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Case 2:08-cv-01418-LDW-ETB Document 1

UNITED STATES DISTRICT COURTEASTERN DISTRICT OFNEW YORK

F i l e d 04/07/2008 Page 1 o f 44

08-1418CITY OF ANNARBOR EMPLOYEES' RETIREMENT :SYSTEM, I n d i v i d u a l l y and On Behalf of A l l OthersS i m i l a r l y S i t u a t e d ,

P l a i n t i f f ,- a g a i n s t -

CITIGROUP MORTGAGE LOAN TRUST I N C . ,CITIGROUP MORTGAGE LOAN TRUST 2 0 0 7 - 2 ,CITIGROUP MORTGAGE LOAN TRUST 2 0 0 7 - 6 ,CITIGROUP MORTGAGE LOAN TRUST 2007-AHLI,CITIGROUP MORTGAGE LOAN TRUST 2007-AHL2,CITIGROUP MORTGAGE LOAN TRUST 2007-AHL3,,CITIGROUP MORTGAGE LOAN TRUST 2007-AMC1, CITIGROUP MORTGAGE LOAN TRUST2007-AMC2, CITIGROUP MORTGAGE LOANTRUST 2007-AMC3, CITIGROUP MORTGAGELOAN TRUST 2007-AMC4, CITIGROUPMORTGAGE LOAN TRUST 2007-AR1, CITIGROUPMORTGAGE LOAN TRUST 2007-AR4, CITIGROUPMORTGAGE LOAN TRUST 2007-AR5, CITIGROUPMORTGAGE LOAN TRUST 2007-AR7, CITIGROUPMORTGAGE LOAN TRUST 2007-OPX1, CITIGROUP :MORTGAGE LOAN TRUST 2007-WFHE1,CITIGROUP MORTGAGE LOAN TRUST 2007-WFHE2, CITIGROUP MORTGAGE LOAN TRUST2007-WFHE3, CITIGROUP MORTGAGE LOANTRUST 2007-WFHE4, CITIGROUP GLOBALMARKETS I N C . , RANDALL COSTA, SCOTTFREIDENRICH, PETER PATRICOLA, MARK I .TSESARSKY, JEFFREYPERLOWITZ and EVELYNECHEVARRIA,

D e f e n d a n t s .

NOTICE OF REMOVAL

01 061.

* ' ^ 4 t L O S^ ^ 0 0 1 ^ 4 . Y C + ! U^+ 1 G ^

P u r s u a n t t o 2 8 U . S . C . 1 3 3 4 ( b ) , 1 4 4 6 , a n d 1 4 5 2 ( a ) , a n d , a l t e r n a t i v e l y , p u r s u a n t

W X L E R I -

t o 28 U.S.C. 1332 and 1 4 4 1 , a s amended i n r e l e v a n t p a r t by t h e C l a s s Action F a i r n e s s Act of


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2005 ("CAFA"), and a u t h o r i z e d by 28 U.S.C. 1 4 5 3 , d e f e n d a n t s C i t i g r o u p Mortgage Loan

T r u s t I n c . ( " C i t i g r o u p Mortgage"), C i t i g r o u p Mortgage Loan T r u s t 2007-2, C i t i g r o u p Mortgage

Loan T r u s t 2007-6, C i t i g r o u p Mortgage Loan T r u s t 2007-AHL 1 , C i t i g r o u p Mortgage Loan T r u s t

2007-AHL2, C i t i g r o u p Mortgage Loan T r u s t 2007-AHL3, C i t i g r o u p Mortgage Loan T r u s t 2007-AMC 1 , C i t i g r o u p Mortgage Loan T r u s t 2007-AMC2, C i t i g r o u p Mortgage Loan T r u s t 2007-AMC3, C i t i g r o u p Mortgage Loan T r u s t 2007-AMC4, C i t i g r o u p Mortgage Loan T r u s t 2007-AR1, C i t i g r o u p Mortgage Loan T r u s t 2007-AR4, C i t i g r o u p Mortgage Loan T r u s t 2007-AR5,C i t i g r o u p Mortgage Loan T r u s t 2007-AR7, C i t i g r o u p Mortgage Loan T r u s t 2007-OPX1,

C i t i g r o u p Mortgage Loan T r u s t 2007-WFHE1, C i t i g r o u p Mortgage Loan T r u s t 2007-WFHE2,C i t i g r o u p Mortgage Loan T r u s t 2007-WFHE3, C i t i g r o u p Mortgage Loan T r u s t 2007-WFHE4( c o l l e c t i v e l y , t h e " T r u s t D e f e n d a n t s " ) , C i t i g r o u p Global Markets I n c . , Randall C o s t a , S c o t t

F r e i d e n r i c h , P e t e r P a t r i c o l a , Mark 1 . T s e s a r s k y , J e f f r e y P e r l o w i t z and Evelyn Echevarria( c o l l e c t i v e l y , " D e f e n d a n t s " ) , by t h e i r undersigned a t t o r n e y s , Cleary G o t t l i e b S t e e n & Hamilton

LLP, hereby remove t h e above-captioned c i v i l a c t i o n , and a l l c l a i m s and c a u s e s of a c t i o n t h e r e i n ,

from t h e Supreme Court of t h e S t a t e of New York, County of Nassau, t o t h e United S t a t e s

