AFFIDAVIT OF

s, being duly sworn, deposes and says: 1. My name i ds. I have personal knowledge of the facts in

this affidavit and am competent to testify to them if called upon to do so. 2. 3. I live at 1.

I have worked in the mortgage industry for approximately eight years.

From 2000 to 2005, I worked at CitiMortgage as a loan processor and, beginning in 2003, as a loan originator. As a loan processor, my responsibilities included, among other things, preparing loan files for residential mortgage loans and conducting an initial review of the verification documents provided by borrowers. As a loan originator, my responsibilities included acting as the first point of contact for borrowers, assisting borrowers to complete the loan application, and selecting the appropriate mortgage program. 4. From 2005 to 2006, I worked on a contract basis as a due diligence

underwriter Clayton Holdings, Inc. ("Clayton"). From 2006 to 2008, I worked on a contract basis as a due diligence underwriter Mortgage Data Management Corporation and Watterson Prime LLC ("Watterson"). As a due diligence underwriter, I reviewed loans that had already closed to determine whether the loans complied with the pertinent unde~criting guidelines and applicable laws. 5. At Clayton and Watterson, my responsibilities included conducting due

diligence underwriting on pools of residential mortgage loans. Typically, these pools were being purchased by large financial institutions such as Bear, Steams & Co., Inc. and its affiliate EMC Mortgage Corporation (collectively, "Bear Stearns"). These financial institutions then often "securitized" the loans by selling them to a trust that issued mortgage-backed securities that were

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purchased by investors. Clayton and Wattersons clients generally included the financial institutions that were purchasing the pools of loans. 6. When I started at Clayton, I participated in a one week training program in

Shelton, Connecticut. During the training program, I was taught how to use Claytons proprietary computer system, known as "CLAS," which was used to conduct due diligence underwriting. When I started at Clayton I had no experience underwriting mortgage loans, and I received no instructions about how to underwrite loans during the training program. Many of my colleagues at Clayton also lacked underwriting experience and a number of them had held no previous positions in the mortgage industry. I noticed that many senior Clayton employees, such as Deb Medina, hired many of their family members to work as due diligence underwriters, even when they had no experience in the mortgage industry. 7. When I started at Watterson, I leamed how to use Wattersons proprietary

computer system, known as "StratQ," which was used to conduct due diligence underwriting. ! received no instruction about how to underwrite loans. Many of my colleagues at Watterson also lacked underwriting experience. 8. At both Clayton and Watterson, at the beginning of a due diligence

project, the "lead" (the supervisor who was in charge of the job) assembled the team and explained the "job notes" or parameters of the due diligence review. This explanation included, among other things, a description of the type and level of review requested by the client and the underwriting guidelines applicable to the loans. After the initial meeting, each due diligence underwriter began reviewing loan files to assess whether the loan was originated in compliance with the underwriting guidelines and applicable anti-predatory lending laws.

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9.

In order to perform a due diligence review, I began by entering data from

the loan file into CLAS or StratQ. Both CLAS and StratQ permitted the due diligence underwriter to input and access information regarding each loan. For each loan, I entered, among other information, the borrowers assets, liabilities, and income as reflected on the various verification documents found in the loan file. CLAS and StratQ then calculated various metrics that were used to evaluate the borrowers creditworthiness, including DTI, LTV, and CLTV. In reviewing each loan, I assessed whether the loan met the underwriting guidelines. For example, underwriting guidelines typically specify a maximum DTI ratio and required that, for stated income loans, the borrowers stated income listed on the loan application must be reasonable. After reviewing the loan, due diligence underwriters graded it on a numerical scale. in CLAS or StratQ. Clayton and Watterson both used a three point scale. Loans that satisfied the underwriting guidelines were supposed to be graded as 1 s. Loans with incurable defects were supposed to be graded as 3s. Loans with small defects that were overcome by sufficient compensating factors were supposed to be graded as 2s. 10. At Clayton and Watterson, underwriters - including me - were under a lot of pressure from management to review loans quickly. Clayton supervisors asked us to review at least one loan per hour, and often expected us to review loans at an even faster pace. I felt that this was not enough time to adequately review the loans. Performance at Clayton was based on the numbers; the due diligence underwriters who reviewed the most loans received the best reviews. Underwriters who worked quickly but made many errors during their review were retained or promoted. Underwriters who worked at a slower pace and conducted quality underwriting were typically not staffed on future projects, and were sometimes sent home in the middle of a job. I remember one incident where, after sending a woman home because she did

