondary815:07:08 marketing, he was a senior manager in915:07:10 secondary, and it was an effort to give1015:07:12 him feedback on what we were observing on1115:07:14 CHL loan originations.1215:07:16 Q. And what were you observing on1315:07:17 those loan originations?1415:07:19 A. As it relates to this note,1515:07:23 the incidence level of missing docs.1615:07:29 Q. Specifically what about the1715:07:31 incidence level of missing docs?1815:07:33 A. Just that we had continued to1915:07:34 see, you know, missing documents in the2015:07:37 files that we were due diligencing.2115:07:41 Q. And the email from Tonya2215:07:43 LyBrand, she says "with respect to CWHEQ2315:07:48 2007-S2 and S3, and CWABS 2007-5 and 6,2415:07:55 for all four deals we had to pre-fund due2515:07:58 to high incident rate of missing

Page 697

1 MICHAEL W. SCHLOESSMANN215:08:00 documents in which we could not complete315:08:02 our underwriters' review in time of tie415:08:05 out."515:08:05 Do you see that?615:08:06 A. Yes.715:08:07 Q. What is your understanding of815:08:09 what Ms. LyBrand was conveying there?915:08:12 MS. CONCANNON: Objection;1015:08:13 lacks foundation, calls for1115:08:14 speculation.1215:08:16 Q. I mean, you understood at the1315:08:17 time what she meant; right?1415:08:18 MS. CONCANNON: Objection;1515:08:22 argumentative.1615:08:23 A. In reading this now, and I1715:08:30 recognize that I'm on the original1815:08:32 distribution, it could have meant either1915:08:36 two things. You know, the word pre-fund,2015:08:41 pre-funding, as I know the term, in2115:08:46 connection with the transactions we did,2215:08:48 involved transactions where 100 percent2315:08:51 of the collateral was not allocated to2415:08:53 the deal at closing, and instead the deal2515:08:55 would be partially collateralized by cash

Page 698

1 MICHAEL W. SCHLOESSMANN215:08:58 until loans could be subsequently315:09:01 delivered, which typically happened in415:09:02 the weeks following the closing of the515:09:05 transaction. That's what pre-funding615:09:08 means.715:09:08 Now, whether Tonya meant that815:09:10 versus post-closing due diligence, I915:09:14 don't know. It's certainly possible and1015:09:16 it's easy enough to verify whether these1115:09:19 deals were in fact pre-funded, they would1215:09:21 be in the offering documents. Or1315:09:23 reference to pre-funding would be in the1415:09:25 offering documents.1515:09:26 Q. Okay. And she's referring to1615:09:28 the high incident rate of missing1715:09:30 documents across all four deals, which1815:09:32 made it impossible to complete the1915:09:34 underwriters' review in time; correct?2015:09:36 MS. CONCANNON: Objection.2115:09:49 A. I mean, she states what she2215:09:51 states. We're able to cure several loans2315:09:54 from each of the four deals, however,2415:09:56 there are still, or there is still issues2515:09:58 in which we cannot cure and need to lean

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63 (Pages 699 to 702)

Page 699

1 MICHAEL W. SCHLOESSMANN215:10:03 on secondary for assistance.315:10:06 Q. When she says "we could not415:10:09 complete our underwriters' review in time515:10:10 of tie out," what does that mean, in time615:10:13 of tie out?715:10:14 MS. CONCANNON: Objection;815:10:15 lacks foundation, calls for915:10:16 speculation.1015:10:17 Q. Are you familiar with that1115:10:18 term?1215:10:18 A. I'm familiar with the1315:10:21 reference to tie, tying out is1415:10:24 essentially a reconciliation exercise.1515:10:27 You know, the deadline that I would,1615:10:31 again, in my understanding of the1715:10:35 transactions, would be up until -- you1815:10:38 had a time up until the point where you1915:10:40 had to finalize the population that was2015:10:42 going to be included in the transaction2115:10:45 at the closing date. And therefore you'd2215:10:47 have to essentially lock down the2315:10:49 population, generate the loan schedule2415:10:51 for all the transaction documents.2515:10:53 Whether she meant that or not, I don't

Page 700

1 MICHAEL W. SCHLOESSMANN215:10:55 know. But that's generally how the315:10:58 transactions worked.415:11:00 Q. Okay. And do you recall any515:11:03 discussion with Ms. LyBrand about the615:11:05 inability to complete the underwriting715:11:07 review in time for these four815:11:09 transactions because of the high incident915:11:12 rate of missing documents?1015:11:13 MS. CONCANNON: Objection.1115:11:14 Q. As she says in her email?1215:11:15 MS. CONCANNON: Objection.1315:11:16 A. I mean, I don't have a1415:11:17 specific recollection of this exchange or1515:11:18 these four deals in particular. We've1615:11:21 talked to a great extent about missing1715:11:24 documents.1815:11:26 Q. These are just other examples?1915:11:28 MS. CONCANNON: Objection.2015:11:29 A. This appears to be an example2115:11:32 of the challenge we were having with2215:11:35 missing documentation.2315:11:37 MR. SELENDY: Okay. We need2415:11:39 to change the tape, so we'll go off2515:11:41 the record for a second.

Page 701

1 MICHAEL W. SCHLOESSMANN215:11:42 THE VIDEOGRAPHER: We are315:11:42 going off the record at 3:11 p.m.,415:11:44 this marks the end of tape No. 10.515:11:53 (A recess was taken.)615:23:32 THE VIDEOGRAPHER: We are back715:24:08 on the record at 3:24 p.m., this815:24:13 marks the beginning of tape No. 11.915:24:16 BY MR. SELENDY:1015:24:17 Q. Let me show you a document1115:24:18 previously marked as Exhibit 145.1215:24:44 A. Have we previously reviewed1315:24:45 this?1415:24:45 Q. No, it was marked in a1515:24:48 different deposition.1615:24:48 A. Sorry, I just don't recognize1715:24:50 it immediately.1815:24:51 Q. It's been marked in the case1915:24:53 already, that's all that that means.2015:24:55 A. Okay.2115:24:55 Q. You should take a moment to2215:24:57 review it. And just for your reference,2315:25:02 my question will really be to ask you2415:25:06 what this is.2515:25:57 A. Okay.

Page 702

1 MICHAEL W. SCHLOESSMANN215:25:57 Q. First, are you familiar with315:25:59 this document?415:26:02 A. I have a vague recollection of515:26:06 a bank versus, you know, Countrywide615:26:10 Securities due diligence comparison.715:26:13 Q. And is Debora Brown sending to815:26:16 you a comparison that you asked her to do915:26:18 as to the due diligence of CSC versus1015:26:22 Countrywide Bank?1115:26:23 MS. CONCANNON: Objection.1215:26:24 A. I'm not sure whether I1315:26:25 requested it. But, you know, the email1415:26:27 appears to be coming from Debora and sent1515:26:30 to me. So I will assume on that basis1615:26:32 that I received it and probably reviewed1715:26:35 it.1815:26:35 Q. Do you know why the comparison1915:26:37 was done?2015:26:40 A. Actually, no, I don't remember2115:26:42 why.2215:26:43 Q. Do you recall anything about2315:26:48 the results of the comparison, or the2415:26:52 significance of the test?2515:26:55 MS. CONCANNON: Objection.

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64 (Pages 703 to 706)

Page 703

1 MICHAEL W. SCHLOESSMANN215:26:56 A. No. I'm struggling to315:26:58 remember for starters why it was done.415:27:01 And no, I don't. I remember little, if515:27:03 anything, about the comparison, just that615:27:05 at one point in time, at least one point715:27:07 in time we did a comparison.815:27:09 Q. Do you know if any decisions915:27:11 were reached as a result of this1015:27:13 comparison?1115:27:13 A. I don't.1215:27:14 Q. Do you recall any discussions,1315:27:23 just generally, not necessarily in1415:27:25 connection with this email, about the1515:27:27 differences between the diligencing done1615:27:32 by CSC and that done by Countrywide Bank?1715:27:36 MS. CONCANNON: Objection;1815:27:38 vague, overbroad.1915:27:40 A. I recall more generally2015:27:42 discussions with the bank. We had2115:27:45 numerous discussions around due diligence2215:27:47 since we, on occasion, I can't recall how2315:27:52 frequently, we provided the transaction2415:27:55 management support for their whole loan2515:28:00 acquisitions. And so the topic of the

Page 704

1 MICHAEL W. SCHLOESSMANN215:28:03 appropriate level of due diligence in315:28:05 connection with their, you know, the bank415:28:07 purchases, came up from time to time.515:28:12 Q. If you look at the last three615:28:14 pages of the exhibit, there is a printout715:28:17 of something entitled "fraud review,815:28:20 underwriter worksheet."915:28:24 Do you have that?1015:28:25 A. Yes.1115:28:26 Q. Do you know what this document1215:28:27 is?1315:28:28 A. My understanding is this is a1415:28:41 worksheet to be -- no, I don't have --1515:28:47 I'm guessing, actually. So no, I don't1615:28:50 have a clear understanding.1715:28:53 Q. Do you have any knowledge as1815:28:58 to whether this is a worksheet used by1915:29:00 Countrywide Securities?2015:29:04 A. I don't know that.2115:29:09 Q. Okay. If you take a moment to2215:29:10 look at it. Are the inquiries here2315:29:13 consistent with the type of review that2415:29:15 CSC would conduct for fraud in connection2515:29:17 with its underwriting of loans for

Page 705

1 MICHAEL W. SCHLOESSMANN215:29:19 securitizations?315:29:21 MS. CONCANNON: Objection;415:29:22 vague, overbroad, lacks foundation.515:29:27 A. Would you restate the615:29:28 question, please?715:29:28 Q. Yes. I just want to ask you,815:29:31 as a general matter, whether the fraud915:29:33 review conducted by CSC in connection1015:29:36 with its due diligencing of loan1115:29:39 securitizations is consistent with the1215:29:43 fraud review described on these pages,1315:29:47 bearing in mind that you said you didn't1415:29:48 know whether this was a CSC document or1515:29:51 not.1615:29:51 MS. CONCANNON: Objection;1715:29:52 vague, overbroad, lacks foundation.1815:29:54 A. I don't know to what extent,1915:29:57 you know, this document or the practices2015:30:01 contained in the document represent our2115:30:04 due diligence practices at CSC.2215:30:06 Q. Was there a particular group2315:30:08 in charge of fraud review in connection2415:30:10 with due diligencing for securitization2515:30:13 deals?

Page 706

1 MICHAEL W. SCHLOESSMANN215:30:14 A. Ever?315:30:15 Q. Within CSC.415:30:16 A. Within CSC, any fraud review515:30:22 we conducted as part of our due diligence615:30:24 would have been managed by Debbie Brown's715:30:27 group.815:30:28 Q. Okay.915:30:55 MR. SELENDY: Let's mark as1015:30:56 596, MBIA 15817067 through 7069.1115:30:56 (Plaintiff's Exhibit 596 for1215:31:14 identification, email dated April1315:31:16 6, 2007, production numbers MBIA1415:31:00 15817067 through MBIA 15817069.)1515:32:32 Q. And I'm going to focus my1615:32:34 questions on the first page, if that's1715:32:36 helpful.1815:32:36 A. Okay.1915:32:37 Q. First, do you know what this2015:32:38 document is?2115:32:45 A. It appears to be an email from2215:32:47 Craig Mozilo to me.2315:32:49 Q. And does it reflect in part an2415:32:53 email that you had sent to Mr. Naselow,2515:32:57 if you look farther down the page?

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65 (Pages 707 to 710)

Page 707

1 MICHAEL W. SCHLOESSMANN215:32:58 A. Yes, it does.315:32:59 Q. In your email, you say "I ran415:33:01 into McMurray yesterday and asked him515:33:03 about the CMS score, and he told me that615:33:06 it is designed to rank loans by risk of715:33:09 default. Since this is fundamentally815:33:12 addressed in all of our pricing models,915:33:14 my feeling, for what it's worth, is that1015:33:17 we should be constructing our adverse1115:33:20 sample by reference to criteria which1215:33:23 will best identify those loans with the1315:33:25 greatest risk of mispricing."1415:33:27 Could you explain the points1515:33:29 you were raising here?1615:33:31 MS. CONCANNON: Objection;1715:33:32 vague, overbroad.1815:33:33 Q. You can answer it.1915:33:35 A. What I was trying to get at is2015:33:39 for purposes of developing an adverse2115:33:46 selection methodology, we should not2215:33:48 focus simply on the high risk attributes2315:33:53 that are already known as part of the2415:33:56 loan tape, and consider in pricing, given2515:34:02 that pricing is based on, you know,

Page 708

1 MICHAEL W. SCHLOESSMANN215:34:04 default risk, and that we should be315:34:08 trying to identify variables that our415:34:10 pricing model might not be considering.515:34:15 I think I use one example around a615:34:19 declining real estate market.715:34:22 Q. So in other words -- well, the815:34:27 variables that the pricing models did915:34:29 consider included, I think you mentioned1015:34:31 CLTV, FICO, owner occupancy,1115:34:36 documentation program. Is that right?1215:34:37 MS. CONCANNON: Objection.1315:34:38 A. Those were examples of1415:34:40 attributes that I think are generally1515:34:42 understood to impact, you know, the1615:34:44 pricing on the loan as a result of1715:34:46 performance or perceived performance.1815:34:50 Q. And you were suggesting which1915:34:54 variables -- you gave the example of2015:34:56 geographic pockets with abnormally high2115:34:59 foreclosure rates. Were there other2215:35:03 variables that you had in mind?2315:35:05 MS. CONCANNON: Objection.2415:35:06 A. I can't possibly say this many2515:35:08 years removed.

Page 709

1 MICHAEL W. SCHLOESSMANN215:35:09 Q. Okay.315:35:10 A. I mean, perhaps that's one415:35:12 that came to mind obviously, as I noted515:35:14 it.615:35:15 Q. What was Mr. Naselow's715:35:17 responsibility?815:35:18 A. Craig, I believe at this time,915:35:24 he was certainly with Countrywide Bank.1015:35:26 I believe he was the chief investment1115:35:28 officer, although I'm not sure of the1215:35:31 exact title.1315:35:32 Q. And do you recall whether1415:35:36 any -- there was any follow-up to this1515:35:37 exchange between yourself and1615:35:40 Mr. Naselow?1715:35:41 A. I don't.1815:36:11 MR. SELENDY: Let's mark as1915:36:13 597, CWMBIA 10750120 through 26.2015:36:23 And there is a printout of an2115:36:25 attachment as well.2215:36:25 (Plaintiff's Exhibit 597 for2315:36:30 identification, email dated April2415:36:31 13, 2007, with attachment,2515:36:13 production numbers CWMBIA 10750120

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1 MICHAEL W. SCHLOESSMANN215:36:21 through CWMBIA 10750126.)315:37:22 Q. I'm only going to ask you415:37:24 about the third page, the second to last515:37:27 paragraph on the page beginning with the615:37:29 sentence "prior experience with LandSafe715:37:32 using them as a property inspection815:37:34 vendor was very distressing."915:37:37 A. I'm sorry, third page?1015:37:39 Q. Second to last paragraph on1115:37:40 the page.1215:37:42 MS. CONCANNON: But please do1315:37:43 take the time to review as much of1415:37:45 the document as you need to.1515:39:14 A. Okay.1615:39:16 Q. Okay. First, what was Tim1715:39:18 Knight's responsibility as of November1815:39:23 2006?1915:39:25 A. Tim Knight was in Debbie2015:39:30 Brown's organization. And he was within2115:39:31 our property valuation group. He was an2215:39:36 appraiser by training.2315:39:39 Q. So was he responsible for due2415:39:42 diligencing property valuations?2515:39:45 MS. CONCANNON: Objection.