D i s t r i c t Court f o r t h e E a s t e r n D i s t r i c t of New York. Defendants appear f o r t h e purpose o f

removal o n l y and f o r no o t h e r purpose and r e s e r v e a l l d e f e n s e s and r i g h t s a v a i l a b l e t o them, and

s t a t e a s f o l l o w s :

O n March 1 9 , 2008 , t h e C i t y o f An n A r b o r Employees ' R e t i r e m e n tSystem p u r p o r t e d t o i n i t i a t e t h i s p u t a t i v e c l a s s a c t i o n by f i l i n g a complaint i n t h e Supreme Court

of t h e S t a t e of New York, County of Nassau, under Index No. 08/005187, p u r p o r t e d l y on b e h a l fof i t s e l f and a l l persons o r e n t i t i e s ( c o l l e c t i v e l y , " P l a i n t i f f s " ) who a c q u i r e d mortgage p a s s -

through c e r t i f i c a t e s and a s s e t - b a c k e d p a s s - t h r o u g h c e r t i f i c a t e s a l l e g e d l y i s s u e d by t h e T r u s t

2


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D e f e n d a n t s . Pursuant t o Rule 8 1 . 1 ( b ) of t h e Local C i v i l Rules of t h e United S t a t e s C o u r t s f o r t h eSouthern and E a s t e r n D i s t r i c t s of New York and 28 U.S.C. S e c t i o n 1 4 4 6 ( a ) , a t r u e and c o r r e c tcopy of t h e summons and c o m p l a i n t , which i s t h e o n l y p l e a d i n g t h u s f a r s e r v e d uponDefendants, i s a t t a c h e d h e r e t o a s E x h i b i t A .

2 . No Defendant was s e r v e d p r i o r t o March 1 9 , 2008, and t h i s n o t i c e i s beingf i l e d w i t h i n 30 days of s e r v i c e on Defendants and t h u s i s t i m e l y f i l e d under 28 U.S.C. 1 4 4 6 ( b ) .

3 . P l a i n t i f f s ' c o m p l a i n t a l l e g e s t h a t t h e y p u r c h a s e d c e r t a i n m o r t g a g e p a s s -through c e r t i f i c a t e s and a s s e t - b a c k e d p a s s - t h r o u g h c e r t i f i c a t e s ( t h e " C e r t i f i c a t e s " ) i s s u e d by t h eT r u s t Defendants, which p u r p o r t e d l y were e s t a b l i s h e d by C i t i g r o u p Mortgage t o i s s u e t h eC e r t i f i c a t e s , pursuant t o a R e g i s t r a t i o n Statement f i l e d with t h e United S t a t e s S e c u r i t i e s andExchange Commission on December 1 2 , 2 0 0 6 , and P r o s p e c t u s Supplements i n c o r p o r a t e dt h e r e i n. P la in ti f f s f u r t h e r a l l e g e t h a t t h e s e documents c o n t a i n e d m a t e r i a l l y f a l s e and misleadingr e p r e s e n t a t i o n s r e g a r d i n g t h e mortgage l o a n s u n d e r l y i n g t h e C e r t i f i c a t e s . P l a i n t i f f s s e e k t or e c o v e r damages from Defendants p u r s u a n t t o S e c t i o n s 1 1 and 1 5 o f the S e c u r i t i e s Act of 1933( t h e " 1 9 3 3 A c t " ) .

4 . More s p e c i f i c a l l y , t h e a l l e g e d m i s r e p r e s e n t a t i o n s i n t h e R e g i s t r a t i o nStatement and P r o s p e c t u s Supplements r e l a t e t o c e r t a i n mortgage l o a n s u n d e r l y i n g t h eC e r t i f i c a t e s ( t h e "Mortgage Loans " ) a l l e g e d l y purchased by C i t i g r o u p Mortgage from l o a no r i g i n a t o r s and t h e i r a g e n t s t h a t i n c l u d e American Home Mortgage Corporation ("AHM").AHM i s a l l e g e d t o have o r i g i n a t e d t h e l a r g e s t number of Mortgage Loans f o r tw o of t h e t r u s t s onwhich P l a i n t i f f s base t h e i r s u i t , and AHM i s a l s o a l l e g e d t o have o r i g i n a t e d a s i g n i f i c a n t numberof Mortgage Loans i n a t h i r d t r u s t .


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5 . On August 6 , 2 0 0 7 , AHM f i l e d a v o l u n t a r y p e t i t i o n f o r r e o r g a n i z a t i o nunder Chapter 1 1 of t h e United S t a t e s Bankruptcy Code i n t h e United S t a t e s Bankruptcy Courtf o r t h e D i s t r i c t of Delaware , i n r e American Home Mortgage H o l d i n g s , I n c . , Case No. 07-11047,

e t s e q . ( t h e "AHM Bankruptcy P r o c e e d i n g s " ) . The AHM Bankruptcy Proceedings a r e c u r r e n t l ypending b e f o r e U . S . Bankruptcy Judge C h r i s t o p h e r S o n t c h i .