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not review loans quickly enough, Clayton lead Deb Medina explained to us: "Shes getting sent home because she didnt pull her weight. Well have to restaffher. And if you dont pick up the pace, that is going to be you." In addition, I spoke to many colleagues who were told by Clayton supervisors that they would not be staffed on future jobs because their production was too low. 11. At Watterson, we were required to review an even higher volume of loans than was expected at Clayton. Similar to Clayton, due diligence underwriters were evaluated primarily based on the volume of loans that they reviewed. In fact, Watterson gave each due diligence underwriter a performance review every month that measured primarily how many loans the underwriter reviewed. The Watterson performance reviews also assigned due diligence underwriters to a particular tier, and the higher tiers were reserved for those underwriters who reviewed a high volume of loans. Watterson due diligence underwriters who were placed in the highest tiers earned the highest hourly rates and were staffed on the most jobs, and Watterson due diligence underwriters who were placed on the lower tiers earned lower hourly rates or were not staffed on any future jobs. Watterson due diligence underwriters who did not review a high enough volume of loans were sometimes sent home in the middle of jobs. One Watterson lead, Pattie Brennan, was notorious for sending people home in the middle of jobs if they did not review loans quickly enough to meet her production targets. 12. At both Clayton and Watterson, in reviewing each loan, the due diligence underwriter was required to input into CLAS or StratQ, among other things, the borrowers assets, liabilities, and income as reflected on the various verification documents found in the loan file. In doing so, the underwriters were also required to assess whether the verification documents in the loan file (e.g., verification of bank deposit, verification of income and!or employment) were accurate and genuine. Because of the time pressures, however, many due

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diligence underwriters at both Clayton and Watterson entered information directly from the loan application (also known as the "1003 form") or underwriting worksheet (the "1008 form") without verifying the information by examining supporting documentation. This was known as "1008 underwriting." In addition to the time pressures, another reason that many Clayton and Watterson due diligence underwriters engaged in 1008 underwriting was because they lacked the experience to question the information on these forms. 13. Clayton and Watterson supervisors knew that many of the due diligence underwriters engaged in 1008 underwriting, but they did not care so long as the production numbers were high enough. In fact, Clayton leads instructed us not to question what was on the 1008 form: "The loans already closed. You cant do anything about it at this point." I received similar instructions from leads at Watterson, who often told us: "Its closed. Just approve it and move on, Theyre already in the house." From these instructions, I understood that Clayton and Watterson supervisors wanted me to approve loans without questioning any inaccuracies or departures from the underwriting guidelines. 14. The time pressures also discouraged Clayton and Watterson due diligence underwriters from grading loans as 2s and 3s. In order to grade a loan as a 2 or 3, the underwriter was required to find compensating factors and to enter a comment into CLAS or StratQ explaining why the loan was defective. In addition, at both Clayton and Watterson, quality control reviewed all loans graded as 2s and 3s. As a result, due diligence underwriters like me knew that we could avoid having supervisors examine our work so long as we graded the loans as Is. If we graded loans as 2s or 3s, quality control personnel and leads scrutinized our work and, oftentimes, publicly berated us for assigning that grade. Deb Medina, a Clayton lead, frequently yelled at due diligence underwriters for grading loans as 3s in public. Watterson leads

