Exhibit 5 - Walnut Place LLC v. Country Wide Home Loans Inc

8/7/2019 Exhibit 5 - Walnut Place LLC v. Country Wide Home Loans Inc

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70 East 55th Street212 755 0100New York, New York 10022graisellsworth.comGRAIS & ELLSWORTH LLPAugust 3, 2010By C ertified Mail, Return Receipt RequestedBank of New York101 B arclay Street, 8WNew York, New York 10286Attention: Mortgage-Backed Securities Group, CWALT, Inc. Series 2006-0A10

Alternative Loan Trust 2006-0A10 (the "Trust")We represent

which own one certificate of $210,000,000 original face amount in class4-A-1 of the Trust, one certificate of $302,222 ,000 original face amount in class 4-A-2 ofthe Trust, and one certificate of $108,084,000 original face am ount in class 1-A-2 o f theTrust. The Bank of N ew Y ork is the Trustee of the Trust.At direction, we have investigated the true condition of 2,166 of the6,531 mortgage loans in the Trust as of June 30, 2006, the closing date of the Pooling and

Servicing Agreement (the "PSA") by which Countrywide Home Loans, Inc.("Countrywide"), Park Granada LLC, Park M onaco Inc., and Park Sienna LLC sold theseloans to the Depositor' of the Trust. Our investigation confirms that at least 1,432 ofthose loans did not com ply with the representations and warranties that Countrywidemade a bout them in the PSA and that those breaches materially and adversely affect thevalue of the interests of Certificateholders in those mortgage loans. thereforedemands that you require Countrywide to repurchase from the Trust those 1,432 loansand any others that did not com ply with the representations and w arranties thatCountrywide made about them. In the case of liquidated loans, demands that yourequire Countrywide to reimburse to the Trust the ex cess of the repurchase price over anynet proceeds of liquidation.

hereby offers to indemnify the Bank of New York against the costs,expenses, and liabilities which may be incurred as a consequ ence of exercising any of itsrights or powers vested in it by the PSA , or instituting, conducting, or defending anylitigation in relation to the PSA, at the request, order, or direction o . Thisindemnity shall not include any costs, expenses, and liabilities incurred by the Bank ofNew York as a result of any direct or derivative action initiated by against theBank of New York.

Unless otherwise defined herein, capitalized terms are defined in accordance with the PS A.

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ILED: NEW YORK COUNTY CLERK 02/23/2011 INDEX NO. 650497/

YSCEF DOC. NO. 1-5 RECEIVED NYSCEF: 02/23/


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GR AIS & ELLSW OR TH LLP

Bank of New YorkAugust 3, 2010Page 2

OUR INVESTIGATIONO ur investigation focused on two m ain aspects of the mortgage loans: theaccuracy of the loan-to-value ratios ("LT Vs") of the loans as stated in the Mo rtgage LoanS chedule (the "Sch edule") attached to the PS A and in the prospectus supplemen t, and theaccuracy of statements in the Schedule and the prospectus supplement about owner-occupancy of the properties that secured the loans. T here were four parts to ourinvestigation: (i) use of a retroactive automated valuation m odel ("AV M") on theproperties that secured the loans; (ii) analysis of subsequent sales of those properties; (iii)analysis of the property tax records for the properties; and (iv) analysis of early defaultsof the loans in the T rust. In our investigation, we used data provided by CoreL ogic, theleading provider of data about real property and m ortgage loans.Automated Valuation ModelUsing a comprehensive, industry-standard AVM provided by CoreLogic, wedetermined the true market value o f many of the properties that secured loans in theT rust, as of the origination date of each loan. A n A VM considers objective criteria likethe condition of the property and the actual sale prices of com parable properties in thesame locale shortly before the specified date and is more con sistent, independent, andobjective than other methods of appraisal. A VM s have been in widespread use for many

years. CoreLogic's AVM incorporates a database of 500 million sales covering ZIP codesthat represent more than 97% of the homes, occupied by more than 99% of thepopulation, in the United S tates. Independent testing services have determined that thisA VM is the most accurate of all such models.T here was sufficient information to determine the value o f 1,574 of the propertiesthat secured 1,574 out o f the total 2,166 loans w e investigated, and thereby to calculatethe correct LT V of each of those loans, as of the date on which each loan was m ade. O n1,134 of those 1,574 properties, the AV M reported that the appraised value in the