6 . Pursuant t o agreements c o n t a i n i n g c e r t a i n i n d e m n i f i c a t i o n p r o v i s i o n s f o rt h e b e n e f i t of C i t i g r o u p Mortgage and o t h e r D e f e n d a n t s , and p u r s u a n t t o s t a t u t o r y and commonl a w , AHM owes C i t i g r o u p Mortgage and o t h e r Defendants i n d e m n i f i c a t i o n a n d / o r c o n t r i b u t i o no b l i g a t i o n s f o r a n y c l a i m s a r i s i n g o u t o f t h e p u b l i c o f f e r i n g o f C e rt i f i c at e s r e la t in g t o t h eMortgage Loans t h a t AHM o r i g i n a t e d . Such c l a i m s i n c l u d e , w i t h o u t l i m i t a t i o n , P l a i n t i f f s 'c l a i m s i n t h i s l a w s u i t a r i s i n g o u t of such Mortgage L o a n s . C i t i g r o u p Mortgage and o t h e rDefendants, through t h e i r a f f i l i a t e s , have a s s e r t e d and r e s e r v e d t h e i r r i g h t s t o i n d e m n i f i c a t i o nand c o n t r i b u t i o n i n a Proof of Claim f i l e d i n t h e AHM Bankruptcy P r o c e e d i n g s .

7 . T h i s C o u r t h a s o r i g i n al j u r i s d i c t i o n o v e r t h i s a c t i o n p u r s u a n t t o 2 8 U . S . C . 1 3 3 4 ( b ) , and t h i s a c t i o n may be removed t o t h i s Court by Defendants pursuant t o 28 U . S . C . 1 4 5 2 ( a ) , because t h i s l a w s u i t i s " r e l a t e d t o " a c a s e under Chapter 1 1 , namely t h e AHMBankruptcy Proceedings . This l a w s u i t r e l a t e s t o AHM' s bankruptcy r i g h t s i n l i g h t o f c e r t a i nDefendants' r i g h t s t o i n d e m n i f i c a t i o n and c o n t r i b u t i o n from AHM i n t h e e v e n t a judgment i se n t e r e d a g a i n s t them i n t h i s a c t i o n a n d a s a r e s u l t o f a n y c o s t s a n d e x p e n s e s i n c u r r e d by t h e s eDefendants t o defend a g a i n s t t h i s a c t i o n . Consequently, t h e outcome of t h i s c a s e w i l l have ad i r e c t e f f e c t on t h e AHM bankruptcy e s t a t e .

A l t e r n a t i v e l y , t h i s a c t i o n may be removed t o t h i s Court under 28 U . S . C . 1 3 3 2 , a s amended by CAFA, because i t i s a p u t a t i v e " c l a s s a c t i o n " commenced a f t e r February

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1 8 , 2005 - i . e . , t h e e f f e c t i v e d a t e of CAFA - i n which t h e amount i n c o n t r o v e r s y exceeds t h esum o r v a l u e of $ 5 , 0 0 0 , 0 0 0 , e x c l u s i v e of i n t e r e s t a n d . c o s t s , and a t l e a s t one member of t h ep u t a t i v e c l a s s i s a c i t i z e n o f a s t a t e d i f f e r e n t f r o m a n y d e f e n d a n t . 2 8 U.S . C . 1 3 3 2 ( d ) ( 2 ) ( A ) .

9 . CAFA i s a p p l i c a b l e t o t h i s a c t i o n because i t was commenced on o r aboutMarch 1 9 , 2008 - - i . e . , a f t e r t h e e f f e c t i v e d a t e o f CAFA. 2 8 U . S . C . 1 3 3 2, 1 4 5 3 .

1 0 . I n a d d i t i o n , t h i s a c t i o n i s a " c l a s s a c t i o n " w i t h i n t h e meaning of CAFA,because P l a i n t i f f s seek t o r e p r e s e n t a c l a s s of persons i n a c i v i l a c t i o n f i l e d under CPLR 9 0 1 , e tLM. - i . e . , a " r u l e of j u d i c i a l procedure a u t h o r i z i n g an a c t i o n t o be brought by 1 o r morer e p r e s e n t a t i v e p e r s o n s a s a c l a s s a c t i o n . " 28 U. S. C. 1332( d ) ( 1 ) ( B ) , 1 4 5 3 ( a ) .