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1 MICHAEL W. SCHLOESSMANN215:39:46 A. I believe he was.315:39:47 Q. Okay. Do you know why the415:40:01 email chain here was sent to you, among515:40:04 others, on April 13, 2007?615:40:09 A. My general recollection around715:40:22 the use of LandSafe tools in our process815:40:27 was that we had a fairly long running915:40:30 dialogue with LandSafe about using them1015:40:35 and their products. And there were1115:40:37 plenty of exchanges of information in1215:40:39 terms of what we needed for them to be1315:40:41 able to produce. And so as I was part of1415:40:45 those conversations, it would not be1515:40:49 unusual for me to get updates around1615:40:51 developments.1715:40:53 Q. Do you recall taking any steps1815:40:55 after receiving the email which included1915:40:58 Tim Knight's statement that prior2015:41:00 experience with LandSafe using them as a2115:41:03 property inspection vendor was very2215:41:06 distressing?2315:41:07 MS. CONCANNON: Objection.2415:41:07 A. I don't recall specifically2515:41:08 what action I may have taken as a result

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1 MICHAEL W. SCHLOESSMANN215:41:10 of this. I do know there were a number315:41:13 of conversations going back and forth415:41:15 with them where we were communicating,515:41:18 among other things, that their service615:41:21 levels, pricing, service turn around715:41:24 times, and the things cited in this, you815:41:26 know, did not meet our needs.915:41:33 MR. SELENDY: Let's mark as1015:41:34 Exhibit 598, CWMBIA 111320651115:41:43 through 2070.1215:41:45 (Plaintiff's Exhibit 598 for1315:41:47 identification, email dated May 22,1415:41:52 2007, production numbers CWMBIA1515:41:42 11132065 through CWMBIA 11132070.)1615:43:02 Q. Let me know when you're ready.1715:43:16 A. How carefully do I need to1815:43:17 read McMurray's?1915:43:19 Q. I don't know if I can answer2015:43:20 that. I think you should read it so that2115:43:25 you're comfortable with the document. I2215:43:26 will ask you questions throughout this2315:43:28 document. But as always, if you need to2415:43:29 read further after I ask you a question,2515:43:32 you can.

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1 MICHAEL W. SCHLOESSMANN215:43:36 A. Just give me one more minute.315:44:46 Okay.415:44:47 Q. Okay, first, what is this515:44:49 document?615:44:51 A. The document is a collection715:44:54 of emails from me to Jordan, who was in815:45:01 my transaction management group, from915:45:04 Jordan to me. And from John McMurray to1015:45:11 a number of people, including myself.1115:45:19 Q. Okay. On the first page there1215:45:21 is a reference in the email, about the1315:45:26 middle of the paragraph at the bottom.1415:45:29 This is the email to you, is that from1515:45:35 Jordan?1615:45:35 A. Yes, on the first page?1715:45:36 Q. Yes.1815:45:37 A. Yes.1915:45:37 Q. Okay. And he says "we should2015:45:40 probably discuss what constitutes2115:45:43 materiality, as we regularly have2215:45:45 counterparties negotiate the syntax of2315:45:48 certain reps and warrants and I don't2415:45:50 think it is necessary to capture all2515:45:52 differences within the PSA reps and

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1 MICHAEL W. SCHLOESSMANN215:45:54 warrants."315:45:55 Do you see that?415:45:56 MS. CONCANNON: Objection.515:45:57 A. Yes.615:45:58 MS. CONCANNON: I just note715:45:59 this is another document that815:46:01 refers to comments in red.915:46:04 MR. SELENDY: Okay.1015:46:04 MS. CONCANNON: So it may not1115:46:06 be clear who is making various1215:46:07 comments.1315:46:11 THE WITNESS: I obviously1415:46:12 didn't read that carefully enough.1515:46:13 Q. And at the time you received1615:46:14 the document, did you have an1715:46:15 understanding of what was meant by that,1815:46:17 or was that something that you wrote1915:46:18 yourself?2015:46:22 A. Sorry, give me a second.2115:46:36 I think that's, I believe2215:46:38 that's my response to Jordan's question2315:46:42 in the first sentence -- excuse me,2415:46:45 second sentence.2515:46:47 Q. Okay. What did you mean by

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1 MICHAEL W. SCHLOESSMANN215:46:49 saying "what constitutes materiality"?315:46:55 A. So this addresses the request415:47:00 from McMurray that we catalog all of our515:47:07 existing whole loan sale contracts so we615:47:12 could better understand the reps and715:47:14 warranties we made in connection with all815:47:16 of the whole loan sales, in an effort to,915:47:18 you know, dimension or for John to1015:47:21 dimension, you know, risk associated with1115:47:23 those.1215:47:23 And so what one of the things1315:47:25 they had asked us to focus on was to1415:47:28 identify those specific counterparties1515:47:32 and contracts that had reps and1615:47:37 warranties different from what we1715:47:40 considered standard reps and warranties,1815:47:42 where we used the securitization standard1915:47:44 as the benchmark, essentially. So2015:47:47 anything where we went beyond or reps and2115:47:50 warrants that went beyond that in terms2215:47:52 of posing additional risk, he was2315:47:55 interested in having this capture.2415:47:57 My reference to materiality2515:47:59 isn't the contractual materiality that

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1 MICHAEL W. SCHLOESSMANN215:48:02 gets bandied about frequently, but rather315:48:06 because each of these contracts were415:48:10 individually negotiated with515:48:11 counterparties, there may be changes that615:48:14 we would view as inconsequential in terms715:48:17 of altering the overall risk profile of815:48:20 the reps and warrants, and so we didn't915:48:22 want to necessarily have to capture every1015:48:23 single counterparty that might have some1115:48:26 immaterial, you know, difference in reps1215:48:28 and warranties.1315:48:31 Q. When you refer to the standard1415:48:33 securitization reps and warrants, what1515:48:36 does that mean?1615:48:37 MS. CONCANNON: Objection.1715:48:38 A. The reps and warrants1815:48:41 contained in our securitization documents1915:48:45 or with respect to our securitization2015:48:47 programs, there were four different2115:48:50 shelves. They tended to be, you know,2215:48:52 consistent deal over deal. They were not2315:48:54 specially negotiated each time they were2415:48:58 reps and warrants approved by the rating2515:49:00 agencies and, you know, they served as,

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1 MICHAEL W. SCHLOESSMANN215:49:04 as I said, the benchmark for a standard315:49:08 that we were using just to determine415:49:09 where we went above and beyond that on515:49:11 certain transactions.615:49:11 Q. Are those deals where CSC715:49:13 acted as sponsor and gave reps and815:49:15 warrants itself?915:49:16 MS. CONCANNON: Objection;1015:49:17 mischaracterizes.1115:49:18 Q. I'm just trying to understand1215:49:19 what deals fall within that.1315:49:20 A. There was no differentiation1415:49:22 in terms of those deals.1515:49:24 My recollection or general1615:49:27 understanding would be that our, you1715:49:30 know, we used the same depositors as the1815:49:35 mortgage company, the four registered SEC1915:49:39 shelves to issue our own securities. And2015:49:41 therefore we typically did not, you know,2115:49:44 have a different program insofar as reps2215:49:46 and warranties, insofar as I can2315:49:48 remember.2415:49:51 Q. So the reps and warranties in2515:49:52 the standard securitization would be

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1 MICHAEL W. SCHLOESSMANN215:49:54 comparable to the reps and warranties in315:49:56 the MBIA deals; is that right.415:49:57 MS. CONCANNON: Objection;515:49:58 vague.615:49:58 Q. Or is that not right?715:50:00 MS. CONCANNON: Overbroad.815:50:01 A. There may be distinctions915:50:03 between shelves. I think the purpose1015:50:04 here wasn't to, you know, the notion of1115:50:07 the PSAs having, you know, being the1215:50:09 standard or the benchmark, doesn't have1315:50:12 any significance beyond the fact that the1415:50:14 majority of the loans we sold were1515:50:16 securitized. And so that was viewed as a1615:50:19 baseline level of risk.1715:50:21 And so the credit risk1815:50:23 management group, led by John McMurray,1915:50:27 wanted to identify loans that were sold2015:50:29 through channels that had higher or2115:50:31 elevated rep and warrant exposure. You2215:50:34 know, again, relative to, you know, the2315:50:37 bulk of what we sold through2415:50:39 securitization vehicles.2515:50:39 Q. Okay. Would you turn to page

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1 MICHAEL W. SCHLOESSMANN215:50:42 68 of the document. This is part of the315:50:48 email that John McMurray sent; right?415:50:53 A. It appears to be, yes.515:50:54 Q. Okay. So on point 2,615:50:58 representation and warranty, he states715:51:01 "except for loans retained in the bank815:51:02 investment portfolio, we generally seek915:51:05 to sell the risk associated with all1015:51:07 loans we originate or purchase."1115:51:07 Do you see that?1215:51:10 A. Yes.1315:51:10 Q. And did you understand that at1415:51:12 the time to mean that this was a1515:51:14 description of the Countrywide Home Loans1615:51:19 practice with respect to originated1715:51:22 loans?1815:51:23 MS. CONCANNON: Objection.1915:51:26 A. I would -- yes, I would have2015:51:31 understood this to be a general operating2115:51:34 principle for the sale of loans, where2215:51:39 the intention is to transfer the risk and2315:51:41 reward associated with those assets.2415:51:47 Q. Then if you'd refer to the2515:51:49 next page at the top, he states, under

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1 MICHAEL W. SCHLOESSMANN215:51:53 the heading "accounting," "rep and315:51:55 warranty risk above the corporate415:51:57 standard is addressed through a specific515:51:59 reserve and/or balance sheet accrual."615:51:59 Do you see that?715:52:02 A. Yes.815:52:02 Q. And by rep and warranty risk915:52:05 above the corporate standard, did you1015:52:07 understand that to mean risk for reps and1115:52:10 warranties that were materially distinct1215:52:14 from the standard set of reps and1315:52:16 warranties that you described earlier?1415:52:17 MS. CONCANNON: Objection.1515:52:19 A. That is my understanding.1615:52:21 Q. Okay. And what does it mean1715:52:24 to say that risk was addressed through a1815:52:29 specific reserve and/or balance sheet1915:52:31 accrual?2015:52:32 MS. CONCANNON: Objection;2115:52:33 lacks foundation, calls for2215:52:34 speculation.2315:52:34 Q. I mean, do you know what was2415:52:37 meant by that?2515:52:38 A. If we were going to provide

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1 MICHAEL W. SCHLOESSMANN215:52:40 reps and warranties in excess of what we315:52:43 believed the standard was, as evidenced415:52:47 by the reps we made on our securitization515:52:51 transactions, that we would need to have615:52:54 a, you know, book a specific reserve or715:52:57 liability, you know, for that incremental815:53:00 or, you know, risk that we were taking on915:53:03 as a result of making more expansive reps1015:53:07 and warranties.1115:53:07 Q. Was there a standard reserve1215:53:09 taken in these deals so that this would1315:53:11 amount to an additional incremental1415:53:13 reserve on top of the deal?1515:53:15 MS. CONCANNON: Objection;1615:53:16 vague, overbroad, mischaracterizes1715:53:18 prior testimony.1815:53:18 Q. We can focus it to HELOC deals1915:53:20 if you want.2015:53:21 MS. CONCANNON: Objection;2115:53:22 vague, overbroad, lacks foundation,2215:53:24 mischaracterizes prior testimony.2315:53:25 A. I'm not comfortable with my2415:53:27 knowledge base about what the mortgage2515:53:30 company reserved, you know, at this time,

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1 MICHAEL W. SCHLOESSMANN215:53:35 for HELOCs or, you know, any other315:53:37 products for that matter.415:53:39 Q. Okay. Could you look at the515:53:41 bottom of that page, there is a heading615:53:43 "retained risk boundaries."715:53:43 Do you see that?815:53:46 A. Yes.915:53:46 Q. And it says "we previously1015:53:48 provided retained risk boundaries e.g.1115:53:52 see Ingerslev's credit risk retention1215:53:54 policy impact to exceptions dated March1315:53:57 27, '06. These boundaries are most1415:54:00 operative for seconds where we sell the1515:54:02 asset but retain much of the credit risk1615:54:05 through a residual."1715:54:07 What was your understanding of1815:54:08 the statement that we retain much of the1915:54:11 credit risk through a residual?2015:54:13 MS. CONCANNON: Objection;2115:54:13 lacks foundation, calls for2215:54:15 speculation.2315:54:15 Q. Did you understand it at the2415:54:18 time?2515:54:18 A. I don't know what I understood

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1 MICHAEL W. SCHLOESSMANN215:54:19 at the time. I understand that, I don't315:54:24 think, in my mind, there is not a whole415:54:28 lot of ambiguity about it. Our second515:54:30 lien transactions, I think I mentioned615:54:32 this yesterday, our second lien715:54:35 transactions were done predominantly with815:54:38 Countrywide holding the residual915:54:41 interest, which, as I said, was the1015:54:45 security that absorbed losses before1115:54:50 anyone else. And it was, you know,1215:54:55 historically, you know, our practice to1315:54:58 retain, you know, those residuals created1415:55:01 off of second lien transactions.1515:55:23 MR. SELENDY: Let's mark as1615:55:25 599, CWMBIA 14123986 through 92.1715:55:30 (Plaintiff's Exhibit 599 for1815:55:34 identification, email dated May 29,1915:55:36 2007, production numbers CWMBIA2015:55:27 14123986 through CWMBIA 14123992.)2115:56:15 Q. You'll see it's an extended2215:56:17 email chain, but about halfway through it2315:56:19 it's forwarding an email that you sent to2415:56:22 Nancy Deliban.2515:56:31 A. Is that what you want to focus

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1 MICHAEL W. SCHLOESSMANN215:56:33 on?315:56:33 Q. Well, I think you should just415:56:35 read, it's not too long a document.515:56:38 A. Okay.615:56:39 MS. CONCANNON: Please do.715:57:51 A. Okay.815:57:51 Q. Is this an email exchange915:57:53 involving you, among others, in late May1015:57:55 2007?1115:57:55 A. It appears to be, yes.1215:57:57 Q. David Sambol's asking a1315:58:00 question, "what's the story here?" And1415:58:02 that's basically my question too. What's1515:58:05 the story in connection with this email?1615:58:06 MS. CONCANNON: Objection to1715:58:07 form. Can you ask a more specific1815:58:13 question?1915:58:14 MR. SELENDY: I think the2015:58:15 question is clear. Isn't it?2115:58:19 A. Well, a recap of this email2215:58:21 string would indicate that we in capital2315:58:28 markets or Countrywide Securities Corp.2415:58:29 had observed some level of issues around2515:58:32 the prepayment penalty data that was on

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1 MICHAEL W. SCHLOESSMANN215:58:36 the servicing system. And had sought to315:58:40 embark on an effort to learn more about415:58:44 the problem for purposes of confirming515:58:47 its existence and remediating the615:58:50 problem. And that there are references715:58:54 in my note to Jack Schackett from the815:58:59 mortgage company, in terms of, quote,915:59:04 shutting down or shut down the project.1015:59:11 So this was, you know, perhaps an example1115:59:17 of -- well, I won't, strike that.1215:59:20 Q. What were you about to say?1315:59:21 MS. CONCANNON: Objection.1415:59:22 Q. Was it an example of tension1515:59:24 between CSC and CLD?1615:59:27 MS. CONCANNON: Objection.1715:59:29 Q. You can answer that.1815:59:29 MS. CONCANNON: Between CSC1915:59:31 and CLD? Objection.2015:59:35 A. I think you could infer that2115:59:38 from the, you know, exchange.2215:59:43 Q. And the loan administration2315:59:45 data integrity project was a project that2415:59:47 was initiated within CSC; is that right?2515:59:51 MS. CONCANNON: Objection.