Schedule (and in turn reflected in CoreLogic's Loan Performance Securities Database)was 105% or more of the true market value as determined by the mo del, and the amountby w hich the stated values of those properties exceeded their true m arket values in theaggregate was $119,440,958. T he A VM reported that the appraised value in the Schedulewas 95% or less of the true market value on only 101 properties, and the am ount bywhich the true m arket values of those properties exceeded the reported values was$9,368,841. Thus, the number of properties on which the value was overstated exceededby more than eleven times the n umber on which the value was understated, and theaggregate amount overstated was nearly thirteen times the aggregate am ount understated.Details of the AV M results for each loan on w hich the appraised value was m ore than105% of the value determined by the model are given in Table 1 of A ppendix A .

Subsequent Sales of Refinanced PropertiesO f the 6,531 loans in the Trust, 4,198 were taken out to refinance existingmortgages, rather than to pu rchase properties. For those 4,198 loans, the value of theproperty was based solely on the appraised value rather than a sale price because there is


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Bank of New YorkAugust 3, 2010Page 3GRAIS & ELLSWORTH LLP

no sale price in a refinancing. Of those properties, 151 sold for much less than theappraised value of the property reported in the Schedule, even when adjusted for declinesin the housing price index, resulting in a loss to the trust. Details of this analysis are givenin Tab le 2 of Appendix A.

Property Tax RecordsIn some states and counties, owners of a property are able to designate whetherthat property is his or her "homestead," which may reduce the taxes on that property or

exempt the property from assets available to satisfy the owner's creditors, or both. Anowner may designate only one property, which he or she must occupy, as his or herhomestead. Sixteen loans in the Trust that were reported to be owner occupied in theSchedule w ere not actually owner occupied because the borrower designated anotherproperty as his or her homestead. These 1 6 loans are identified in Table 3 of Appendix A .The fact that an owner in one of these jurisdictions does not designate a propertyas his or her homestead when he or she can do so is strong evidence that the property wasnot his or her primary residence. W ith respect to 468 of the properties that were stated inthe Schedule to be owner occupied, the owner could have but did not designate theproperty as his or her homestead. These 468 loans are identified in Table 3 of AppendixA.For 195 properties that secured the mortgage loans, the borrower instructed localtax authorities to send the bills for the taxes on the property to the borrow er at an addressother than the property itself, even though the property was reported to be ow neroccupied in the Schedule. Such an instruction is strong evidence that the borrower did notlive in the mortgaged property or consider it to be his or her primary residence. These195 loans are identified in T able 3 of Appendix A.Early Payment DefaultsW hen a loan becomes 60 or more days delinquent within six months after it wasmade it is called an early payment default ("E PD"). A n E PD is strong evidence that theloan did not con form to the underw riting standards in mak ing the loan, often by failing todetect fraud in the application. Underw riting standards are intended to ensure that loansare made only to borrowers who can and w ill make their mortgage paymen ts. Because anE PD oc curs so soon after the mortgage loan w as made, it is much more likely that thedefault occurred because the borrower co uld not afford the paym ents in the first place(and thus that the underwriting standards were not followed), than because of changedexternal circumstances unrelated to the underwriting of the m ortgage loan (such as thatthe borrow er lost his or her job). Tw enty-eight loans in the collateral pool of thissecuritization experienced EP Ds. T hese 28 loans are identified in Table 4 of A ppendix A.


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Bank of New YorkAugust 3, 2010Page 4GRAIS & ELLSWORTH LLP

BREACHES OF REPRESENTATIONS AND W ARRANTIESIN THE MORTGAGE LOAN PURCHASE AGREEM ENT

W ith respect to each of the 1,432 loans discussed above, Countrywide breached atleast one of the following representations and warranties. (Appendix B states whichrepresentations and w arranties Countrywide breached w ith respect to each such loan.)Breach of Schedule III-A (1)Countrywide represented and warranted that the "information set forth onSchedule I to the Pooling and S ervicing Agreement with respect to each M ortgage L oan

is true and correct in all material respects as of the Closing Date." PSA 2.03 &Schedule III-A (1). The S chedule describes, among other things, the LT V at originationof the loan. PSA , Schedule I. For many of the loans, the L TV reported in the Schedule(and reflected in Loan Performance's securities database) was incorrect.