I t . T h e r e i s more t h a n $ 5 , 0 0 0 , 0 0 0 i n c o n t r o v e r s y i n t h i s a c t i o n . Under 2 8U.S.C. 1332( d ) , a s amended by CAFA, t h e amount i n c o n t r o v e r s y i n a p u t a t i v e c l a s s a c t i o n i sdetermined by a g g r e g a t i n g t h e amount a t i s s u e i n t h e c l a i m s of a l l members of t h e p u t a t i v e c l a s s .2 8 U . S . C . 1 3 3 2 ( d ) ( 6 ) . H e r e , t h e c o m p l a i n t a l l e g e s t h a t D e f e n d a n t s made f a l s e and m i s l e a d i n gs t a t e m e n t s i n connection with t h e i s s u a n c e of b i l l i o n s ' of d o l l a r s worth of C e r t i f i c a t e s and t h a t t h ev a l u e of t h e C e r t i f i c a t e s h a s d e c l i n e d s u b s t a n t i a l l y subsequent t o and due t o Defendants' a l l e g e dv i o l a t i o n s , Complaint 2 , 6 0 and P r a y e r For R e l i e f . While Defendants deny t h a t P l a i n t i f f s a r ee n t i tl e d t o r e c o v e r any amount, and s p e c i f i c a l l y deny t h a t P l a i n t i f f s a r e e n t i t l e d t o t h e r e l i e f i n t h ev a r i o u s f o r m s s o u g h t , t h e s e a l l e g a t i o n s p l ai n l y make t h e amount i n c o n t r o v e r s y i n t h i s c l a s sa c t i o n more than $5,000 , 0 0 0 , e x c l u s i v e of i n t e r e s t and c o s t s . 28 U.S.C. 1 3 3 2 ( d ) ( 2 ) .

1 2 , The r e q u i s i t e d i v e r s i t y of c i t i z e n s h i p e x i s t s und er 28 U . S . C . 1 1 3 2 ( d ) ( 2 )and ( d ) ( 7 ) . To e s t a b l i s h d i v e r s i t y j u r i s d i c t i o n under CAFA, i t i s s u f f i c i e n t t h a t any one memberof t h e p u t a t i v e c l a s s i s a c i t i z e n o f a s t a t e d i f f e r e n t from any one d e f e n d a n t , i n c o n t r a s t t o t h ecomplete d i v e r s i t y requirement of t y p i c a l d i v e r s i t y j u r i s d i c t i o n . 28 U.S.C. 1 3 3 2 ( d ) ( 2 ) ( A ) .

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Among D e f e n d a n t s , t h e r e a re c i ti ze ns o f I l l i n o i s , New Y o r k , New J e r s e y a n d N o r t h C a r o l i n a .Because a n a t u r a l p e r s o n c a n b e a c i t i z e n o f a t most o n e s t a t e - h i s o r h e r s t a t e o f d o m i c i l e - - - i tf o l l o w s a f o r t i o r i t h a t a t l e a s t o n e member o f t h e p r o p o s e d c l a s s i s a c i t i z e n o f a s t a t e d i f f e r e n tfrom a t l e a s t o n e D e f e n d a n t .

1 3 . C i t i g r o u p Mortgage i s i n c o r p o r a t e d under t h e laws of t h e S t a t e o fDelaware , with i t s p r i n c i p a l p l a c e of b u s i n e s s i n New York, and was s e r v e d on March 1 9 , 2 0 0 8 ;C i t i g r o u p Global Markets I n c . i s i n c o r p o r a t e d under t h e laws of t h e S t a t e of New York, with i t sp r i n c i p a l p l a c e of b u s i n e s s i n New York, and was s e r v e d on March 1 9 , 2008 The T r u s tDefendants a r e t r u s t s c h a r t e r e d under t h e laws of New Y o r k . Randall Costa i s a r e s i d e n t o f t h eS t a t e of I l l i n o i s , with a b u s i n e s s a d d r e s s of 1 3 1 South Dearborn S t r e e t , Chicago, I l l i n o i s , 60603,and was s e r v e d on March 3 1 , 2008 ; S c o t t F r e i d e n r i c h i s a r e s i d e n t of t h e S t a t e of New J e r s e y ,with a b u s i n e s s a d d r e s s of 388 Greenwich S t r e e t , New York, New York, 10013 , and was s e r v e don March 3 1 , 2008 ; P e t e r P a t r i c o l a i s a r e s i d e n t of t h e S ta t e of New J e r s e y , with a b u s i n e s sa d d r e s s of 388 Greenwich S t r e e t , New York, New York, 1 0 0 1 3 , and was s e r v e d on March 3 1 ,2008 ; Mark Tsesarsky i s a r e s i d e n t of t h e S t a t e of New York, with a b u s i n e s s a d d r e s s of 38 8Greenwich S t r e e t , New Y o r k , New Y o r k , 1 0 0 1 3 , a n d was s e r v e d on March 3 1 , 2008 ; J e f f r e yP e r l o w i t z i s a r e s i d e n t of t h e S t a t e of New J e r s e y , with a b u s i n e s s a d d r e s s of 388 GreenwichS t r e e t , New York, New York, 10013, and was s e r v e d on March 3 1 , 2008 ; and Evelyn E c h e v a r r i ai s a r e s i d e n t of t h e S t a t e of North C a r o l i n a , with a b u s i n e s s a d d r e s s of 6525 Morrison B l v d . ,S u i t e 3 1 8 , C h a r l o t t e , N o r t h C a r o l i n a , 2 8 2 1 1 , a n d was s e r v e d on March 3 1 , 2 0 0 8 .