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1 MICHAEL W. SCHLOESSMANN215:59:51 A. I'm sorry?315:59:52 Q. Was the loan administration415:59:54 data integrity project part of the CSC515:59:58 effort?616:00:00 A. Where are you seeing that716:00:01 reference, sorry?816:00:02 Q. This is in your email to Nancy916:00:05 Deliban, where you say "I have no idea1016:00:07 why Schackett shut down loan1116:00:09 administration's data integrity project."1216:00:12 A. No, this was, loan admin is1316:00:15 servicing. Servicing is a data integrity1416:00:18 project, that was their project. We may1516:00:23 have had a hand in, you know, influencing1616:00:25 it or bringing to their attention issues1716:00:27 around prepay penalty data, but it was1816:00:30 their responsibility to, you know,1916:00:32 enforce prepayment penalties or2016:00:36 prepayment penalty terms on those loans2116:00:38 that had prepay penalties.2216:00:39 Q. And what was Schackett's2316:00:40 responsibility at this point, May 2007?2416:00:43 A. I believe Jack was the2516:00:45 mortgage company's chief operating

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1 MICHAEL W. SCHLOESSMANN216:00:48 officer. I'm not sure if it says316:00:50 anywhere. But again, I'm not sure416:00:53 exactly the title, but that's my516:00:55 recollection.616:00:56 Q. Was he able as the chief716:00:58 operating officer of the mortgage company816:01:01 to shut down a project within servicing?916:01:05 MS. CONCANNON: Objection;1016:01:06 calls for speculation,1116:01:07 mischaracterizes prior testimony.1216:01:09 A. I don't know if at the time --1316:01:11 my recollection is Jack, that servicing1416:01:14 reported up to Jack at that point in1516:01:16 time. I can't be sure, though. That's1616:01:19 something that could probably be easily1716:01:21 confirmed.1816:01:21 Q. Who had suggested that CSC was1916:01:25 only interested in pointing out CLD's2016:01:28 flaws, as reflected in the second2116:01:31 sentence of your email?2216:01:32 MS. CONCANNON: Objection.2316:01:36 A. I don't recall.2416:01:38 Q. Okay. But did you feel that2516:01:40 CSC was being attacked for trying to

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1 MICHAEL W. SCHLOESSMANN216:01:44 address data integrity problems?316:01:47 MS. CONCANNON: Objection.416:01:47 A. I can only -- I can only go by516:01:53 what I stated in my email.616:01:57 Q. In Nancy Deliban's email, she716:02:00 says "Jack is preventing servicing from816:02:03 helping us clean up the data. You need916:02:05 to help."1016:02:06 Do you see that? That's in1116:02:12 her email to Dave Sambol.1216:02:13 A. I'm sorry, yes.1316:02:15 Q. Were you a part of any1416:02:17 follow-up discussions involving Dave1516:02:20 Sambol or -- well, involving Dave Sambol1616:02:24 with respect to this matter?1716:02:26 MS. CONCANNON: Objection.1816:02:27 A. I don't recall any subsequent1916:02:29 discussions that were had as a result of2016:02:33 this issue.2116:02:33 Q. Do you recall any resolution2216:02:35 of this issue?2316:02:37 A. I don't recall.2416:02:39 Q. Okay. So you don't know2516:02:41 whether any actions were taken in

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1 MICHAEL W. SCHLOESSMANN216:02:42 response to the concerns that were316:02:45 expressed here?416:02:46 MS. CONCANNON: Objection to516:02:47 form.616:02:47 A. Again, I don't recall.716:02:50 Q. Okay.816:02:58 MR. SELENDY: Let's mark as916:03:00 Exhibit 600, document that is1016:03:02 CWMBIA 15974470 through 78.1116:03:08 (Plaintiff's Exhibit 600 for1216:03:10 identification, minutes of the1316:03:11 meeting of the credit risk1416:03:13 management committee, May 29, 2007,1516:03:02 production numbers CWMBIA 159744701616:03:07 through CWMBIA 15974478.)1716:03:47 Q. And my questions here will1816:03:49 focus on pages 7 and 8.1916:04:06 A. 7, the carry over?2016:04:08 Q. The section "performance2116:04:10 outlier" and I'll ask you a bit about2216:04:15 layered risk and the loan manufacturing2316:04:17 remediation project. And then key2416:04:24 initiatives.2516:06:02 A. Okay.

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1 MICHAEL W. SCHLOESSMANN216:06:02 Q. Okay. First, does this316:06:05 document reflect the minutes of the May416:06:06 29, 2007 meeting of the credit risk516:06:10 management committee of Countrywide616:06:14 Financial Corporation?716:06:14 A. That's how it's titled, yes.816:06:17 Q. And you attended that meeting?916:06:18 A. I am listed as an attendee.1016:06:22 So I don't have reason to believe I1116:06:25 didn't attend.1216:06:25 Q. If you turn to page 7, under1316:06:27 the section "performance outlier," in the1416:06:30 middle of the paragraph there is the1516:06:33 statement "Mr. Sambol then expressed1616:06:36 concern around the quality of SLD,1716:06:39 structure loan desk, reporting, stating1816:06:41 that there needs to be more controls1916:06:44 around the process with reporting, and2016:06:46 increased levels of visibility.2116:06:49 Mr. Sambol further explained that there2216:06:51 needed to be a holistic strategy around2316:06:54 how the exception loans are handled, and2416:06:57 the committee entered into an extended2516:06:59 discussion of the current process."

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1 MICHAEL W. SCHLOESSMANN216:07:03 Do you recall anything of that316:07:04 discussion?416:07:05 A. I don't recall a single thing516:07:07 about the discussion.616:07:09 Q. Do you have a general716:07:10 understanding of the concerns that were816:07:11 expressed by Mr. Sambol regarding the916:07:14 quality of structured loan desk1016:07:16 reporting?1116:07:16 MS. CONCANNON: Objection.1216:07:17 A. Nothing more than I can infer1316:07:19 from what you just read.1416:07:21 Q. Okay. At the end of the1516:07:26 paragraph it states "Mr. Sambol then1616:07:29 asked that Mr. Schackett be responsible1716:07:32 for putting together a comprehensive1816:07:35 enterprise wide process in place to1916:07:37 ensure that exception loans were handled2016:07:39 in an appropriate and consistent manner2116:07:42 with respect to pricing, execution,2216:07:45 reserving and origination -- originator2316:07:48 accountability."2416:07:48 Do you see that?2516:07:50 A. Yes.

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1 MICHAEL W. SCHLOESSMANN216:07:50 Q. Do you know whether316:07:52 Mr. Schackett in fact put together such a416:07:54 comprehensive enterprise wide process?516:07:57 MS. CONCANNON: Objection.616:07:57 A. I don't.716:07:58 Q. Did you ever see a draft of816:08:00 any such enterprise wide process916:08:04 protocol?1016:08:04 MS. CONCANNON: Objection.1116:08:05 A. Not that I recall.1216:08:07 Q. The next section refers to1316:08:10 layered risk. What is layered risk?1416:08:13 A. Layered risk generally is1516:08:17 reference to loan attributes, loan risk1616:08:20 attributes, where you have, you know,1716:08:23 multiple risk attributes on a given loan.1816:08:26 Q. Does that increase the level1916:08:30 of risk? What's the significance of the2016:08:32 layering of multiple risk attributes?2116:08:38 A. Yeah, the general2216:08:39 understanding, as I know it, would be2316:08:41 that there is, you know, elevated levels2416:08:43 of risk in the case of loans that have2516:08:45 multiple risk attributes. That might be

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1 MICHAEL W. SCHLOESSMANN216:08:48 greater than the individual risk316:08:50 attributes themselves might otherwise416:08:53 imply.516:08:54 Q. Could you give an example of616:08:55 that?716:08:55 MS. CONCANNON: Objection.816:08:56 A. Based solely on my general916:09:00 understanding of layered risk, if you had1016:09:05 a low doc loan coupled with, you know,1116:09:14 another risk attribute, say a FICO score,1216:09:17 that if you evaluated FICO and doc type1316:09:20 on their own and had some assumption1416:09:24 around default risk associated with each1516:09:26 individual attribute, that when taken1616:09:30 together as part of a loan, that the1716:09:35 impact to performance might be greater as1816:09:39 a whole than the sum of the parts.1916:09:43 Q. Is that equally true if you2016:09:46 have multiple exceptions in a given loan,2116:09:49 that you would need to consider the2216:09:50 layered risk effect of multiple2316:09:53 exceptions?2416:09:54 MS. CONCANNON: Objection;2516:09:55 mischaracterizes prior testimony.

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1 MICHAEL W. SCHLOESSMANN216:09:56 Q. For just the same reason?316:09:57 MS. CONCANNON: Vague and416:09:58 overbroad.516:09:58 A. Hard to address exceptions.616:10:03 As I said earlier, if performance is716:10:07 projected based on, you know, objective816:10:10 loan attributes, and so, you know, to the916:10:13 extent you were, you know, to the extent1016:10:16 the exceptions you were referring to, you1116:10:18 know, were sort of encompassed in the1216:10:20 description I just gave, again, putting1316:10:25 less emphasis on the notion of the1416:10:27 exception and more emphasis on just what1516:10:30 are the loan attributes, you could have a1616:10:32 loan, for instance, within guidelines1716:10:35 that might actually, you know, when you1816:10:38 considered the risk attributes of that1916:10:41 loan, could have a higher expected2016:10:43 default rate than a loan with an2116:10:45 exception. Because it might have, you2216:10:48 know, very low risk attributes other2316:10:51 than, you know, the one exception.2416:10:53 So when I look at layered,2516:10:55 personally, my understanding of layered

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1 MICHAEL W. SCHLOESSMANN216:10:57 risk has more to do with the objective,316:10:59 you know, risk attributes of the loan416:11:01 than any sort of vague notion of an516:11:04 exception.616:11:05 Q. Okay. But if the exceptions716:11:08 concern the fundamental attributes of816:11:10 credit, such as CLTV or FICO score and916:11:13 the like, then I take it for the same1016:11:16 reason you could have a layered risk1116:11:20 problem on the basis that you described,1216:11:22 you could also have a layered risk1316:11:24 problem if you have a problem in more1416:11:28 than one area, say it's CLTV plus1516:11:33 documentation program, or CLTV plus FICO1616:11:38 score?1716:11:38 MS. CONCANNON: Objection.1816:11:39 A. I wouldn't characterize it as1916:11:41 a problem. I would instead characterize2016:11:43 it as, first of all, they're not mutually2116:11:47 exclusive concepts. Like I said, I gave2216:11:50 a very elementary example of layered2316:11:53 risk, attributes, how the risk could be2416:11:55 greater than, you know, the sum of the2516:11:57 individual risk attributes. Right, you

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1 MICHAEL W. SCHLOESSMANN216:12:00 could have exceptions that were316:12:01 encompassed effectively by that sort of416:12:05 description.516:12:05 So yes, it's certainly616:12:07 plausible that the exceptions, to the716:12:10 extent they impacted those very same risk816:12:12 attributes that helped determine or916:12:14 project performance, you could certainly1016:12:17 have a situation like I just described.1116:12:21 Q. Okay. If you'll turn to the1216:12:22 next page. At the top there is the1316:12:25 statement "status of loan manufacturing1416:12:27 remediation projects."1516:12:29 Do you know what that refers1616:12:30 to, the loan manufacturing remediation1716:12:33 projects?1816:12:34 MS. CONCANNON: Objection;1916:12:34 foundation.2016:12:36 MR. SELENDY: I'm sorry,2116:12:37 what's the foundation objection?2216:12:39 The witness has testified he was at2316:12:40 the meeting. He's read the2416:12:44 document. What's your legitimate2516:12:45 objection here?

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1 MICHAEL W. SCHLOESSMANN216:12:46 MS. CONCANNON: My legitimate316:12:47 objection is that you haven't asked416:12:48 whether he received these minutes,516:12:50 you haven't asked whether he616:12:51 reviewed these minutes, you haven't716:12:52 asked whether this is a portion of816:12:54 the meeting he attended. Often916:12:56 attendees did not attend the entire1016:12:59 credit risk committee meetings.1116:13:00 Simply because it indicates that he1216:13:01 was an attendee, does not1316:13:03 necessarily mean that he was even1416:13:04 present for the portion of the1516:13:04 minutes for which you are1616:13:05 inquiring.1716:13:06 Q. Mr. Schloessmann, did you walk1816:13:08 out halfway through the meeting or did1916:13:09 you tend to sit through the whole meeting2016:13:12 here?2116:13:12 MS. CONCANNON: Objection.2216:13:12 A. I have no recollection as to2316:13:13 my participation in this meeting.2416:13:14 Q. Do you have a general2516:13:15 understanding of what the loan

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1 MICHAEL W. SCHLOESSMANN216:13:17 manufacturing remediation projects were,316:13:19 as of May of 2007?416:13:22 MS. CONCANNON: Objection.516:13:23 A. I have a vague recollection of616:13:28 a project by that name. I don't know any716:13:32 of the particulars of the project, other816:13:34 than what the project name implies.916:13:38 Q. What was the -- what were the1016:13:41 projects intended to accomplish, do you1116:13:43 know?1216:13:43 MS. CONCANNON: Objection.1316:13:44 A. Again, my knowledge is1416:13:46 limited. I didn't participate in the1516:13:49 project. My knowledge is limited to, you1616:13:52 know, guessing or inferring from, simply1716:13:54 from the name of the project.1816:13:58 Q. Okay. Earlier we reviewed a1916:14:01 document that talked about problems with2016:14:02 the manufacturing of the loans. Does2116:14:07 this concern, to your understanding,2216:14:09 improving the data in connection with the2316:14:12 origination of loans?2416:14:13 MS. CONCANNON: Objection;2516:14:14 mischaracterizes prior exhibit and

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1 MICHAEL W. SCHLOESSMANN216:14:15 prior testimony.316:14:18 A. I don't remember the specific416:14:19 context, although I remember the516:14:21 reference to the manufacturing, or I616:14:25 think I referred to manufacturing plant.716:14:27 I don't know if it was part of this816:14:28 project. It very well could have been.916:14:32 I don't even remember the date range.1016:14:33 But this is what, May of '07, I thought1116:14:37 the other was '06. But I could be1216:14:39 mistaken.1316:14:39 Q. It was prior to this.1416:14:41 A. So I'm not sure if it would1516:14:44 have fallen under this particular1616:14:45 project.1716:14:46 Q. Okay. If you look farther1816:14:48 down on the page, under "key1916:14:50 initiatives," there is the statement2016:14:52 "Mr. McMurray then reviewed the key2116:14:54 initiatives, starting with the HELOC2216:14:56 default model, reporting that new models2316:14:59 were under development for both the ALLL2416:15:07 and residual valuations, and reviewed the2516:15:09 current approach, statistical VAN as it

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1 MICHAEL W. SCHLOESSMANN216:15:13 compared to the three new approaches;316:15:15 historical roll rate, hybrid and416:15:19 statistical note."516:15:19 Do you see that?616:15:21 A. Yes.716:15:21 Q. Is the HELOC default model the816:15:23 risk pricing default model you referred916:15:25 to earlier, do you know?1016:15:27 MS. CONCANNON: Objection;1116:15:27 foundation, mischaracterizes prior1216:15:29 testimony, assumes a fact not in1316:15:31 evidence.1416:15:31 MR. SELENDY: Notwithstanding1516:15:32 all your counsel's objections, you1616:15:34 can still answer.1716:15:34 A. The loss model, I believe I1816:15:36 referred to loss and prepay models that1916:15:39 we used at Countrywide Securities. There2016:15:42 were models, different models at2116:15:44 different parts of the company. I do not2216:15:46 recall Countrywide Securities having a2316:15:50 HELOC, you know, loss model. So I'm left2416:15:53 to assume that this was a bank, you know,2516:15:57 model.