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instructed us, "Pass the loan and keep it moving." By this I understood that I was supposed to approve loans and could quickly move on to the next loan. 15. Clayton and Watterson leads instructed us to avoid grading loans as 3 s. This was true for numerous clients, but especially true on Bear Stearns jobs. As a result of Bear Steams indifference to defective loans, due diligence underwriters at both Clayton and Watterson often used the phrase "Bear dont care." Clayton and Watterson leads threatened to send us home if we graded too many loans as 3s and avoided staffing on future jobs those due diligence underwritdrs who raised concerns about defective loans. I heard Watterson leads instruct many due diligence underwriters, "Youre making this harder than it is. Approve the loan and move on." As a result, many due diligence underwriters at both Clayton and Watterson, including me, tried to keep our heads down and grade loans as 1 s in order to avoid attracting attention. Because leads at both Clayton and Watterson had discretion about who they staffed on future jobs, I was concerned that ifI graded too many loans as 3s, I would not be hired in the future. 16. Although we were supposed to review loans according to the underwriting

guidelines in effect as of when the loans closed, at both Clayton and Watterson leads often instructed us to use outdated guidelines. For example, we were expected to review loans that closed in December 2005 with underwriting guidelines that were in effect in March 2005. 17. In addition, even when our reviews were supposed to examine loans for both credit and Compliance defects, many of the Clayton and Watterson leads told us that we should not be concerned about deviations from the underwriting guidelines governing borrowers creditworthiness. For example, Clayton and Watterson leads instructed us to never to question the reasonableness of income on stated income loans. I reviewed many loans where 23 year old

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brokers claimed to earn $15,000 amonth. I thought that this income was not reasonable, but Clayton and Watterson leads prohibited me from questioning the income or checking external sources, such as Salary.com, to verify the information. Clayton leads told us, "Just approve the loan. Youre in no position to question the borrowers salary." Clayton leads also told us, "Its California. Salaries are higher there." From these instructions, it was clear that Clayton wanted me to approve loans even where I believed that the stated income was not reasonable. I received similar instructions at Watterson. 18. I also reviewed many loans at Clayton and Watterson where the appraisals were defective. For example, underwriting guidelines typically require that an appraisal compare the property in question to another property within a set distance. Many appraisals violated the guidelines by comparing the subject property to another property that was located too far away. I raised this issue to quality control personnel at both Clayton and Watterson. At Clayton, quality control told me "dont worry about the appraisal. Go ahead and approve the loan." I received similar instructions at Watterson. 19. At both Clayton and Watterson, I frequently reviewed loan files that contained documents that appeared to be fraudulent. For example, I reviewed many pay stubs that I believed were fraudulent because they were obviously altered. When I raised this issue to leads at Clayton, they instructed me: "This is not fraud review. Just take it from there." By this statement, I understood the Clayton leads to instruct me to use salary information as listed on the pay stubs, despite the fact that I believed the document was fraudulent. I was also rebuffed when I raised similar concerns at Watterson. For example, when I raised a concern about fraud to a Watterson lead, he told me: "That is not a reason to kick the loan." From his comment, I understood that I should grade the loan as a 1 despite my concerns about potential fraud.

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20. Another common defect at both Clayton and Watterson was the absence.of a verbal verification of employment ("VVOE"), even when it was required by the guidelines. For example, the VVOE form sometimes indicated that the borrower was no longer employed with that company. When I raised these issues with leads at both Clayton and Watterson, they told me that I should grade those loans as 1 s. 21. When reviewing adjustable rate loans, Clayton and Watterson leads instructed us only to consider the "start rate" (i.e., the interest rate at the time of closing), despite the fact that underwriting guidelines typically required that we use the "rate cap" (i.e., the maximum interest rate under the loan program) to underwrite the loan. As a result, we were instructed to grade as ls many loans that failed to comply with underwriting guidelines. 22. In addition to the defects described above, Clayton and Watterson supervisors instructed us that many clients, including Bear Steams, tolerated deviations from certain ratios (e.g., DTI, LTV, and CLTV ratios) required by the underwriting guidelines. Bear Steams permitted a deviation of up to five percent form the pertinent DTI, LTV, and CLTV ratios so long as the due diligence underwriter found compensating factors. 23. When loans did have defects, Clayton and Watterson leads told us to find compensating factors and approve the loan anyway. We often approved loans using compensating factors that I believed were insufficient to overcome the defects. 24. We often considered as compensating factors items such as the number of years the borrower worked in his current employment, the borrowers assets, and the LTV and CLTV ratios. At both Clayton and Watterson, due diligence underwriters like myself were required to be creative in order to find compensating factors. On many jobs, the leads gave us a cheat sheet of compensating factors to make it easier for us to find them.