1 4 . Although D e f e n d a n t s d e n y t h a t i t i s t h e i r b u r d e n t o show t h a t CAFA'se x c e p t i o n s t o j u r i s d i c t i o n i n 28 U.S.C. 1 3 3 2 ( d ) ( 4 ) , ( 5 ) and ( 9 ) do n o t a p p l y , none d o e s ,

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a . F i r s t , t h e e x c e p t i o n s i n 28 U.S.C. 1 3 3 2 ( d ) ( 4 ) ( A ) and ( B) do n o ta p p l y because t h e y a r e l i m i t e d t o c a s e s where, among o t h e r t h i n g s , more thant w o - t h i r d s of t h e p u t a t i v e c l a s s members a r e c i t i z e n s of t h e s t a t e i n which t h e

a c t i o n was o r i g i n a l l y f i l e d . 28 U.S . C . 1332 ( d ) ( 4 ) ( A ) and ( B ) . There i s nob a s i s f o r concluding t h a t t w o - t h i r d s of t h e members of t h e proposed c l a s s a r ec i t i z e n s o f New Y o r k .

b . S e c o n d , t h e e x c e p t i o n i n S e c t i o n 1 3 3 2 ( d ) ( 5 ) ( A ) d o e s n o t a p p l ybecause Defendants a r e i n d i v i d u a l s and c o r p o r a t e and o t h e r p r i v a t e e n t i t i e s , n o tS t a t e s , S t a t e o f f i c i a l s o r o t h e r g o v e r n m e n t a l e n t i t i e s . 2 8 U.SC. 1 3 3 2 ( d ) ( 5 ) ( A ) .

c . T h i r d , t h e e x c e p t i o n i n S e c t i o n 1 3 3 2 ( d ) ( 5 ) ( B ) does n o t a p p l ybecause t h e number o f p u t a t i v e c l a s s members i s a l l e g e d t o be i n e x c e s s of 1 0 0 .2 8 U . S . C . 1 3 3 2 ( d ) ( 5 ) ( B ) . S p e c i f i c a l l y , t h e c o m p l a i n t a ll e g e s t ha t t he r e a r e"hundreds" of members of t h e p u t a t i v e c l a s s . See Complaint 2 3 .

d . F i n a l l y , t h e e x c e p t i o n s i n S e c t i o n 1 3 3 2( d ) ( 9 ) do n o t a p p l y becauset h i s c a s e does n o t s o l e l y i n v o l v e a c l a i m : ( 1 ) concerning a "covered s e c u r i t y "under S e c t i o n 1 6 ( f ) ( 3 ) of t h e 1933 A c t ; ( 2 ) r e l a t i n g t o t h e i n t e r n a l a f f a i r s o rgovernance of a c o r p o r a t i o n o r o t h e r form of b u s i n e s s e n t e r p r i s e and a r i s i n g byv i r t u e of t h e laws of t h e s ta t e i n which such c o r p o r a t i o n o r b u s i n e s s e n t e r p r i s e i so r g a n i z e d ; o r ( 3 ) r e l a t i n g t o t h e r i g h t s , d u t i e s ( i n c l u d i n g f i d u c i a r y d u t i e s ) , and t oo b l i g a t i o n s r e l a t i n g t o o r c r e a t e d by o r p u r s u a n t t o a n y s e c u r i t y . 2 8 U . S . C . 1 3 3 2 ( d ) ( 9 ) .1 5 . Defendants promptly w i l l s e r v e a copy of t h i s Notice of Removal on

c o u n s e l f o r P l a i n t i f f s , and w i l l f i l e a copy of t h i s Notice o f Removal with t h e Clerk of t h e

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Supreme C o u r t o f t h e S t at e o f New Y o r k , County o f Nassau , p u r s u a n t t o 2 8 U . S . C . S e c t i o n1 4 4 6 ( d ) .

WHEREFORE, D e f e n d a n t s , u n d e r 2 8 U . S . C . 1 3 3 4 ( b ) , 1 4 4 6 , a n d 1 4 5 2 ( a ) , a n d ,a l t e r n a t i v e l y , u n d e r t o 2 8 U . S . C . 1 3 3 2 a n d 1 4 4 1 , a s amended i n r e l e v a n t p a r t by CAFA, a n da u t h o r i z e d by 28 U.S.C. 1 4 5 3 , remove t h i s a c t i o n i n i t s e n t i r e t y from t h e Supreme Court o f t h eS t a t e of New York, County of Nassau, t o t h i s C o u r t .

Dated: New York, New YorkA p r i l 7 , 2008

CLEARY G O T T L I E B STEEN & HAMILTON LLP

By : fie c . 2 .7M6 S - -awrence B . Friedman,A Member o f t h e Firm

O ne L i b e r t y P l a z aNew York, New York 10006( 2 1 2 ) 225-2000

A t t o r n e y s f o r D e f e n d a n t s

Of Counsel:Joseph Landau

8


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Case 2 : 08-cv-01418 - LDW-ETB Document - ' 1 F i l e d 0 4 / 0 7 / 2008 Page 9 o f 44

^ ^ ^ f O f l


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Case 2 : 08-cv-01418 - LDW-ETB Document 1 F i l e d 0 4 / 0 7 / 2008 Page 10 o f 44SUPREME COURT OF THE STATE OF NEW YORK ;COUNTY OF NASSAU

CITY O F ANN ARBOR EMPLO YEES'RETIREMENT SYSTEM, I n d i v i d u a l l y a n d O nB e h a l f o f A l l O t h e r s S i m i l a r l y S i t u a t e d ,

P l a i n t i f f ,v s .