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1 MICHAEL W. SCHLOESSMANN216:15:57 Q. Do you know anything about the316:15:58 statistical VAN approach that is416:16:01 referenced here?516:16:02 A. I don't.616:16:03 Q. How about the three new716:16:05 approaches that are described here?816:16:07 A. No, I don't.916:16:08 Q. Okay. I show you a document1016:16:23 previously marked as 155.1116:18:03 A. Okay.1216:18:04 Q. Okay. What does this document1316:18:06 reflect?1416:18:08 A. Series of emails regarding a1516:18:14 meeting that was proposed to discuss the1616:18:21 structured finance transaction manager's1716:18:25 involvement in our securitization due1816:18:30 diligence process.1916:18:36 Q. Do you know what precipitated2016:18:40 the meeting?2116:18:45 A. I don't recall specifically2216:18:51 what precipitated the meeting. I recall2316:18:56 a discussion I had with Matt Tomiak, who2416:19:01 I believe was leading this group. And I2516:19:06 conveyed to Matt that while the response,

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1 MICHAEL W. SCHLOESSMANN216:19:09 direct responsibility for due diligence316:19:10 resided in Debbie Brown's area, that I416:19:13 expected the securitization transaction516:19:16 managers to also provide input and616:19:19 oversight in that process.716:19:23 Q. And is the email that Matt816:19:27 Tomiak sends to the CSC structured916:19:30 finance group, cc'ing you, part of that1016:19:32 input given in response to your1116:19:34 direction?1216:19:35 MS. CONCANNON: Objection.1316:19:36 A. I'm suggesting -- I don't have1416:19:40 any reason to believe that any of this1516:19:43 was dictated by me, if that's what you're1616:19:45 asking. My concern, as I recall, was1716:19:49 that we have checks and balances in our1816:19:53 process. And I expected the due1916:19:57 diligence -- or excuse me, the2016:19:58 securitization transaction managers to2116:20:01 have a meaningful role in that process,2216:20:04 even though the direct responsibility for2316:20:07 it resided elsewhere.2416:20:11 Q. Do you recall any discussion2516:20:12 about Matt Tomiak's suggestions with

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1 MICHAEL W. SCHLOESSMANN216:20:15 respect to the executive summary of the316:20:18 due diligence conducted by CSC?416:20:23 A. I'm sorry, did I recall?516:20:24 Q. Any discussion about Matt616:20:27 Tomiak's suggestions of the executive716:20:29 summary of the due diligence process816:20:34 conducted by CSC.916:20:36 MS. CONCANNON: Objection.1016:20:37 A. Specifically, are you1116:20:39 referring to anything specific in this1216:20:40 email?1316:20:41 Q. Yeah, do you recall any1416:20:42 discussions about his suggestions in this1516:20:44 email?1616:20:45 A. No, I don't recall actually,1716:20:48 you know, I know I'm copied on here, I1816:20:51 don't have a recollection of seeing this.1916:20:55 Q. Okay. You don't doubt that it2016:20:56 was sent to you?2116:20:57 A. No, I have no reason to2216:20:59 believe it's not as it purports to be,2316:21:01 which is an email where I'm copied.2416:21:03 Q. Okay. Do you recall any2516:21:06 concern expressed by Matt Tomiak that

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1 MICHAEL W. SCHLOESSMANN216:21:10 phrases such as waived it in and it was316:21:12 not checked due to lack of time are not416:21:14 acceptable?516:21:17 MS. CONCANNON: Objection.616:21:17 Q. As expressed in the first full716:21:19 paragraph on page 362?816:21:24 MS. CONCANNON: Objection.916:21:25 A. I apologize again, do I recall1016:21:26 having conversations around that?1116:21:29 Q. Do you recall any concerns1216:21:30 expressed by him with regard to the use1316:21:33 of phrases like that in the executive1416:21:35 summaries?1516:21:36 MS. CONCANNON: Objection.1616:21:37 A. I don't have a specific1716:21:38 recollection of concerns he expressed1816:21:40 around phrases like this or others. But1916:21:45 again, that's more, you know, the passage2016:21:48 of time.2116:21:49 Q. Do you know whether the2216:21:50 process of preparing executive summaries2316:21:52 changed as a result of your bringing in2416:21:56 the structured finance group to oversee2516:21:59 the process with you?

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1 MICHAEL W. SCHLOESSMANN216:22:01 MS. CONCANNON: Objection;316:22:01 mischaracterizes prior testimony.416:22:05 Q. Did I misstate what you had516:22:06 done?616:22:07 A. Well, the securitization716:22:11 transaction managers, it wasn't as though816:22:13 they were not -- their responsibility was916:22:16 to manage the deal, start to finish.1016:22:20 Including all component parts, even1116:22:23 though it involved other participants,1216:22:25 both internal and external to Countrywide1316:22:27 Securities. So they were essentially1416:22:30 supposed to be the cohesive force to pull1516:22:32 all these constituent parts together.1616:22:35 So it wasn't as though they1716:22:36 had no involvement. I think this email1816:22:39 came as a result of a conversation where1916:22:41 I had conveyed to Matt that I wanted them2016:22:45 to, you know, redouble their efforts or I2116:22:50 wanted to emphasize the importance of2216:22:53 their engagement in that process, not2316:22:55 that it never existed before.2416:22:57 I think following this, to2516:22:58 your question, I'm not sure what

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1 MICHAEL W. SCHLOESSMANN216:23:01 ultimately materialized, although I can316:23:03 make an observation that should be known416:23:05 to all that less than two months later,516:23:08 you know, we never did another616:23:09 securitization transaction when the716:23:11 market shut down in early August.816:23:14 Q. Do you know which916:23:16 securitization transaction managers were1016:23:18 responsible for the MBIA securitizations?1116:23:22 A. No, not off the top of my1216:23:27 head. But every deal was allocated to a1316:23:29 transaction manager. And -- well, I1416:23:35 don't know personally, you know, there1516:23:37 is -- each manager -- excuse me, each1616:23:41 deal did have a transaction manager.1716:23:42 Q. Did you have managers assigned1816:23:44 by product type, so that you'd have a1916:23:46 HELOC securitization manager, for2016:23:48 example?2116:23:48 A. It may have varied over time.2216:23:50 But certainly for periods of time we2316:23:56 had -- certain transaction managers focus2416:23:59 on certain of the trading desks. So yes,2516:24:02 to answer your question, you might have a

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1 MICHAEL W. SCHLOESSMANN216:24:04 manager who had a disproportionate number316:24:07 of HELOC deals relative to anybody else.416:24:09 Q. Do you recall who may have516:24:11 had -- strike that.616:24:11 Did you in fact have a manager716:24:13 responsible for HELOC deals primarily in816:24:16 the period 2004 to 2007?916:24:19 MS. CONCANNON: Objection;1016:24:20 asked and answered.1116:24:20 A. Well, during that period, my1216:24:24 recollection would have been there would1316:24:27 have been more than a single transaction1416:24:28 manager. We had staffed up, some people1516:24:32 had moved on into trading or outside the1616:24:34 firm. So as well as there would have1716:24:37 been a desire to make sure people were1816:24:39 exposed to other transactions as well,1916:24:42 just to, you know, broaden their exposure2016:24:45 and experience.2116:24:46 Q. Do you recall the names of the2216:24:48 transaction managers who handled HELOC2316:24:51 deals during that period, 2004 to 2007?2416:24:53 A. I can think of a couple of2516:24:56 them.

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1 MICHAEL W. SCHLOESSMANN216:24:57 Q. Okay.316:24:59 A. I believe Ted Owens, Ted416:25:03 Bouloukos, Bentley Hodges. I mean, there516:25:14 could have been more. You are free to616:25:18 ask for, you know, the staff, I believe,716:25:21 of the transaction management group. And816:25:23 for all I know, I mean, it could very916:25:26 well be the case that all of them had1016:25:28 some exposure to HELOCs. I just don't1116:25:32 know.1216:25:32 Q. Okay. Would it be the same1316:25:34 name for closed end second deals, or1416:25:36 fixed rate seconds?1516:25:37 A. Possibly.1616:25:38 Q. Okay.1716:25:56 MR. SELENDY: Let's mark as1816:25:57 601, CWMBIA 11141425 to 27.1916:25:57 (Plaintiff's Exhibit 601 for2016:26:08 identification, email dated June2116:26:10 13, 2007, production numbers CWMBIA2216:25:59 11141425 through CWMBIA 11141427.)2316:27:54 A. Okay.2416:27:55 Q. Okay. Can you identify this2516:27:56 document?

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1 MICHAEL W. SCHLOESSMANN216:27:56 A. The document appears to be an316:27:58 email string, first from me to Ryan416:28:07 Watts. And it has, you know, a history516:28:10 leading up to that communication from616:28:16 Ryan, Mike Henderson, Mike Henderson,716:28:18 back to Ryan and so forth, a few more.816:28:21 Q. What do the emails concern?916:28:23 MS. CONCANNON: Objection;1016:28:26 vague.1116:28:27 A. Emails appear to concern a1216:28:32 change in the data fields required by1316:28:35 Moody's, and the resulting impact on our1416:28:40 business in terms of what we needed to do1516:28:42 to be able to accommodate the more1616:28:44 expansive data set that they were1716:28:47 apparently asking for.1816:28:48 Q. There is a reference at the1916:28:49 bottom of the page that says, in the2016:28:53 second, looks like the second sentence,2116:28:55 "some of these data fields result in loss2216:28:57 level hits of 40 percent if the data is2316:29:01 not provided."2416:29:01 Do you see that?2516:29:03 A. Yes.

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1 MICHAEL W. SCHLOESSMANN216:29:03 Q. Is that suggesting that some316:29:05 of the new fields concerned areas where416:29:09 there would be, in effect, missing data516:29:12 for up to 40 percent of the deals?616:29:15 MS. CONCANNON: Objection.716:29:15 Q. 40 percent of the loans?816:29:16 MS. CONCANNON: Objection;916:29:17 mischaracterized the document.1016:29:18 Q. What was your understanding at1116:29:19 the time of what was meant by that1216:29:20 statement?1316:29:21 A. I don't have a recollection of1416:29:22 this particular issue. My general1516:29:28 understanding of the data required and1616:29:31 the impact of not providing the data is1716:29:34 that the rating agencies would1816:29:37 customarily take a more pessimistic view.1916:29:42 So if you weren't able to provide the2016:29:44 data, they assumed the worst.2116:29:46 And I'm inferring, just my2216:29:49 understanding of the email as written, is2316:29:50 that there would be a, you know,2416:29:53 significant hit as a result to loss2516:29:56 levels if we weren't providing the data,

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1 MICHAEL W. SCHLOESSMANN216:30:00 because of the, you know, the worst case316:30:03 assumption.416:30:03 Q. So as of June 2007, missing516:30:05 documents were not acceptable to Moody's616:30:07 at least; right?716:30:08 MS. CONCANNON: Objection;816:30:09 mischaracterizes the document.916:30:10 Q. Is that what that means,1016:30:12 missing data was not acceptable to1116:30:13 Moody's?1216:30:14 MS. CONCANNON: Objection.1316:30:14 A. No, two entirely different --1416:30:17 two entirely different issues.1516:30:19 Q. You said there would be a1616:30:21 significant hit to loss levels if we1716:30:23 weren't providing the data. What did you1816:30:25 mean by that in your testimony?1916:30:27 A. If we weren't providing the2016:30:28 requested data. So going to the last2116:30:33 email in this string, there is a listing,2216:30:38 Ryan is listing out fifteen data elements2316:30:42 that Moody's was asking us to provide.2416:30:47 And my inference of Ryan's note here on2516:30:50 page 1 is that, and my general

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1 MICHAEL W. SCHLOESSMANN216:30:53 understanding of how the rating agencies316:30:55 operated with respect to data416:30:56 requirements, is that they were asking516:30:59 that this data be provided in the tape616:31:03 submissions. Those data fields together716:31:06 with all of the other data fields would816:31:09 be evaluated by them in coming up with916:31:11 loss coverage levels.1016:31:12 And if we were unable to1116:31:14 provide the data under their, you know,1216:31:17 worst case assumption, that was going to1316:31:19 have a meaningful impact on loss levels,1416:31:21 or loss coverage levels, which is1516:31:23 essentially the feedback we get back from1616:31:25 them when we give them a tape, they tell1716:31:27 us, you know, for certain ratings, what1816:31:30 sort of loss coverage levels you need to1916:31:32 achieve a rating.2016:31:33 So it was going to essentially2116:31:35 have a negative impact on loss coverage2216:31:37 levels.2316:31:38 Q. Did you understand that2416:31:39 Moody's was requesting this data in order2516:31:42 to be able to generate a rating as to the

Page 753

1 MICHAEL W. SCHLOESSMANN216:31:46 credit quality of the pool of loans for316:31:48 each of these securitizations?416:31:50 MS. CONCANNON: Objection;516:31:52 assumes facts not in evidence.616:31:54 A. My understanding -- my general716:31:56 understanding of this request and other816:32:01 similar requests for data was that the916:32:05 rating agencies were using that data as1016:32:07 part of their overall evaluation of the1116:32:10 ratings process in connection with1216:32:11 transactions they provided ratings on.1316:32:14 Q. And in particular CSC was1416:32:18 asking the agencies to give ratings as to1516:32:20 the credit quality of the various1616:32:23 certificates in the RMBS securitizations;1716:32:28 right?1816:32:29 MS. CONCANNON: Objection;1916:32:30 vague, overbroad.2016:32:30 Q. Isn't that what you were2116:32:32 seeking, you were seeking ratings from2216:32:34 Moody's, among others, as to the credit2316:32:36 quality of the certificates issued by the2416:32:37 various securitization trusts?2516:32:39 MS. CONCANNON: Are you

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1 MICHAEL W. SCHLOESSMANN216:32:40 talking about this exhibit now or316:32:41 something more general? Just so416:32:44 I'm clear.516:32:46 Q. Are you able to answer that616:32:47 question?716:32:48 A. As a general matter, we816:32:52 weren't seeking, you know, a credit916:32:55 quality assessment, per se. I mean, if1016:32:57 you're talking about the process very1116:32:59 generally, as we've talked about before,1216:33:01 it was, you know, in connection with1316:33:03 transactions, we provide the data, they1416:33:05 provide, you know, loss coverage levels1516:33:07 or credit support levels necessary to1616:33:09 achieve desired ratings, right, all part1716:33:11 of the normal process.1816:33:14 This is nothing outside the1916:33:16 ordinary scope of the rating agency2016:33:20 interaction, this just happened to be a2116:33:21 case where they were expanding their data2216:33:24 elements they required.2316:33:25 Q. A rating, though, at its most2416:33:27 basic, is in fact a statement of credit2516:33:30 quality; right?

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1 MICHAEL W. SCHLOESSMANN216:33:31 MS. CONCANNON: Objection.316:33:31 A. Credit quality, I -- ratings416:33:35 are provided by the rating agencies. And516:33:39 as they would tell you, they express616:33:41 their opinion as to the likelihood of716:33:43 timely receipt of principal and interest816:33:45 on the bonds that are accorded their916:33:47 rating.1016:33:48 Q. So the ratings reflect a view1116:33:50 as to the expected default on recovery1216:33:53 rates?1316:33:54 MS. CONCANNON: Objection.1416:33:54 Q. On the securities; right?1516:33:56 MS. CONCANNON: Objection;1616:33:56 asked and answered,1716:33:57 mischaracterizes prior testimony.1816:33:58 A. As a general matter, the1916:34:01 ratings, in arriving at the ratings, the2016:34:04 rating agencies, depending on the rating,2116:34:09 subject the collateral and the2216:34:12 transaction to certain stress levels. So2316:34:14 the higher the rating given, the higher2416:34:17 the stress you subject the collateral and2516:34:21 transaction to.

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1 MICHAEL W. SCHLOESSMANN216:34:25 Q. Would you agree with me that316:34:27 the ratings reflect a view as to the416:34:29 expected default and recovery rates of516:34:32 the securities?616:34:33 MS. CONCANNON: Objection;716:34:33 asked and answered.816:34:34 Q. As a general matter?916:34:35 MS. CONCANNON: Objection;1016:34:36 asked and answered.1116:34:37 A. Look, I would characterize it1216:34:38 as I previously did. The ratings express1316:34:42 an opinion as to the likelihood of timely1416:34:48 receipt and repayment of principal and1516:34:51 interest on the bonds being rated. So1616:34:53 there are different, from a AAA down to,1716:34:55 all the way down to a single B rating,1816:34:59 there are gradations of likelihood of1916:35:02 timely receipt of principal and interest.2016:35:05 As dictated or evaluated by the rating2116:35:09 agencies.2216:35:09 Q. Another way of expressing the2316:35:11 likelihood of repayment of principal and2416:35:13 interest is the likelihood of default on2516:35:17 principal or interest; right?