W ith respect to 1,134 m ortgage loans, the reported appraised value of the propertywas significantly higher than the actual value of the property, as shown by the A VM .Because the appraised value is used as the denominator in the L T V, this evidence showsthat the reported L T V in the S chedule was m aterially incorrect for these 1,134 mortgageloans. W ith respect to 151 refinanced m ortgage loans, the subsequent sale information forthese loans also shows that the reported appraised value of the property was incorrect.T hese 151 m ortgage loans also had incorrect LT Vs. E liminating duplicates, 1,180mortgage loans had incorrect LT Vs.E ach of these differences is material and is a breach of the warranty in Sch edule

III-A (1) that the "information set forth on Schedule Ito the Pooling and ServicingAgreem ent with respect to each M ortgage L oan is true and correct in all material respectsas of the Closing Date."

Breach of Schedule III-A (3)Countrywide represented and warranted that "[n]o Mortgage Loa n had a L oan-to-

Value Ratio at origination in excess of 95.00%." PSA 2.03 & Schedule III-A (3). Formany of the m ortgage loans, the value determined by the A VM was significantly lowerthan the actual value of the property, so the actual LT V w as higher than the reported L TVbecause the denom inator used to calculate the reported LT V was higher than the truedenom inator. For 413 mortgage loans, using the true value of the property as determinedby the AVM, the actual L T V was more than 95%. T hese mortgage loans breachedSchedule III-A (3).

Breach of Schedule III-A (37) & (38)Countrywide represented and w arranted that "prior to the approval of theMo rtgage Loan a pplication, an appraisal of the related Mortgaged Property was ob tainedfrom a qua lified appraiser, duly appointed b y the originator, who h ad no interest, direct orindirect, in the Mo rtgaged Property or in any loan m ade on the security thereof, andwho se compen sation is not affected by the approval or disapproval of the Mortgage


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Bank of New YorkAugust 3, 2010GRAIS & ELLSWORTH LLPPage 5L oan; such appraisal is in a form acceptable to FNM A and FH L MC ." PS A 2.03 &Schedule III-A (38). Countrywide also represented and warranted that 141 of theMortgage L oans w ere underwritten in all material respects in accordance withCountrywide's underwriting guidelines as set forth in the Prospectus Supplement." PSA 2.03 & Schedu le III-A (37). Man y of the loans did not comply w ith these standards.T he mortgage loans were originated by Countrywide and one o r more othersellers affiliated with Countrywide Financial Corporation, an affiliate of Countrywide.

Countrywide's underwriting requirements stated that "[e]xcept with respect to mortgageloans originated pursuant to its Streamlined Documentation Program, Countrywide HomeLoans obtains appraisals from independent appraisers or appraisal services for propertiesthat are to secure mortgag e loans. . . . All appraisals are required to conform to F annieMae or Freddie Mac appraisal standards then in effect." Pros. Sup. S -89. Fannie Mae andFreddie Mac appraisal standards require that appraisals be independent, unbiased, and notcontingent on a predetermined result. Man y of the appraisals, however, w ere conductedby appraisers who were not independent, and so did not comply with Fannie and Freddiestandards.As reported in the 2007 National Appraisal Survey conducted by OctoberR esearch, before the time of this securitization, brokers and loan o fficers pressuredappraisers by threatening to withhold future assignments if an appraised value w as nothigh enough to enable the transaction to close and sometimes by refusing to pay forcompleted appraisals that were not high enough. T his pressure came in ma ny forms,including the following:

the withholding of business if the appraisers refused toinflate values; the withholding of business if the appraisers refused toguarantee a predetermined value; the withholding of business if the appraisers refused toignore deficiencies in the property; the refusal to pay for an appraisal that did not give thebrokers and loans officers the property values that theywanted; and the black listing of honest appraisers in order to use"rubber stamp" appraisers.

Appraisals made under pressure of this kind are breaches of Schedule II I-A (37)and (38) because such appraisals do not conform to the underw riting requirements of theoriginator, which require independent, unbiased appraisals that are not contingent on apredetermined result. As described above, the num ber of properties on w hich the valuewas overstated was more than eleven times the number on w hich the value wasunderstated, and the aggregate amou nt overstated was nearly thirteen times the aggregate


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Exhibit 5 - Walnut Place LLC v. Country Wide Home Loans Inc

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Transcript of Exhibit 5 - Walnut Place LLC v. Country Wide Home Loans Inc