X r r r ^Index N o . . 1 -

hate P u r c h a s e d :P l a i n t i f f d e s i g n a t e s N a s s a u Countya s t h e p l a c e o f t r i a l .

CITIGROUP MORTGAGE LOAN TRUST I N C . ,CITIGROUP MORTGAGE LOAN TRUST 2007-2 , CITIGROUP MORTGAGE LOAN TRUST2 0 0 7 - 6 , CITIGROUP MORTGAGE LOANTRUST 2007-AHLI, CITIGROUP MORTGAGELOAN TRUST 2 0 0 7 - A I - I L 2 , CITIGROUPMORTGAGE LOAN TRUST 2007-AHL3,CITIGROUP MORTGAGE LOAN TRUST 2007-AMCI , CITIGRO'UP MORTGAGE LOANTRUST 2007-AMC2, CITIGROUP MORTGAGELOAN TRUST 2007-AMC3, CITIGROUPMORTGAGE LOAN TRUST 2007-AMC4,CITIGROUP MORTGAGE LOAN TRUST 2007-ARI, CITIGROUP MORTGAGE LOAN TRUST2007-AR4, CITIGROUP MORTGAGE LOANTRUST 2007-AR5, CITIGROUP MORTGAGELOAN TRUST 2007-AR7, CITIGROUPMORTGAGE LOAN TRUST 2007-OPX1,CITIGROUPMORTGAGE LOAN TRUST 2007-WF14EI, CITIGROUPMORTGAGE LOANTRUST 2007-WFHE2, CITIGROUP MORTGAGELOAN TRUST 2007-WFHE3, CITIGROUPMORTGAGE LOAN TRUST 2007-WFHE4,CITIGROUP GLOBAL MARKETS I N C . ,RANDALL COSTA., SCOTT FREIDENRICH,PETER PATRICOLA,MARK 1 . TSESARSKY,JEFFREY PERLOWITZ and EVELYNECHEVARRIA,


To t h e above named D e f e n d a n t :x

The b a s i s o f t h e v e n u e i sCPLR 5 0 3 ( a )SUMMONSP l a i n t i f f r e s i d e s a t3 0 1 E . L i b e r t y S t r e e tS u i t e 6 80An n A r b o r , MI 48104

Y ou a r e hereby summoned t o answer t h e c o m p l a i n t i n t h i s a c t i o n and t o s e r v e a copy of y o u ra n s w e r , o r , i f t h e c o m p l a i n t i s n o t s e r v e d w i t h t h i s summons, t o s e r v e a n o t i c e of a p p e a r a n c e , on t h eP l a i n t i f f s A t t o r n e y ( s ) w i t h i n 20 d a y s a f t e r t h e s e rv i c e of t h i s summons, e x c l u s i v e of t h e day of


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Case 2 : 08-cv-01418 - LDW-ETB Document 1 F i l e d 0 4 / 0 7 / 2008 . Page 1 1 ' o f 44s e r v i c e ( o r w i t h i n 30 d a y s a f t e r t h e s e r v i c e i s complete i f t h i s summons i s n o t p e r s o n a l l y d e l i v e r e d t oyou w i t h i n t h e S t a t e of New Y o r k ) ; and i n c a s e of your f a i l u r e t o a p p e a r o r answer , judgment w i l l bet a k e n a g a i n s t you by d e f a u l t f o r t h e r e l i e fdemanded i n t h e c o m p l a i n t .

DATED : M e l v i l l e , New York COUGHLIN STOIA GELLERMarch 1 9 , 2008 - - RU MAN & ROBBINS LL P

L H . RUDMANA . ROSENFELD

58 South S e r v i c e Road, S u i t e 200M e l v i l l e , NY 11747T e l e p h o n e : 631/367-7100631/367-1173 ( f a x )A t t o r n e y s f o r P l ai n t i f f

D e f e n d a n t ' s a d d r e s s .C i t i g r o u p Mortgage Loan T r u s t I n c .c / o The C o r p o r a t i o n T r u s t CompanyC o r p o r a t i o n T r u s t C e n t e r1209 Orange S t r e e tWilmington, DE 1 9 8 0 1C i t i g r o u p Mortgage Loan T r u s t 2007-2C i t i g r o u p Mortgage Loan T r u s t I n c .390 Greenwich S t r e e tNY , NY 1 0 0 1 3C i t i g r o u p Mortgage Loan T r u s t 2007-6C i t i g r o u p Mortgage Loan T r u s t I n c .390 Greenwich S t r e e tN Y , NY 10013C i t i g r o u p Mortgage Loan T r u s t 2007-AHLIC i t i g r o u p Mortgage Loan T r u s t I n c .39 0 Greenwich S t e e tN Y , NY 10013C i t i g r o u p Mortgage Loan T r u s t 2007-AHL2C i t i g r o u p Mortgage Loan T r u s t I n c .3 9 : 0 G r e e n w i c h S t r e e tN Y , NY 10013