Page 757

1 MICHAEL W. SCHLOESSMANN216:35:18 MS. CONCANNON: Objection;316:35:19 asked and answered,416:35:20 mischaracterizes prior testimony.516:35:23 MR. SELENDY: It's not616:35:24 characterizing prior testimony.716:35:25 Again, you're totally out of816:35:27 line in your objections. We do916:35:28 have the record here. But in the1016:35:29 interest of trying to move forward,1116:35:32 I'd like to see if you could answer1216:35:34 my question.1316:35:34 MS. CONCANNON: As I stated1416:35:35 previously, I will state the basis1516:35:37 happily for any of my objections.1616:35:39 I am able to give one word grounds.1716:35:41 MR. SELENDY: I'm noting for1816:35:42 the record. We're noting your1916:35:43 objections today. We are going to2016:35:45 watch you in the future. And we2116:35:47 have a record made throughout these2216:35:48 days.2316:35:48 I've tried not to call you on2416:35:50 it too many times in the interest2516:35:52 of proceeding. But you're

Page 758

1 MICHAEL W. SCHLOESSMANN216:35:53 completely out of line. I'm going316:35:55 to ask my question.416:35:55 MS. CONCANNON: Mr. Selendy,516:35:57 the only thing that has been616:35:58 disruptive is your lectures to me716:36:02 on my ability to object under New816:36:04 York CPLR. You have been916:36:06 completely out of line which your1016:36:08 lectures.1116:36:08 I will state for the record1216:36:09 that we have reviewed your1316:36:10 transcripts, and both Ms. Sheth and1416:36:12 Mr. Cohen have made very similar1516:36:14 objections to the types of1616:36:15 objections that I've been making1716:36:17 today. So before you attack me for1816:36:19 the way in which I have been1916:36:21 defending this deposition, I would2016:36:22 ask that you look at your own2116:36:23 conduct as well.2216:36:24 And again, under the CPLR it2316:36:27 is entirely permissible for me to2416:36:30 state one word grounds as to the2516:36:32 basis of my objection, which is all

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1 MICHAEL W. SCHLOESSMANN216:36:34 that I have been doing over the316:36:36 course of two days.416:36:37 MR. SELENDY: If you had one516:36:38 word --616:36:39 MS. CONCANNON: The record716:36:39 will also reflect --816:36:41 MR. SELENDY: This is not one916:36:42 word.1016:36:42 MS. CONCANNON: -- you asked1116:36:43 the same question, five, six,1216:36:44 seven, twelve times throughout the1316:36:46 course of two days of testimony.1416:36:47 MR. SELENDY: May I have the1516:36:48 question read back, please.1616:37:06 (Record read as requested.)1716:37:07 MS. CONCANNON: Objection;1816:37:14 asked and answered.1916:37:15 A. I'm puzzled because I haven't2016:37:17 thought of it in those exact terms. I2116:37:19 would let the ratings and what they mean2216:37:21 stand on their own, you know, as2316:37:24 expressed by S&P, Moody's, Fitch, and2416:37:27 other rating agencies.2516:37:28 If you're asking, in terms of

Page 760

1 MICHAEL W. SCHLOESSMANN216:37:30 assessing the likelihood of timely316:37:33 receipt of interest and principal on416:37:34 bonds that are being rated, whether that516:37:36 has any relationship to the underlying616:37:40 collateral, I would say yes, it does.716:37:42 I'm not sure that's what you were asking.816:37:46 Q. Close enough, thank you.916:37:50 If you'll turn to page 427 of1016:37:54 the document. One of the data fields1116:37:58 requested by Moody's was debt to income;1216:38:00 right?1316:38:01 A. Yes.1416:38:01 Q. And was that a problem for1516:38:05 Countrywide, do you recall?1616:38:07 MS. CONCANNON: Objection;1716:38:07 vague, overbroad.1816:38:09 A. I've stated in my prior1916:38:13 testimony that we, the reason we didn't2016:38:16 disclose it in our transactions was we2116:38:19 were concerned about reliability.2216:38:22 Moody's was asking for it here. I2316:38:25 presume they were not asking for it2416:38:26 before. You know, given that this is2516:38:31 June and the requirements probably didn't

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1 MICHAEL W. SCHLOESSMANN216:38:35 take effect since we got advance notice316:38:37 of it until July, I really don't know416:38:39 whether it ended up being consequential516:38:41 at all.616:38:42 Q. Because you didn't do further716:38:43 securitizations where you would have had816:38:46 to provide that?916:38:46 MS. CONCANNON: Objection.1016:38:47 A. Beyond July we didn't do1116:38:49 another new issue securitization.1216:38:51 MR. SELENDY: The tape needs1316:38:52 to be replaced. What I would1416:38:54 suggest is we take a short break,1516:38:58 maybe five minutes, whatever you1616:39:00 want, and I'll try and finish in1716:39:02 the next session after we come1816:39:05 back.1916:39:06 THE VIDEOGRAPHER: We are2016:39:06 going off the record at 4:39 p.m.,2116:39:08 this marks the end of tape No. 11.2216:39:11 (A recess was taken.)2316:48:12 THE VIDEOGRAPHER: We are back2416:48:13 on the record at 4:48 p.m., this2516:48:16 marks the beginning of tape No. 12.

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1 MICHAEL W. SCHLOESSMANN216:48:24 BY MR. SELENDY:316:48:18 Q. Let me show you a document416:48:20 previously marked as Exhibit 108.516:49:00 A. Okay.616:49:03 Q. Okay. Have you seen this716:49:07 document before?816:49:09 A. I believe I have, at least916:49:13 parts of it.1016:49:15 Q. Okay. What was Josh Adler's1116:49:18 position as of June 2007?1216:49:21 A. I believe he's managing1316:49:24 director in secondary marketing.1416:49:26 Q. Okay. And Ted Owens' position1516:49:29 at the same time?1616:49:30 A. Ted Owens was, I don't know1716:49:33 his title, but he was within our1816:49:35 transaction -- securitization transaction1916:49:37 management group, structured finance and2016:49:39 banking, within my group.2116:49:40 Q. And is it fair to say that as2216:49:42 of this point in time, there was still a2316:49:47 live issue on the part of investors as to2416:49:49 why CSC was not disclosing DTIs on2516:49:54 Countrywide loans?

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1 MICHAEL W. SCHLOESSMANN216:49:55 MS. CONCANNON: Objection.316:49:58 A. I think there was -- what I416:50:02 will say is I think there was still516:50:04 investor interest in getting DTI from the616:50:07 mortgage company. It wasn't CSC's data.716:50:12 Q. And if you look at the last816:50:14 page, there is an email written to you,916:50:21 right?1016:50:21 A. Yes.1116:50:21 Q. Is that from Rob Graham?1216:50:25 A. Yes, it appears to be.1316:50:26 Q. And what was his position at1416:50:28 that time?1516:50:28 A. Rob was on our ARM desk,1616:50:34 trading desk, and traded, specifically1716:50:38 traded in, you know, credit sensitive,1816:50:40 you know, bonds. So essentially the1916:50:42 lower rated bonds that had more credit2016:50:44 exposure.2116:50:45 Q. Okay. And he writes to you2216:50:47 saying "if I were an investor, I might2316:50:49 wonder why CSC doesn't disclose DTIs when2416:50:53 it securitizes CW loans. In fact, I2516:50:57 might buy into the street story that CSC

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1 MICHAEL W. SCHLOESSMANN216:51:00 securitizes the sh*t CHL loans, e.g. is a316:51:13 dumping ground of kickouts and weak416:51:16 credit loans. I might ask myself what516:51:18 does CSC have to hide."616:51:18 Do you see that?716:51:22 A. Yes, I'm sorry.816:51:23 Q. And he goes on to say "CSC,916:51:25 where the playing field isn't level (to1016:51:29 our collective detriment)."1116:51:29 Do you see that?1216:51:33 A. I do.1316:51:34 Q. Did you talk with him about1416:51:35 that issue?1516:51:36 A. I don't remember if we had a1616:51:37 conversation or I just received his1716:51:38 email.1816:51:39 Q. And you forwarded on his email1916:51:41 to Josh Adler; is that right?2016:51:50 MS. CONCANNON: Objection.2116:51:57 Q. Who did you forward the email2216:51:58 to?2316:51:59 MS. CONCANNON: Objection.2416:52:00 A. I'm not sure. I'll trying to2516:52:03 figure that out. I can't tell if I did

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1 MICHAEL W. SCHLOESSMANN216:52:05 forward it.316:52:06 Q. I see. Did Ted Owens forward416:52:08 that to Josh Adler cc'ing you?516:52:11 A. It looks that way, yes.616:52:12 Q. Okay.716:52:16 MR. SELENDY: Let's mark as816:52:17 Exhibit -- this is previously916:52:20 marked.1016:52:20 Q. I show you a document1116:52:22 previously marked as Exhibit 132. And my1216:52:43 first question to you will be whether you1316:52:45 can identify what this exhibit is.1416:52:47 A. It appears to be an internal1516:52:49 audit department review of enterprise1616:52:51 wide asset securitization.1716:52:52 Q. And was this basically end of1816:52:54 year 2007?1916:52:55 A. It's dated December 6, 2007.2016:52:58 Q. If you turn to page 1 of the2116:53:01 memorandum. It's 402, Bates number 402.2216:53:06 In the conclusion, it states --2316:53:10 A. I'm sorry, hold on. Got it,2416:53:12 402.2516:53:14 Q. Do you see the section that

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1 MICHAEL W. SCHLOESSMANN216:53:19 says "the following conclusions were316:53:21 reached during our review?416:53:22 A. Yes.516:53:22 Q. And it states, in the first616:53:25 subpoint, "internal controls over asset716:53:28 securitization require improvement.816:53:32 Recommendations from prior year were not916:53:34 fully implemented resulting in partial1016:53:37 repeat findings for SMD and Countrywide1116:53:41 Securities Corporation."1216:53:41 Do you see that?1316:53:42 A. Yes, I do.1416:53:43 Q. Did you have any discussion1516:53:45 with internal audit as to its conclusion1616:53:48 that recommendations from the prior year1716:53:52 had not been fully implemented with1816:53:55 regard to Countrywide Securities1916:53:56 Corporation?2016:53:56 MS. CONCANNON: Objection.2116:53:57 A. I don't have any specific2216:53:59 recollection in discussing this2316:54:02 particular audit with them. It would not2416:54:04 have been unusual for me to both receive2516:54:07 and discuss these findings.

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1 MICHAEL W. SCHLOESSMANN216:54:10 Q. Do you know why the316:54:11 recommendations from the prior year had416:54:13 not been fully implemented as to516:54:15 Countrywide Securities Corporation?616:54:17 MS. CONCANNON: Objection;716:54:17 mischaracterizes the document.816:54:19 Q. As stated in the document on916:54:20 page 1.1016:54:21 MS. CONCANNON: Objection;1116:54:22 assumes facts not in evidence.1216:54:24 A. I do not, although I think1316:54:27 it's noteworthy to point out that this is1416:54:31 at a time where four months have passed,1516:54:34 four plus months had passed since we did1616:54:36 a securitization and we were not, you1716:54:40 know, intending to do any securitization1816:54:43 imminently because of the markets.1916:54:47 Q. But you don't have any2016:54:48 understanding of why before the time that2116:54:50 CSC stopped underwriting new deals, the2216:54:54 recommendations of internal audit had not2316:54:56 been fully implemented?2416:54:58 MS. CONCANNON: Objection.2516:55:00 A. I don't know which one, I

Page 768

1 MICHAEL W. SCHLOESSMANN216:55:02 haven't had an opportunity to review, I316:55:03 don't know which ones they were416:55:04 suggesting were not fully implemented and516:55:07 why.616:55:21 Q. If we look through the716:55:22 document, there are certain headings816:55:24 saying partial repeat finding. For916:55:27 example, in heading 2, it states "CSC1016:55:32 underwriting due diligence documentation1116:55:34 does not provide adequate support and1216:55:37 rationale for the conclusions reached."1316:55:40 A. I apologize.1416:55:41 Q. This is page 17. Sorry, 7 of1516:55:45 the document.1616:55:47 A. Okay.1716:55:51 Q. Are you there?1816:55:55 A. Yes.1916:55:56 Q. So in heading 2, it states2016:55:59 "CSC underwriting due diligence2116:56:00 documentation does not provide adequate2216:56:02 support and rationale for the conclusions2316:56:04 reached. Results and conclusions are not2416:56:07 documented clearly and accurately in the2516:56:09 executive summary." Then it states

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1 MICHAEL W. SCHLOESSMANN216:56:12 "partial repeat finding CSC."316:56:12 Do you see that?416:56:18 A. Yes.516:56:19 Q. Do you recall expressing any616:56:21 disagreement at the time with internal716:56:24 audit's finding that the CSC underwriting816:56:28 still did not provide adequate support916:56:30 and rationale for conclusions in the1016:56:33 executive summary?1116:56:34 MS. CONCANNON: Objection;1216:56:35 mischaracterizes the document.1316:56:44 A. I don't recall specific1416:56:44 conversations I had in connection with1516:56:46 this audit. We spoke earlier about a1616:56:48 similar audit finding in connection with1716:56:50 an earlier audit, and I stated the issues1816:56:53 that I had. Whether or not I1916:56:54 communicated those directly or through my2016:56:57 team to internal audit, they were well2116:56:58 aware of the challenges we thought in,2216:57:03 you know, complying with their request.2316:57:13 MR. SELENDY: Let's mark as2416:57:14 Exhibit 602, CWMBIA 12863199 to2516:57:20 3201.

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1 MICHAEL W. SCHLOESSMANN216:57:21 (Plaintiff's Exhibit 602 for316:57:24 identification, email dated July416:57:28 18, 2008, production numbers CWMBIA516:57:17 12863199 through CWMBIA 12863201.)616:57:54 Q. This is dated July 18, 2008.716:58:07 A. Okay.816:58:08 Q. Are you able to identify this916:58:09 document?1016:58:11 A. I'm not. I don't know if you1116:58:14 have the attachment. I'm not sure. I1216:58:17 mean, obviously it purports to be an1316:58:20 attachment on HELOC residual valuation,1416:58:25 just by virtue of the caption. But I1516:58:27 can't tell.1616:58:27 Q. On the second page at the1716:58:29 bottom it says "attachment deleted by1816:58:31 Michael Schloessmann."1916:58:31 Do you see that?2016:58:33 A. Yeah.2116:58:34 Q. Do you know whether you2216:58:36 deleted the attachment?2316:58:37 MS. CONCANNON: Objection.2416:58:40 A. I have no idea.2516:58:41 Q. Okay. Do you know what the

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1 MICHAEL W. SCHLOESSMANN216:58:44 subject is, the HELOC residual valuations316:58:48 that's reflected in the subject line of416:58:49 the email?516:58:56 A. Other than the caption, I616:58:57 mean, I assume it has something to do716:58:59 with the residuals we held on balance816:59:01 sheet, as I stated earlier, which was the916:59:03 majority of the second lien transactions1016:59:05 we did.1116:59:05 Q. On the first page you ask Alex1216:59:10 Panin two questions, the first one is1316:59:14 "what about any fixed seconds residuals1416:59:18 that we have on the books? Same1516:59:19 conclusion about there being no monoline1616:59:21 default exposure."1716:59:26 Do you recall what you were1816:59:27 asking in those questions?1916:59:27 A. Other than what -- same2016:59:31 conclusion about there being no monoline2116:59:34 default exposure.2216:59:42 If left to guess -- I'm not2316:59:44 supposed to guess.2416:59:48 Q. What's your best understanding2516:59:50 of what you meant when you wrote this

Page 772

1 MICHAEL W. SCHLOESSMANN216:59:51 email?316:59:52 MS. CONCANNON: Objection;416:59:52 asked and answered.516:59:53 A. I don't have any recollection616:59:54 of sending this. I'm just trying to --716:59:58 reading it does not spark in me a817:00:01 recollection. So I'm literally stuck917:00:05 with the words and trying to figure out1017:00:06 what was meant.1117:00:07 Q. What does monoline default1217:00:09 exposure mean to you?1317:00:13 A. Whether, well, in the1417:00:21 abstract, monoline default exposure to me1517:00:23 would mean do we have exposure by virtue1617:00:26 of our residual holdings if the monolines1717:00:31 default. But, you know, that's a guess.1817:00:37 That's my best guess at those words.1917:00:40 Q. So you have no idea today what2017:00:42 you meant when you said same conclusion2117:00:44 about there being no monoline default2217:00:47 exposure?2317:00:47 A. Not without more context.2417:00:49 MR. SELENDY: Okay. We'll see2517:00:52 if we can locate the attachment.