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25. One example of a compensating factor that I thought was insufficient was a borrower who only had one year on the job, but had spent four years in school before that. The Watterson lead I worked with instructed me to approve that loan and note that the borrower had five years of work experience as a compensating factor. In addition, at Clayton and Watterson, we often "mixed and matched" compensating factors between a borrower and co-borrower. For example, if the borrower had a high income and a low credit score, and the co-borrower had a low income and a high credit score, Clayton and Watterson leads instructed us to use the borrowers high income and the co-borrowers high credit score to approve the loan. 26. Even on the few instances where we did grade loans as 3s, we were required to list compensating factors. Clayton and Watterson leads instructed me that it was important that we list compensating factors even for loans we graded as 3s so that quality control personnel could change the grades to 1 s and 2s without reviewing the entire loan file. 27. To the extent that due diligence underwriters graded loans as 3s, quality control reviewers at both Clayton and Watterson frequently changed those grades to 1 s and 2s. This was common knowledge at Clayton and Watterson, and I often used CLAS or StratQ to access loans I had already reviewed to determine whether quality control changed the grade. 28. In addition, during the course of the due diligence review at both Clayton and Watterson, the leads often relayed special instructions from the client that affected the course of the review. In many cases, we were instructed that the client was willing to overlook certain defects and that, going forward, loans with those types of.defects should be graded as 1 s despite their deviation from the underwriting guidelines. For example, I often received instructions in the middle of the review that the client had decided to approve loans with a DTI ratio that exceeded the guidelines and that we should grade all such loans as 1 s going forward. Clayton

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and Watterson leads instructed us that quality control personnel would access loans we had already reviewed to change the grades on those loans from 2s or 3s to ls. This happened frequently on jobs for Bear Steams. In addition, many clients had direct access to StratQ and used the software to make "bulk exception changes," that is, to approve and grade as 1 s loans that Wattersons due diligence underwriters had previously graded as 2s or 3s. 29. Clayton and Watterson leads also instructed us to be careful about the comments that we entered into CLAS and StratQ. Watterson leads told us, "We want the reports to be clean. Dont raise any flags." By this comment, I understood my Watterson supervisors to instruct me that the comments in StratQ should not raise any concerns about the quality of the loans. Similarly, leads at Clayton instructed us that our comments should not be too detailed and should avoid making the loans look bad. 30. CLAS maintained data about which Clayton personnel saved changes to loan information. Loans received a stamp in CLAS when a due diligence underwriter completed his or her initial review. If the loan was subject to quality control, it received another stamp in CLAS indicating that the quality control was completed. 31. Similarly, beginning in 2006, StratQ stored information about which StratQ user last edited the loan file. When I revisited loans I had already reviewed in StratQ, I was often able to see which quality control personnel or leads made changes to the comments and grades assigned to the loans.

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32. During my experience as a due diligence underwriter, I learned that loans originated by GreenPoint Mortgage Funding, Inc. ("GreenPoint") and SunTrust were especially bad. These loans were often missing key documents and did not comply with underwriting guidelines.

Sworn to before me this ~__~day o f~ O-i-i-

JEANI~ MOSESLO~N No. 01MO6085761 Quailed New York County in 4 T" comm~ Exp~ Janu~j, 6, 20_.~

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