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C i t i g r o u p Mortgage Loan T r u s t 2007-AHL3C i t i g r o u p Mortgage Loan T r u s t I n c .39 0 Greenwich S t r e e tN Y, NY 1 0 0 1 3C i t i g r o u p M o r t g a g e Loan T r u s t 2007-AMC 1C i t i g r o u p Mortgage Loan T r u s t I n c .390 Greenwich S t r e e tN Y , NY 10013C i t i g r o u p Mortgage Loan T r u s t 2007-AMC2C i t i g r o u p Mortgage Loan T r u s t I n c ,39 0 Greenwich S t r e e tN Y , NY 1 0 0 1 3C i t i g r o u p Mortgage Loan T r u s t 2007-AMC3C i t i g r o u p Mortgage Loan T r u s t I n c .3 9 0 G r e e n w i c h S t r e e tN Y , NY 10013C i t i g r o u p Mortgage Loan T r u s t 2007-AMC4C i t i g r o u p Mortgage Loan T r u s t I n c .390 Greenwich S t r e e tN Y , NY 10013C i t i g r o u p Mortgage Loan T r u s t 2007-ARIC i t i g r o u p Mortgage Loan T r u s t I n c .390 Greenwich S t r e e tN Y , NY 10013C i t i g r o u p Mortgage Loan T r u s t 2007-AR4C i t i g r o u p Mortgage Loan T r u s t I n c .3 9 0 Greenwich S t r e e tN Y , NY 1 0 0 1 3C i t i g r o u p Mortgage Loan T r u s t 2007-AR5C i t i g r o u p Mortgage Loan T r u s t I n c .39 0 Greenwich S t r e e tN Y , NY 10013C i t i g r o u p Mortgage Loan T r u s t 2007-AR7C i t i g r o u p Mortgage Loan T r u s t I n c .39 0 Greenwich S t r e e tN Y , NY 10013

F i l e d 04/07/2008 Page 1 2 ' o f 44


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C i t i g r o u p Mortgage Loan T r u s t 2007-OPX1C i t i g r o u p Mortgage Loan T r u s t I n c .3 9 0 Greenwich S t r e e tN Y , NY 1 0 0 1 3C i t i g r o u p Mortgage Loan T r u s t 2007-WFHE1C i t i g r o u p Mortgage Loan T r u s t I n c .3 9 0 G r e e n w i c h S t r e e tNY, NY 1 0 0 1 3C i t i g r o u p Mortgage Loan T r u s t 2007-WFHE2C i t i g r o u p Mortgage Loan T r u s t i n c .3 9 0 G r e e n w i c h S t r e e tN Y , NY 10013C i t i g r o u p Mortgage Loan T r u s t 2007-WFHE3C i t i g r o u p Mortgage Loan T r u s t I n c .3 9 0 G r e e n w i c h S t r e e tN Y , NY 1 0 0 1 3C i t i g r o u p Mortgage Loan T r u s t 2 0 0 7 - ' V HE4390 Greenwich S t r e e tN Y , NY 10013C i t i g r o u p G l o b a l Markets I n cc / o The C o r p o r a t i o n T r u s t CompanyC o r p o r a t i o n T r u s t C e n t e r1209 Orange S t r e e tWilmington, DE 1 9 8 0 1R a n d a l l D. C o s t a1 0 5 P r o s p e c t S t r e e tWhite P l a i n s , l a m ' 10606S c o t t H . F r e i d e n r i c h1 0 1 5 Seward AvenueW e s t f i e l d , N J 07090P e t e r P a t r i c o l a1 4 Heather H i l l WayHolmdel , N J 07733Mark 1 . T s e s a r s k y1 1 5 C e n t r a l Park West , A p t . 20New York, NY 10023

F i l e d 04/07/2008 Page 13 o f 44


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SUPREME COURT O F THE STATE O F NEWYORKCOUNTY O F NASSAUx

F i l e d 04/07/2008 Page 1 4 ' o f 44

CITY OF ANN ARBOR EMPLOYEES ' I n d e x No . i ^RETIREMENT SYSTEM , I n d i v i d u a l l y and On :Behalf o f Al l O t h e r s S i m i l a r l y S i t u a t e d , CLASS ACTION C - ^ : 1 1

P l a i n t i f f , . COMPLAINT FOR VIOLATION OF I IAND 1 5 OF THE SECURITIES ACT OFv s . . 1933

CITIGROUP MORTGAGE LOAN TRUSTI N C . , CITIGROUP MORTGAGE LOANTRUST 2 0 0 7 - 2 , CITIGROUP MORTGAGELOAN TRUST 2 0 0 7 - 6 , CITIGROUPMORTGAGE LOAN TRUST 2007-AHLI,CITIGROUP MORTGAGE LOAN TRUST2007-AHL2, CITIGROUP MORTGAGELOAN TRUST 2007-AHL3, CITIGROUPMORTGAGE LOAN TRUST 2007-AMC1,CITIGROUP MORTGAGE LOAN TRUST2007-AMC2, CITIGROUP MORTGAGELOAN TRUST 2007.AMC3, CITIGROUPMORTGAGE LOAN TRUST 2007-AMC4,CITIGROUP MORTGAGE LOAN TRUST2007-ARI, CITIGROUP MORTGAGE LOAN :TRUST 2007-AR4, CITIGROUPMORTGAGE LOAN TRUST 2007-AR5,CITIGROUP MORTGAGE LOAN TRUST2 0 0 7 - A R . 7 , CITIGROUP MORTGAGE LOAN 'TRUST 2007-OPXI, CITIGROUPMORTGAGE LOAN TRUST 2007-WFHEl,CITIGROUP MORTGAGE LOAN TRUST2007-WFHE2, CITIGROUP MORTGAGELOAN TRUST 2007-WFHE3,

x DEMAND FOR JURY TRIAL[ C a p t i o n c o n t i n u e d on f o l l o w i n g p a g e . ]