Page 773

1 MICHAEL W. SCHLOESSMANN217:00:55 But in the form that this email was317:00:57 produced to us, it was deleted.417:01:04 Let's mark as Exhibit 603,517:01:08 BACMBIA-A92326 through 92328.617:01:14 (Plaintiff's Exhibit 603 for717:01:26 identification, document entitled817:01:26 "Countrywide Financial Corporation917:01:28 repurchase operations committee1017:01:30 charter," production numbers1117:01:08 BACMBIA-A92326 through1217:01:13 BACMBIA-A92328.)1317:01:34 MS. CONCANNON: Philippe, I am1417:01:35 going to claw back this document on1517:01:37 the record as subject to our1617:01:38 current pending or your current1717:01:41 pending motion to compel repurchase1817:01:44 related documents. I'll note for1917:01:46 the record that this appears to2017:01:50 have been prepared on or around2117:01:53 September 30, 2008, which is after2217:01:56 the date on which the litigation2317:01:57 was filed.2417:02:00 MR. SELENDY: What is the2517:02:01 basis of your claw back? Are you

Page 774

1 MICHAEL W. SCHLOESSMANN217:02:04 asserting that it's a privileged317:02:05 document?417:02:07 MS. CONCANNON: I am asserting517:02:08 that consistent with the affidavits617:02:11 of our witnesses, Shareef Abdou and717:02:15 David Sobul, submitted in817:02:18 connection with our opposition to917:02:19 your motion to compel on Monday,1017:02:21 that the formation of the ROC, the1117:02:26 committee charter of the ROC, and1217:02:28 events subsequent to February of1317:02:31 2008 regarding the operations of1417:02:33 that committee are attorney-client1517:02:36 privileged, attorney work product1617:02:38 and attorney trial preparation1717:02:40 privileged. And that's the basis1817:02:42 for my claw back of the document.1917:02:44 MR. SELENDY: Okay. I2017:02:45 disagree with the assertions of2117:02:49 privilege and work product2217:02:51 protection. But in light of your2317:02:53 statement and instruction, I assume2417:02:57 to the witness, I won't ask about2517:02:59 this document. However, we're

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1 MICHAEL W. SCHLOESSMANN217:03:00 reserving our right generally to317:03:03 ask this witness to come back in417:03:05 connection with repurchase517:03:08 requests, including specifically617:03:09 relating to the repurchase717:03:10 operations committee, pending the817:03:13 result of the motion that's917:03:14 presently in front of the judge.1017:03:17 And with that I have no1117:03:18 further questions as of today.1217:03:21 Thank you.1317:03:22 THE WITNESS: Thanks.1417:03:28 MS. CONCANNON: Let's take a1517:03:29 short break.1617:03:30 THE VIDEOGRAPHER: Going off1717:03:30 the record at 5:03 p.m.1817:03:34 (A recess was taken.)1917:16:46 THE VIDEOGRAPHER: We are back2017:16:46 on the record at 5:16 p.m.2117:16:49 EXAMINATION BY2217:16:50 MS. CONCANNON:2317:16:50 Q. Mr. Schloessmann, I just have2417:16:52 a few follow-up questions about some of2517:16:54 the exhibits that were marked during your

Page 776

1 MICHAEL W. SCHLOESSMANN217:16:55 two days of testimony. And I've placed a317:16:58 stack of those in front of you.417:17:00 The first is Exhibit 573. Do517:17:03 you recall being asked some questions617:17:04 about this document yesterday?717:17:08 A. I do.817:17:09 Q. Do you know who authored this917:17:11 document?1017:17:12 A. I don't.1117:17:13 Q. Do you know when this document1217:17:14 was authored?1317:17:19 A. I don't.1417:17:23 Q. Do you know how the person who1517:17:25 authored this document received a copy of1617:17:28 your white paper that you discussed1717:17:31 yesterday during your testimony?1817:17:33 A. I don't.1917:17:34 Q. Do you know who provided the2017:17:35 person who authored this document with a2117:17:37 copy of your white paper?2217:17:39 A. No.2317:17:40 Q. Do you know why the person who2417:17:43 authored this white paper received a2517:17:46 copy -- the person what authored Exhibit

Page 777

1 MICHAEL W. SCHLOESSMANN217:17:49 573 received a copy of your white paper?317:17:52 A. No.417:17:53 Q. Do you know whether the person517:17:54 who authored this document discussed it617:17:56 with anyone else before offering the717:17:59 opinions set forth here?817:18:00 A. No.917:18:01 Q. Did you ever receive a copy of1017:18:03 this document?1117:18:05 A. Don't recall ever seeing this1217:18:06 before.1317:18:08 Q. Prior to yesterday, had you1417:18:09 ever seen this document before?1517:18:13 A. I don't believe so.1617:18:14 Q. And to the extent you were1717:18:15 responding to questions from Mr. Selendy1817:18:18 yesterday regarding the contents of this1917:18:19 document, you were doing so based on2017:18:21 inferences drawn from your reading of the2117:18:23 document during yesterday's testimony?2217:18:24 MR. SELENDY: Objection;2317:18:25 leading.2417:18:26 A. That's correct.2517:18:26 Q. In responding to Mr. Selendy's

Page 778

1 MICHAEL W. SCHLOESSMANN217:18:29 questions yesterday regarding this317:18:31 document, what, if anything, were you417:18:33 basing your opinions on?517:18:39 MR. SELENDY: Same objection617:18:40 in light of the prior question.717:18:47 A. I believe my comments were817:18:48 based on my reading of this document.917:18:55 Q. Assuming that this document1017:18:56 was authored in August of 2006, as1117:19:00 Mr. Selendy represented to you yesterday,1217:19:02 would this document be referring to1317:19:04 monoline repurchases?1417:19:08 MR. SELENDY: Objection.1517:19:11 A. I don't believe it would, in1617:19:13 that we didn't receive any monoline1717:19:16 repurchase until 2008.1817:19:26 Q. All right, you can set that1917:19:28 one aside.2017:19:29 The next you should have in2117:19:31 front of you is 567. Is that right?2217:19:35 A. I have 173.2317:19:37 Q. Great.2417:19:39 A. You want me to go to 567?2517:20:05 Q. Yes, let's go to 567, which

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1 MICHAEL W. SCHLOESSMANN217:20:07 should be the next one.317:20:10 A. Okay.417:20:10 Q. Do you recall counsel asking517:20:13 you a number of questions about this617:20:14 document?717:20:15 MR. SELENDY: I just ask you817:20:16 the date of that document?917:20:17 MS. CONCANNON: It is an email1017:20:19 chain, the top most email is1117:20:22 October 28, 2005.1217:20:24 MR. SELENDY: Thank you.1317:20:28 A. Yes, I do recall.1417:20:30 Q. And in your email, which1517:20:32 begins at the bottom of the first page1617:20:35 with the Bates number ending 271 and then1717:20:37 continues on to the next page, in the1817:20:40 first sentence you refer to "reporting1917:20:44 issues we have had on the Citizens HELOC2017:20:48 portfolio since we've been at this at2117:20:50 least July."2217:20:53 What reporting issues are you2317:20:54 referring to in that sentence?2417:21:00 A. I believe I'm referring to the2517:21:01 reporting issues or issues in connection

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1 MICHAEL W. SCHLOESSMANN217:21:04 with the monthly reports that we were317:21:06 sending Citizens Bank, as we did all417:21:10 whole loan investors.517:21:13 Q. And so this is referring to617:21:16 reporting to a whole loan investor?717:21:18 A. That is correct.817:21:19 Q. Does it have any relation to917:21:22 reporting in connection with1017:21:23 securitizations, including the MBIA1117:21:24 securitizations that you've been1217:21:26 discussing for the last two days?1317:21:27 A. No, it doesn't.1417:21:28 Q. And there is a sentence in1517:21:32 your email that states "they indicated1617:21:35 that we are the only servicer they have1717:21:37 experienced reporting issues with."1817:21:42 What servicing are you1917:21:43 referring to there?2017:21:48 A. Can you direct my attention?2117:21:50 Q. It's mid-paragraph in that2217:21:54 same email.2317:21:55 A. Sorry, I see it now.2417:22:00 And you're asking me about the2517:22:02 issues?

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1 MICHAEL W. SCHLOESSMANN217:22:04 Q. Well, you're referring to, I317:22:06 presume, servicing reporting issues; is417:22:09 that right?517:22:09 A. That's right.617:22:10 Q. What are the servicing717:22:11 reporting issues being described in this817:22:14 particular email?917:22:14 A. I don't have a specific1017:22:15 recollection of exactly what the issues1117:22:16 were. They had requested certain data to1217:22:20 be reported to them on a monthly basis,1317:22:23 and this email chain references the1417:22:28 difficulty we were having in providing1517:22:31 all of the requested data fields to1617:22:33 Citizens Bank.1717:22:34 Q. Again, this is data that was1817:22:36 being provided in connection with the1917:22:37 servicing of whole loan trades to2017:22:41 Citizens Bank?2117:22:42 A. That's right.2217:22:43 Q. What, if anything, does the2317:22:45 servicing referenced in your email of2417:22:47 October 28, 2005 have to do with the2517:22:50 collection of servicing fees by either

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1 MICHAEL W. SCHLOESSMANN217:22:53 CHL or CHLS in connection with317:22:56 securitizations?417:22:57 A. I don't think they have517:22:58 anything to do with one another.617:23:03 Q. Why is that?717:23:06 A. The general nature of the817:23:08 issues, as I recall, was around the data917:23:11 that Citizens wanted us to report out to1017:23:15 them. And I don't recall anything about1117:23:18 servicing fees. But rather just that it1217:23:21 was a data availability issue.1317:23:26 Q. And then you state "we have1417:23:27 created the impression in their minds1517:23:29 that we are a subpar servicer."1617:23:31 What, if anything, does that1717:23:33 statement have to do with the quality of1817:23:35 servicing provided by CHLS and CHL in1917:23:38 connection with securitizations of HELOC2017:23:40 and CES mortgages at issue in this case?2117:23:46 A. I don't see how it has any2217:23:48 impact on what we were doing for other2317:23:50 investors with whom we had different2417:23:52 reporting requirements, which was the2517:23:54 case in the securitization transactions.

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1 MICHAEL W. SCHLOESSMANN217:23:57 Q. And at the time you drafted317:23:59 this email in October of 2005, did you417:24:03 believe that CSC, CHL or CHLS was a517:24:09 subpar servicer?617:24:12 A. I don't recall what I was717:24:13 thinking. Based on this, on this email817:24:17 chain, I do recall this specifically had917:24:20 to do with the providing of certain data1017:24:23 that was requested, uniquely requested by1117:24:26 Citizens Bank.1217:24:30 Q. Let's go to the next one in1317:24:31 the stack, which is 564. The top most1417:24:36 document is a John McMurray email to Nick1517:24:38 Krsnich, dated June 2, 2005.1617:24:41 A. Hold on.1717:24:45 Q. I'm not in order, I apologize.1817:25:11 My fault, it wasn't in front1917:25:13 of you.2017:25:14 And if you turn to the third2117:25:16 page in the document, which ends with the2217:25:18 Bates number 070, this is an email that2317:25:23 you discussed with Mr. Selendy yesterday2417:25:26 that contains both Mr. McMurray's2517:25:28 comments and your comments, kind of

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1 MICHAEL W. SCHLOESSMANN217:25:31 interspersed with one another. Do you317:25:33 recall that?417:25:33 A. I do.517:25:34 Q. And yesterday you walked617:25:36 through this email in some detail with717:25:39 Mr. Selendy indicating which comments817:25:40 were yours and which comments were917:25:42 Mr. McMurray's.1017:25:44 A. You recall.1117:25:44 Q. I would like to direct you to1217:25:46 the first of your comments in this email,1317:25:50 in which you state "I believe we should1417:25:52 differentiate repurchases relating to1517:25:54 post-closing due diligence and EPDs from1617:25:57 all other repurchases for two reasons."1717:26:01 Why did you believe that you1817:26:02 should differentiate repurchases relating1917:26:05 to post-closing due diligence and EPDs2017:26:07 from all other repurchases?2117:26:11 A. Because they did not require2217:26:14 any sort of judgment in -- sorry, let me2317:26:21 back up.2417:26:22 These two types of repurchases2517:26:26 involve a very straightforward or black

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1 MICHAEL W. SCHLOESSMANN217:26:29 and white contractual requirement that317:26:32 didn't involve judgment. And therefore417:26:34 we thought, as a result of it being a517:26:37 more perfunctory process, we could617:26:40 expedite that process without undue harm717:26:43 to the company.817:26:45 Q. What is a post-close917:26:47 repurchase?1017:26:47 A. Post-closing due diligence is,1117:26:51 would have been an arrangement that we1217:26:55 specifically negotiated on certain whole1317:26:57 loan transactions that we were selling to1417:27:01 whole loan buyers that due to the limited1517:27:05 amount of time or a buyer, buyer's desire1617:27:08 to close earlier than that which would1717:27:11 afford them the time to complete their1817:27:14 due diligence review, we allowed them to1917:27:16 continue their due diligence review2017:27:17 following the closing for some specified2117:27:19 period of time. And at the conclusion of2217:27:22 that process, identify loans that they2317:27:24 wanted to reject from the pool. And have2417:27:27 us repurchase.2517:27:28 Q. What is an EPD repurchase?

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1 MICHAEL W. SCHLOESSMANN217:27:31 A. EPD repurchase is an early317:27:34 payment default. Again, that was417:27:37 specific contractual provision negotiated517:27:40 in only some of, and in fact very few of617:27:44 our contracts where we sold loans to717:27:48 whole loan buyers, again, that, again,817:27:52 required us to repurchase the loan if any917:27:54 of the cover payments were missed by the1017:27:57 borrower.1117:28:00 Q. Do you recall responding to1217:28:05 some questions regarding an HSBC1317:28:09 repurchase?1417:28:10 A. I do.1517:28:11 Q. What types of repurchases were1617:28:16 taking place in the HSBC matter?1717:28:19 A. As I recall, those repurchases1817:28:24 that were referenced were also1917:28:27 post-closing due diligence repurchases.2017:28:31 Q. Do you recall what the2117:28:32 underlying loan collateral was in the2217:28:34 HSBC whole loan transaction?2317:28:36 A. These were subprime second2417:28:40 lien whole loans.2517:28:41 Q. Do you know whether any of the

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85 (Pages 787 to 790)

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1 MICHAEL W. SCHLOESSMANN217:28:42 loans at issue in the MBIA matter, the317:28:45 ones, the securitizations that are listed417:28:49 in paragraph 29 of the amended complaint,517:28:51 are subprime seconds similar to those617:28:55 included in the HSBC whole loan717:28:59 transaction?817:28:59 A. I don't believe any subprime917:29:01 seconds were included in our HELOC1017:29:04 transactions that were -- or the fifteen1117:29:06 HELOC transactions wrapped by MBIA.1217:29:08 Q. What's the basis of that1317:29:09 belief?1417:29:10 A. It was a different product,1517:29:13 and you look at the FICO score1617:29:17 distribution, for instance, you can1717:29:19 readily determine, you know, or see a1817:29:22 distinction in terms of the credit1917:29:23 profile by virtue of the FICO scores in2017:29:27 the subprime seconds population versus2117:29:29 that in the MBIA and other of our HELOC2217:29:33 securitizations.2317:29:34 Q. Were there securitizations of2417:29:36 subprime seconds, to your knowledge?2517:29:39 A. There were.

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1 MICHAEL W. SCHLOESSMANN217:29:40 Q. Were those securitizations of317:29:43 subprime seconds designated in a417:29:45 particular way?517:29:45 A. I don't -- I believe there are617:29:47 two subprime second securitizations that717:29:50 we did. They were designated as SPS1 and817:29:55 SPS2, as I recall.917:30:11 Q. I'm going to show you the1017:30:13 exhibit that was previously marked as1117:30:14 Exhibit 153. And I actually couldn't1217:30:19 find it when I was going through your1317:30:21 stack, so I'm just going to hand you my1417:30:23 copy. It does have an annotation, but1517:30:26 nothing substantive. There is just a1617:30:29 bracket on it.1717:30:30 MR. SELENDY: What's the date1817:30:32 again?1917:30:33 MS. CONCANNON: That is the2017:30:35 Tonya LyBrand to Errol Arne email2117:30:38 of October 28, 2004.2217:30:39 MR. SELENDY: Thank you.2317:30:43 Q. And in Ms. LyBrand's email up2417:30:46 at the top of the first page of Exhibit2517:30:48 153 to Errol Arne at MBIA, she states

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1 MICHAEL W. SCHLOESSMANN217:30:52 "because missing documents are not317:30:54 considered an indication of error, any417:30:57 loans with this issue may be waived into517:30:58 the pool."617:31:00 Is that right?717:31:01 A. That's what it says, yes.817:31:02 Q. Why did CSC hire third party917:31:24 vendors to complete its first stage due1017:31:29 diligence?1117:31:29 A. I'm sorry, I was busy looking1217:31:33 at something. So would you repeat that,1317:31:34 please?1417:31:35 Q. Why did CSC hire third party1517:31:37 vendors to complete its first stage due1617:31:41 diligence?1717:31:41 A. We, like all of the street1817:31:44 firms, didn't have the internal staff to1917:31:48 actually do the reunderwriting, and2017:31:50 instead outsourced that to third party2117:31:53 vendors that specialized in2217:31:55 reunderwriting of loans and used our2317:31:57 in-house personnel to review and analyze2417:32:01 and assess the results.2517:32:03 Q. What do you mean when you say

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1 MICHAEL W. SCHLOESSMANN217:32:05 third party vendors that specialized in317:32:07 reunderwriting of loans?417:32:08 A. Those were third party due517:32:10 diligence firms that had or specialized617:32:16 and focused on reviewing loan files,717:32:19 doing a credit underwriting of loan817:32:22 files, and reporting findings back to the917:32:25 client.1017:32:26 Q. Let's go to the next exhibit,1117:32:28 which should be 587.1217:32:31 A. Yup.1317:32:32 Q. And this is an email from1417:32:35 Derrek Michelson to Michael Schloessmann,1517:32:38 dated September 29, 2006. And I'd1617:32:42 actually like to direct you again to the1717:32:45 email that begins on the page Bates1817:32:46 numbered 509, which is the second page.1917:32:50 Continues over into 510. And this is2017:32:54 another email that appears to contain2117:32:57 embedded comments between Derrek2217:33:01 Michelson and yourself; is that right?2317:33:10 I'll just direct you up at the top of the2417:33:12 page where you state "thank you for2517:33:14 helping to facilitate" --

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1 MICHAEL W. SCHLOESSMANN217:33:17 A. Yes, thank you. I was looking317:33:19 for that reference. Okay.417:33:19 Q. So you state "thank you for517:33:22 helping to facilitate my response, I have617:33:25 included my comments below in red."717:33:28 A. I see that, okay.817:33:29 Q. And Mr. Selendy asked you a917:33:30 few questions about this document, but1017:33:32 what I would like to do is similar to1117:33:34 what you had done with the prior1217:33:36 document, and discuss which comments in1317:33:37 this email are yours and which comments1417:33:39 are Mr. Michelson's.1517:33:42 A. Okay.1617:33:42 Q. And reading through, there is1717:33:44 a description of the, a paragraph1817:33:48 starting with number 1 that carries over1917:33:50 on to the page 510. And then about seven2017:33:58 lines down.2117:34:00 A. Okay.2217:34:01 Q. It states "there are basically2317:34:03 two levels of review. At the first level2417:34:05 the underwriter, who is usually employed2517:34:06 by a third party contract underwriting

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1 MICHAEL W. SCHLOESSMANN217:34:09 firm that we engage, performs a thorough317:34:11 reunderwriting of the loan based on the417:34:12 underwriting guidelines we provide at the517:34:14 beginning of the job." And then it617:34:16 continues on at some length.717:34:19 Ending with "this person is817:34:22 charged with the responsibility of917:34:23 reviewing the work of the contract1017:34:25 underwriters who perform the first level1117:34:26 of review with a particular emphasis on1217:34:29 the saleability 4 loans, the analysis you1317:34:32 refer to as lacking is the list of1417:34:34 compensating factors, et cetera."1517:34:37 Is that paragraph that I've1617:34:39 just indicated your comment?1717:34:45 A. I believe -- let me just1817:34:48 finish reading. I believe my comments do1917:34:50 start at the seventh line, "there are2017:34:56 basically two levels of review."2117:35:24 Okay. I'm not entirely sure2217:35:27 here where mine stops. Sorry.2317:35:31 Q. Actually, I ended at2417:35:33 "compensating factors, et cetera, cited2517:35:35 by the underwriter."

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1 MICHAEL W. SCHLOESSMANN217:35:36 This then goes on to state "it317:35:40 would be unnecessarily burdensome to the417:35:41 process and unconventional to require517:35:44 someone to provide written documentation617:35:44 summarizing our analysis on each loan717:35:46 approved for purchase. I don't think it817:35:48 is reasonable to require this procedure."917:35:51 A. I see that.1017:35:52 Q. Is that the end of that1117:35:53 portion of your comments?1217:35:57 A. It appears to be.1317:35:59 Q. And then there is a sentence1417:36:00 that states, "there is also no review or1517:36:02 approval of the conclusions reached or1617:36:04 determinations made by the analyst1717:36:06 reviewing the due diligence work."1817:36:07 Is that a comment by1917:36:08 Mr. Michelson?2017:36:09 A. I believe it is.2117:36:10 Q. And then it picks up again2217:36:11 with your response, stating "I'm not sure2317:36:14 at what point you cease to have someone2417:36:17 checking the work of another, but suffice2517:36:19 it to say I think our practices are

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1 MICHAEL W. SCHLOESSMANN217:36:22 prudent and consistent with industry317:36:23 standards. That said, the management417:36:25 action that I will recommend will be517:36:26 consistent with what you think is617:36:28 warranted. I just wanted to convey my717:36:32 thoughts on this."817:36:34 Is that also your comment?917:36:35 A. That I believe is my comment.1017:36:37 And it stops there.1117:36:38 Q. And then it starts up with1217:36:40 "the review also noticed instances in1317:36:43 which a loan or loans was determined to1417:36:44 be out of the deal per the executive1517:36:46 summary, but the loans were not removed1617:36:48 from the collateral pool."1717:36:50 Is that a comment by Mr.1817:36:51 Michelson?1917:36:52 A. I believe it is.2017:36:53 Q. Then it picks up again, "I2117:36:54 asked Tonya LyBrand to research the2217:36:57 instance you cited, e.g. two loans noted2317:37:00 as rejected were included in the BoNY2417:37:01 tape. She indicated that these two loans2517:37:02 were originally flagged as rejects but

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87 (Pages 795 to 798)

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1 MICHAEL W. SCHLOESSMANN217:37:05 later were approved during the rebuttal317:37:08 process and thus were included in the417:37:09 deal. The error occurred when Tonya517:37:11 failed to update the exec summary so that617:37:12 it reflected the final results. I'm not717:37:14 sure what kind of policy and/or procedure817:37:16 this requires, if any, but I will again917:37:18 defer to your judgment on management1017:37:19 action."1117:37:20 Are those your comments?1217:37:22 A. I believe they are.1317:37:23 Q. And is this an accurate1417:37:26 statement of your response to the1517:37:29 internal audit comments that you were1617:37:31 receiving in September of 2006?1717:37:34 A. I believe it is.1817:37:36 Q. And the next paragraph has a1917:37:39 sentence starting "in addition," states,2017:37:43 "in addition, there is no documentation2117:37:44 or analysis supporting the results of the2217:37:55 due diligence sample as compared, if it2317:37:59 were extrapolated to the total loan2417:38:00 population, to assess if the loan2517:38:02 collateral is consistent with the

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1 MICHAEL W. SCHLOESSMANN217:38:03 prospectus and the prospectus317:38:06 supplement."417:38:07 Is that a comment by517:38:08 Mr. Michelson?617:38:09 A. I believe it is.717:38:10 Q. And then I believe you state817:38:11 "the struct finance deal person is917:38:14 responsible for working with Tonya's area1017:38:17 to ensure that the actual collateral1117:38:18 attributes are consistent with the1217:38:20 prospectus disclosure. Tonya circulates1317:38:22 the exec summary to all interested1417:38:24 parties including the deal manager, and1517:38:25 the deal manager is responsible for1617:38:27 reviewing to make sure there is nothing1717:38:29 therein that warrants further1817:38:31 consideration or is inconsistent with the1917:38:33 prospectus. This procedure could2017:38:34 probably be better documented, and thus2117:38:38 that would be my recommendation."2217:38:40 Is that your comment?2317:38:41 A. Yes, I believe it is.2417:38:42 Q. Then it states "lastly, a2517:38:44 process is not in place to perform a

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1 MICHAEL W. SCHLOESSMANN217:38:46 periodic quality control assessment of317:38:48 the jobs the external vendors have been417:38:51 hired to perform, primarily regarding the517:38:52 credit and compliance reviews."617:38:55 Is that a comment by Mr.717:38:57 Michelson?817:38:57 A. I think it is.917:38:58 Q. Then you state, "we do a1017:39:00 significant amount of due diligence on1117:39:01 the front end on all vendors in terms of1217:39:03 their compliance capability.1317:39:04 Additionally, we have a meaningful1417:39:07 opportunity to evaluate the quality of1517:39:08 work performed by our underwriters due to1617:39:10 the fact that the vast majority of1717:39:12 sellers actively engage us in a rebuttal1817:39:15 process with respect to our findings,1917:39:16 particularly the rejected loans.2017:39:18 Moreover, on a substantial majority of2117:39:21 deals, we have a Countrywide employee on2217:39:22 site whose primary job function is to2317:39:25 review the work of the underwriter to2417:39:27 ensure consistency. If this could be2517:39:28 better documented, we will do so."

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1 MICHAEL W. SCHLOESSMANN217:39:30 Is that your comment?317:39:32 A. Yes, I believe it is.417:39:33 Q. And that's an accurate517:39:34 statement of the processes and procedures617:39:37 in place in CSC in October of 2006?717:39:41 MR. SELENDY: Objection.817:39:41 A. As I understood it at the917:39:43 time, yes.1017:39:44 Q. That's an accurate statement1117:39:47 of the processes and procedures in place1217:39:49 in CSC in September of 2006?1317:39:55 MR. SELENDY: Objection.1417:39:52 A. Yes.1517:39:59 Q. Then under "risk rating," it1617:40:01 states "the finding is rated as moderate1717:40:05 risk as thoroughly documented due1817:40:07 diligence work is a key component of a1917:40:10 security underwriting defense should2017:40:10 litigation be brought against CSC."2117:40:13 Is that Mr. Michelson's2217:40:14 comments?2317:40:15 A. Yes, I believe it is.2417:40:15 Q. Then it states "the risk is2517:40:17 mitigated as executive summary highlights

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88 (Pages 799 to 802)

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1 MICHAEL W. SCHLOESSMANN217:40:19 work performed on items that are317:40:20 identified as out by the external417:40:22 vendors."517:40:23 Is that also Mr. Michelson's617:40:25 comment?717:40:28 A. I think it is, yes.817:40:33 Q. I have nothing further on that917:40:35 one.1017:40:38 Were you ever concerned with1117:40:54 the accuracy of LandSafe appraisals?1217:40:56 A. Are we referring to a specific1317:41:00 exhibit?1417:41:00 Q. We can, but I was asking more1517:41:02 broadly.1617:41:03 A. The only concern I recollect1717:41:07 is, you know, came up in the context of1817:41:11 having LandSafe perform property or some1917:41:15 of our property valuation work on behalf2017:41:18 of CSC. And as to I think the principal2117:41:23 objections were as to service levels in2217:41:26 terms of timing, pricing and data2317:41:29 deliverables.2417:41:30 Q. What do you mean by service2517:41:32 levels?

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1 MICHAEL W. SCHLOESSMANN217:41:33 A. Just the service level317:41:35 standards we needed them to perform at in417:41:39 order to ensure they could do the517:41:41 quantity of work we needed within the617:41:43 time frames we needed, and also give us717:41:46 the work product or output in a manner817:41:50 that allowed us to make decisions on our917:41:52 whole loan purchases.1017:41:54 Q. Aside from those service level1117:41:57 concerns, did you have any concerns with1217:41:59 regard to the accuracy of LandSafe's1317:42:02 appraisals?1417:42:03 MR. SELENDY: Are you asking1517:42:04 about Mr. Schloessmann personally?1617:42:09 Objection as to form.1717:42:13 A. In terms of -- can you restate1817:42:16 the question, please?1917:42:17 Q. Aside from the service level2017:42:20 concerns as you just described them,2117:42:22 which relate to the timing, pricing and2217:42:28 data deliverables from LandSafe, did you2317:42:31 ever have concerns with the accuracy of2417:42:34 LandSafe appraisals?2517:42:35 MR. SELENDY: Objection as to

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1 MICHAEL W. SCHLOESSMANN217:42:36 form.317:42:37 A. As a broader concern or417:42:41 problem, no.517:42:42 Q. Did you ever --617:42:43 A. None that I can specifically717:42:45 recollect.817:42:46 Q. Do you recall ever discussing917:42:47 with anyone either senior to you or1017:42:50 junior to you at CSC, concerns regarding1117:42:54 the accuracy of LandSafe's appraisals?1217:42:57 A. My only recollection around1317:42:59 LandSafe in discussions we had in1417:43:01 connection with due diligence at CSC was1517:43:04 in connection with the services that they1617:43:08 were -- or we contemplated them providing1717:43:12 for us. As opposed to origination1817:43:14 appraisals they may have done on the1917:43:16 front end of the business.2017:43:31 Q. Let's go to Exhibit 599. This2117:43:39 is an email, the top most email is from2217:43:41 Jack Schackett to Paul Szymanski, dated2317:43:44 May 29, 2007.2417:43:48 Do you recall being asked some2517:43:50 questions by Mr. Selendy regarding this

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1 MICHAEL W. SCHLOESSMANN217:43:52 document?317:43:55 A. Yes.417:43:55 Q. Now, this document, the517:43:57 subject line is "urgent: PPP."617:43:57 Do you see that?717:44:04 A. Yes.817:44:05 Q. What is PPP?917:44:06 A. Prepayment penalties.1017:44:08 Q. What is a prepayment penalty?1117:44:10 A. Prepayment penalty is a term1217:44:12 of a mortgage note where if the borrower1317:44:14 prepays more than a certain amount of1417:44:17 principal before its scheduled due date,1517:44:23 then there would be a penalty associated1617:44:24 with that prepayment.1717:44:26 Q. And what was the issue with1817:44:29 regard to prepayment penalties that was1917:44:30 being discussed in this particular email2017:44:32 chain?2117:44:34 A. I recall it being around the2217:44:37 integrity of the prepayment penalty2317:44:41 types, and the specific terms of the2417:44:43 prepay penalties that were in the system.2517:44:49 Q. What impact, if any --

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89 (Pages 803 to 806)

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1 MICHAEL W. SCHLOESSMANN217:44:51 A. Servicing system, excuse me.317:44:53 Q. What impact, if any, did the417:44:55 prepayment penalty issue have?517:45:00 A. In general or?617:45:03 Q. Well, from your perspective,717:45:08 why were you discussing this prepayment817:45:09 penalty issue?917:45:10 A. From my perspective, first of1017:45:12 all, I think it's important to note there1117:45:14 is no prepayment penalties on any of the1217:45:16 HELOC loans, so far as I know, and1317:45:20 specifically the MBIA transactions. But1417:45:22 the prepayment penalties that were part1517:45:26 of the mortgage terms on other loans, to1617:45:29 the extent we securitized those loans and1717:45:32 allocated or assigned the prepayment1817:45:35 penalty collections to a securitization1917:45:38 trust, my concern would have been around2017:45:41 our ability to timely and accurately2117:45:44 report and remit those prepay penalties2217:45:48 to essentially the recipient of the2317:45:51 penalties.2417:45:52 Q. What's the basis for your2517:45:53 statement that it's important to note

Page 804

1 MICHAEL W. SCHLOESSMANN217:45:57 that there is no prepayment penalties as317:46:00 to any of the HELOC loans, so far as I417:46:02 know, and specifically the MBIA517:46:04 transactions?617:46:05 A. Well, as this matter relates717:46:08 specifically to fifteen HELOC817:46:10 transactions, I'm not sure what917:46:15 significance the prepayment penalty issue1017:46:17 would have on those, any of those fifteen1117:46:20 transactions.1217:46:21 Q. Why is that?1317:46:22 A. There were no prepayment1417:46:25 penalties on the type of product that1517:46:28 were securitized in these fifteen1617:46:30 transactions.1717:46:37 Q. Now, let's go to 583. This is1817:46:42 an email from yourself to Debora Brown,1917:46:45 Rex Malott, Michael Nadeau, dated August2017:46:49 12, 2006.2117:46:51 A. Okay.2217:46:51 Q. And do you recall Mr. Selendy2317:46:56 asking you some questions about this2417:46:57 email and the attachment to this email?2517:46:58 A. I do.

Page 805

1 MICHAEL W. SCHLOESSMANN217:46:59 Q. And pointing your attention to317:47:00 the attachment, under "policy status," it417:47:05 states "draft"; correct?517:47:09 A. It does.617:47:10 Q. Do you know whether this717:47:15 document was ever finalized?817:47:19 A. I can't say definitively.917:47:23 Q. Under "purpose," it states1017:47:26 "the purpose of this policy," this is in1117:47:28 the second paragraph under purpose, "the1217:47:31 purpose of this policy is to create a1317:47:32 comprehensive protocol for the receipt,1417:47:34 review and final resolution of repurchase1517:47:37 claims made against Countrywide and1617:47:39 relating to transactions involving CSC1717:47:41 and/or CAMCO."1817:47:44 What does that refer to?1917:47:45 A. Just it was, it essentially2017:47:52 defines, you know, the scope of the2117:47:53 policy. This was not a policy intended2217:47:55 to cover the broader repurchase activity2317:47:59 of the entirety of Countrywide, but only2417:48:02 those that CSC had involvement in.2517:48:05 Q. And when you say only those

Page 806

1 MICHAEL W. SCHLOESSMANN217:48:07 that CSC had involvement in, what do you317:48:09 mean by that?417:48:11 A. I think I tried to state that517:48:14 in the second paragraph of the email.617:48:17 But where we bought and sold loans as717:48:22 principal or were otherwise involved in817:48:26 the sale of loans, even if they may have917:48:27 been Countrywide loans, but sale of those1017:48:29 whole loans to our investors.1117:48:33 Q. Would this policy extend to1217:48:36 the fifteen HELOC and CES securitizations1317:48:40 at issue in this case?1417:48:41 A. I think I had stated earlier1517:48:42 in my testimony that, while the email may1617:48:46 be somewhat ambiguous, it was my1717:48:49 understanding that it would not have been1817:48:51 covered under deals that Countrywide1917:48:55 acted merely as an underwriter as opposed2017:48:57 to a principal in the securitization.2117:49:01 Principal or, I mean that more in the2217:49:03 context of sponsor.2317:49:06 Q. If you turn to the second page2417:49:07 under 4.0, "procedure." And there is a2517:49:11 4.1.1. It states "the repurchase process

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90 (Pages 807 to 810)

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1 MICHAEL W. SCHLOESSMANN217:49:15 is initiated when a repurchase request is317:49:17 received by the TMG post-closing risk417:49:20 management group. The repurchase request517:49:22 may come from various sources, such as617:49:24 the seller, the buyer, the loan servicing717:49:26 area, the security investor, et cetera."817:49:29 Is that right?917:49:30 A. Yes.1017:49:30 Q. Is one of the sources referred1117:49:32 to here from which a repurchase request1217:49:35 could come a monoline insurer?1317:49:38 A. No.1417:49:38 Q. Why is that?1517:49:40 A. Pardon me?1617:49:41 Q. Why is that?1717:49:43 A. I mean, in 2006 there were no1817:49:48 monoline repurchases, and nor were any1917:49:52 contemplated.2017:49:54 And to reiterate what I had2117:49:57 said before, I do not believe it was our2217:49:59 intent to bring that within the purview2317:50:02 of the policy, since we would have only2417:50:04 underwritten those transactions as2517:50:05 opposed to sponsored them.

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1 MICHAEL W. SCHLOESSMANN217:50:08 MS. CONCANNON: Thank you. I317:50:10 have nothing more at this time.417:50:12 MR. SELENDY: Okay. I have517:50:13 two questions for you.617:50:14 CONTINUED EXAMINATION717:50:15 BY MR. SELENDY:817:50:15 Q. First, with respect to your917:50:18 comment on subprime loans and FICO1017:50:20 distribution, where do you draw a line1117:50:24 between prime and subprime based on FICO1217:50:26 scores?1317:50:27 MS. CONCANNON: Objection.1417:50:31 A. You would have to look at the1517:50:32 loan program, there was obviously a1617:50:35 distinct difference in terms of the FICO1717:50:38 profile for a subprime loan program as1817:50:40 opposed to a prime HELOC program.1917:50:43 Q. You said that the prime and2017:50:45 subprime can be readily distinguished2117:50:47 based on the FICO score distribution.2217:50:50 How would you do that?2317:50:52 MS. CONCANNON: Objection.2417:50:54 Q. As of the time period for the2517:50:56 securitizations in dispute, where would

Page 809

1 MICHAEL W. SCHLOESSMANN217:50:58 the FICO distributions be for prime317:51:01 versus subprime?417:51:02 MS. CONCANNON: Objection.517:51:02 A. I don't know what the specific617:51:04 FICO range is. I think if you were to717:51:06 look at, they were distinctly different817:51:09 products, I believe first of all that917:51:12 there were -- we did not have a loan1017:51:14 program for subprime HELOCs, they were1117:51:17 subprime closed ended seconds, I believe.1217:51:21 And the loan programs in terms of FICOs1317:51:25 would have been distinctly different1417:51:27 relative to our HELOC seconds program,1517:51:30 most of which are in the fifteen deals1617:51:34 that are referenced in the complaint.1717:51:36 Q. For a given time period are1817:51:38 you capable of saying that above a1917:51:40 certain FICO score is prime and below2017:51:43 that is subprime, with respect to the2117:51:46 HELOC securitizations in dispute?2217:51:47 MS. CONCANNON: Objection.2317:51:48 A. I'm not prepared to say that.2417:51:49 I am prepared to say if you looked at a2517:51:52 distribution of FICO scores, because you

Page 810

1 MICHAEL W. SCHLOESSMANN217:51:55 can always have outliers, but if you317:51:56 looked at a distribution of FICO scores417:51:59 and FICO score concentration and weighted517:52:03 average, there would be distinct617:52:04 differences between the subprime seconds717:52:06 product and the HELOC and prime closed817:52:09 ended seconds that we securitized.917:52:13 Q. Can you describe any of those1017:52:15 differences?1117:52:16 A. Just in terms of the1217:52:17 distribution? Just on FICO score alone,1317:52:20 you would see a weighted average FICO1417:52:23 score as well as a FICO score1517:52:25 distribution that is distinctly lower in1617:52:28 the subprime seconds loan program than1717:52:31 you would in the, either the prime HELOC1817:52:33 or prime closed ended second programs.1917:52:36 Q. Is it your testimony that2017:52:37 there are no subprime loans in any of the2117:52:40 fifteen MBIA securitizations in dispute?2217:52:42 MS. CONCANNON: Objection.2317:52:43 A. Well, I would say that my2417:52:47 guess is that there is over 100,000 loans2517:52:50 that were securitized in the fifteen MBIA

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91 (Pages 811 to 814)

Page 811

1 MICHAEL W. SCHLOESSMANN217:52:52 transactions, or something in that order,317:52:54 let's call it a very large number.417:52:56 Q. Over 360,000.517:52:58 A. I will not say that there is617:53:00 not a single loan that could have been717:53:03 mistakenly allocated. But I can say817:53:07 confidently that there is no material,917:53:09 you know, concentration of subprime1017:53:12 seconds in those fifteen deals, as far as1117:53:14 I know.1217:53:15 Q. So the subprime seconds, to1317:53:17 the extent they show up in those fifteen1417:53:21 securitizations, would have been1517:53:22 mistakenly allocated to those deals?1617:53:25 MS. CONCANNON: Objection;1717:53:25 mischaracterizes.1817:53:26 A. I don't know that.1917:53:28 MR. SELENDY: I have no2017:53:28 further questions. Are we all set?2117:53:32 MS. CONCANNON: I think we are2217:53:34 all set.2317:53:34 MR. SELENDY: Thank you very2417:53:35 much.2517:53:35 MS. CONCANNON: You have

Page 812

1 MICHAEL W. SCHLOESSMANN217:53:36 stated on the record that you317:53:37 intend to hold this deposition open417:53:39 pending your motion to compel517:53:41 repurchase documents. We617:53:42 understand your position, of course717:53:44 we reserve our right to object to817:53:46 any reopening of this deposition on917:53:48 that ground.1017:53:49 Also note that it was1117:53:50 completely your choice to proceed1217:53:52 with Mr. Schloessmann's deposition1317:53:54 while that motion was pending,1417:53:56 whereas you, for example, declined1517:53:59 to take a second day of1617:54:00 Mr. Kurzban's testimony while that1717:54:02 motion was pending.1817:54:03 MR. SELENDY: I will note that1917:54:05 it was your decision to interpose2017:54:07 the objections, we think her2117:54:09 meritless. We have reserved our2217:54:12 position in that regard. And2317:54:13 subject to that, the outcome of2417:54:14 that motion, we're done for the2517:54:16 day. Thank you.

Page 813

1 MICHAEL W. SCHLOESSMANN217:54:18 THE VIDEOGRAPHER: This317:54:18 concludes today's testimony of417:54:20 Michael Schloessmann. The time on517:54:22 the record is 5:54 p.m., this also617:54:26 concludes tape No. 12.717:54:28 (Time noted: 5:54 p.m.)8910 _______________________11 MICHAEL W. SCHLOESSMANN1213 Subscribed and sworn to before me14 this _____ day of _________, 2011.1516 __________________________________

Notary Public171819202122232425

Page 814

1 MICHAEL W. SCHLOESSMANN2 STATE OF NEW YORK )

ss:3 COUNTY OF NEW YORK )4 I wish to make the following

changes, for the following reasons:5

PAGE LINE6 ____ ____ CHANGE ______________________

REASON:______________________7

____ ____ CHANGE ______________________8 REASON:______________________9 ____ ____ CHANGE ______________________

REASON:______________________10


REASON:______________________13


REASON:______________________16


REASON:______________________19

____ ____ CHANGE ______________________20 REASON:______________________21

_______________________22 MICHAEL W. SCHLOESSMANN

Subscribed and sworn to before me23 this _____ day of _________, 2011.24 _________________________________

Notary Public 2517:54:37

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92 (Pages 815 to 818)

Page 815

1 MICHAEL W. SCHLOESSMANN2 C E R T I F I C A T E3 STATE OF NEW YORK )

: ss.4 COUNTY OF NEW YORK )5 I, ERIC J. FINZ, a Shorthand6 Reporter and Notary Public within and7 for the State of New York, do hereby8 certify:9 That MICHAEL W. SCHLOESSMANN, the10 witness whose continued deposition is11 hereinbefore set forth (pages 45412 through 813) was previously duly sworn,13 and that such continued deposition is a14 true record of the testimony of said15 witness.16 I further certify that I am not17 related to any of the parties to this18 action by blood or marriage, and that I19 am in no way interested in the outcome20 of this matter.21 IN WITNESS WHEREOF, I have hereunto22 set my hand this ____ day of _________,23 2011.24 _____________________25 ERIC J. FINZ

Page 816

1 MICHAEL W. SCHLOESSMANN2 E X H I B I T S3 DESCRIPTION PAGE4 (Plaintiff's Exhibit 574 for 4715 identification, email dated May6 25, 2006, production numbers7 CWMBIA 9549475 through CWMBIA8 9549480.)9 (Plaintiff's Exhibit 575 for 50010 identification, email dated June11 6, 2006, production numbers12 CWMBIA 0011019994 through CWMBIA13 0011019996.)14 (Plaintiff's Exhibit 576 for 50715 identification, email dated June16 7, 2006, production numbers17 CWMBIA 10372346 through CWMBIA18 10372356.)19202122232425

Page 817

1 MICHAEL W. SCHLOESSMANN2 E X H I B I T S (Continued)3 DESCRIPTION PAGE4 (Plaintiff's Exhibit 577 for 5265 identification, document6 entitled "notes document7 entitled8 ID099D2520D33CC8D9 8852575840003631E," production10 numbers CWMBIA 15897317 through11 CWMBIA 15897347.)12 (Plaintiff's Exhibit 578 for 52813 identification, email dated June14 22, 2006, production numbers15 CWMBIA 13132210 through CWMBIA16 13132215.)17 (Plaintiff's Exhibit 579 for 53218 identification, CSC executive19 summary for CWHEQ 2006-E,20 production numbers CW 000001383321 through CW 0000013839.)22232425

Page 818

1 MICHAEL W. SCHLOESSMANN2 E X H I B I T S (Continued)3 DESCRIPTION PAGE4 (Plaintiff's Exhibit 580 for 5345 identification, email dated July6 24, 2006, production numbers7 CWMBIA 11029957 through CWMBIA8 11029962.)9 (Plaintiff's Exhibit 581 for 54110 identification, email dated11 August 9, 2006, production12 numbers CWMBIA 8782496 through13 CWMBIA 8782501.)14 (Plaintiff's Exhibit 582 for 54515 identification, email dated16 August 12, 2006, production17 numbers CWMBIA 11035434 through18 CWMBIA 11035438.)19 (Plaintiff's Exhibit 583 for 54820 identification, email dated21 August 12, 2006, with22 attachment, production numbers23 CWMBIA 00100425061 through24 CWMBIA 00100425073.)25

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93 (Pages 819 to 822)

Page 819

1 MICHAEL W. SCHLOESSMANN2 E X H I B I T S (Continued)3 DESCRIPTION PAGE4 (Plaintiff's Exhibit 584 for 5745 identification, minutes of the6 meeting of the credit risk7 management committee, September8 28, 2006, production numbers9 CWMBIA 8743084 through CWMBIA10 8743091.)11 (Plaintiff's Exhibit 585 for 58112 identification, document13 entitled "notes document ID14 FF860549D092CE3385257693006E89E815 ," production numbers CWMBIA16 10828824 through CWMBIA17 10828826.)18 (Plaintiff's Exhibit 586 for 58519 identification, document20 entitled "enterprise wide asset21 securitization," dated September22 29, 2006, production numbers23 CWMBIA-G81387 through24 CWMBIA-G81398.)25

Page 820

1 MICHAEL W. SCHLOESSMANN2 E X H I B I T S (Continued)3 DESCRIPTION PAGE4 (Plaintiff's Exhibit 587 for 6025 identification, email dated6 September 29, 2006, production7 numbers CWMBIA 11053508 through8 CWMBIA 11053512.)9 (Plaintiff's Exhibit 588 for 61710 identification, email dated11 October 30, 2006, production12 numbers CWMBIA 9553311 through13 CWMBIA 9553315.)14 (Plaintiff's Exhibit 589 for 62315 identification, email dated16 November 22, 2006, production17 numbers CWMBIA 11068600 through18 CWMBIA 11068603.)19 (Plaintiff's Exhibit 590 for 63320 identification, email dated21 December 26, 2006, production22 numbers CWMBIA 8947488 through23 CWMBIA 8947489.)2425

Page 821

1 MICHAEL W. SCHLOESSMANN2 E X H I B I T S (Continued)3 DESCRIPTION PAGE4 (Plaintiff's Exhibit 591 for 6405 identification, email dated6 January 8, 2007, production7 numbers CWMBIA-G88567 through8 CWMBIA-G88571.)9 (Plaintiff's Exhibit 592 for 64810 identification, email dated11 February 9, 2007, with12 attachments, production numbers13 CWMBIA 13222164 through CWMBIA14 13222182.)15 (Plaintiff's Exhibit 593 for 66216 identification, email dated17 March 6, 2007, with attachment,18 production numbers CWMBIA19 0008084603 through CWMBIA20 0008084606.)2122232425

Page 822

1 MICHAEL W. SCHLOESSMANN2 E X H I B I T S (Continued)3 DESCRIPTION PAGE4 (Plaintiff's Exhibit 594 for 6835 identification, email dated6 March 30, 2007, with attachment,7 production numbers CWMBIA8 10722613 through CWMBIA9 10722615.)10 (Plaintiff's Exhibit 595 for 69511 identification, email dated12 March 30, 2007, with the13 attachments.)14 (Plaintiff's Exhibit 596 for 70615 identification, email dated16 April 6, 2007, production17 numbers MBIA 15817067 through18 MBIA 15817069.)19 (Plaintiff's Exhibit 597 for 70920 identification, email dated21 April 13, 2007, with attachment,22 production numbers CWMBIA23 10750120 through CWMBIA24 10750126.)25

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94 (Pages 823 to 824)

Page 823

1 MICHAEL W. SCHLOESSMANN2 E X H I B I T S (Continued)3 DESCRIPTION PAGE4 (Plaintiff's Exhibit 598 for 7125 identification, email dated May6 22, 2007, production numbers7 CWMBIA 11132065 through CWMBIA8 11132070.)9 (Plaintiff's Exhibit 599 for 72310 identification, email dated May11 29, 2007, production numbers12 CWMBIA 14123986 through CWMBIA13 14123992.)14 (Plaintiff's Exhibit 600 for 72915 identification, minutes of the16 meeting of the credit risk17 management committee, May 29,18 2007, production numbers CWMBIA19 15974470 through CWMBIA20 15974478.)21 (Plaintiff's Exhibit 601 for 74822 identification, email dated June23 13, 2007, production numbers24 CWMBIA 11141425 through CWMBIA25 11141427.)

Page 824

1 MICHAEL W. SCHLOESSMANN2 E X H I B I T S (Continued)3 DESCRIPTION PAGE4 (Plaintiff's Exhibit 602 for 7705 identification, email dated July6 18, 2008, production numbers7 CWMBIA 12863199 through CWMBIA8 12863201.)9 (Plaintiff's Exhibit 603 for 77310 identification, document11 entitled "Countrywide Financial12 Corporation repurchase13 operations committee charter,"14 production numbers15 BACMBIA-A92326 through16 BACMBIA-A92328.)171819202122232425

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