- I -


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xCITIGROUP MORTGAGE LOAN TRUST2007-WFHE4, CITIGROUP GLOBALMARKETS I N C . , RANDALL COSTA,SCOTT FREIDENRICH, PETERPATRICOLA, MARK 1 . TSESARSKY,JEFFREY PERLOWITZ and EVELYNECIHIEVARRIA,


x

F i l e d 04/07/2008 Page 15 o f 44

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NATURE OF THE ACTIONI . T h i s i s a s e c ur i t i e s c l as s a c t i o n on b e h a l f o f a l l p e r s o n s o r e n t i t i e s wh o a c q u i r e d t h e

Mortgage Pass-Through C e r t i f i c a t e s and Asset-Backed Pass-Through C e r t i f i c a t e s ( c o l l e c t i v e l y , t h e" C e r t i f i c a t e s " ) o f C i t i g r o u p Mortgage Loan T r u s t I n c . ( " C i t i g r o u p Mortgage" o r t h e " D e p o s i t o r " )p u r s u a n t a n d / o r t r a c e a b l e t o t h e f a l s e and m i s l e a d i n g R e g i s t r a t i o n S t a t e m e n t and P r o s p e c t u sSupplements i s s u e d d u r i n g 2007 ( c o l l e c t i v e l y , t h e " R e g i s t r a t i o n S t a t e m e n t " ) . T h i s a c t i o n i n v o l v e s

s o l e l y s t r i c t l i a b i l i t y and n e g l i g e n c e c l a i m s b r o u g h t p u r s u a n t t o t h e S e c u r i t i e s Act of 1 9 3 3 ( " 1 9 3 3A c t " ) .

2 . C i t i g r o u p Mortgage i s a Delaware c o r p o r a t i o n formed f o r t h e purpose of a c q u i r i n g ,owning and t r a n s f e r r i n g mortgage l o a n a s s e t s and s e l l i n g i n t e r e s t s i n t h e m . C i t i g r o u p Mortgage i s a na f f i l i a t e of C i t i g r o u p G l o b a l Markets I n c . ( " C i t i g r o u p G l o b a l " ) . The i s s u e r s of t h e v a r i o u s o f f e r i n g s( t h e "Defendant I s s ue r s ") a r e t h e T r u s t s i d e n t i f i e d i n 1 1 1 2 , e s t a b l i s h e d by C i t i g r o u p Mortgage t o i s s u eb i l l i o n s of d o l l a r s wor th of C e r t i f i c a t e s i n 2 0 0 7 .

3 . On December 1 2 , 2 0 0 6 , C i t i g r o u p Mortgage and t h e Defendant I s s u e r s c a u s e d aR e g i s t r a t i o n S t a t e m e n t t o be f i l e d w i t h t h e S e c u r i t i e s and Exchange Commission ("SEC") i nc o n n e c t i o n w i t h and f o r t h e purpose of i s s u i n g b i l l i o n s o f d o l l a r s of C e r t i f i c a t e s . The C e r t i f i c a t e swere i s s u e d p u r s u a n t t o P r o s p e c t u s S u p p l e m e n t s , e a c h o f which was i n c o r p o r a t e d i n t o t h eR e g i s t r a t i o n S t a t e m e n t . The C e r t i f i c a t e s were s u p p o r t e d by p o o l s o f mortgage l o a n s . TheR e g i s t r a t i o n S t a t e m e n t r e p r e s e n t e d t h a t t h e mortgage p o o l s would p r i m a r i l y c o n s i s t o f l o a n sg e n e r a l l y s e c u r e d by l i e n s on r e s i d e n t i a l p r o p e r t i e s , i n c l u d i n g c o n v e n t i o n a l and a d j u s t a b l e - r a t emortgage l o a n s .

4 . I n v e s t o r s purchased t h e C e r t i f i c a t e s based upon t h r e e primary f a c t o r s : r e t u r n ( i n t h eform o f i n t e r e s t p a y m e n t s ) , t i m i n g o f p r i n c i p a l and i n t e r e s t payments, and s a f e t y ( r i s k of d e f a u l t of

t h e u n d e r l y i n g mortgage l o a n a s s e t s ) . The R e g i s t r a t i o n S t a t e m e n t i n c l u d e d f a l s e s t a t e m e n t s a n d / o r

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o m i s s i o n s a b o u t : ( i ) t h e u n d e r w r i t i n g s t a n d a r d s p u r p o r t e d l y used i n c o n n e c t i o n w i t h t h e o r i g i n a t i o nof t h e u n d e r l y i n g mortgage l o a n s ; ( i i ) t h e maximum l o a n - t o - v a l u e r a t i o s used t o q u a l i f y b o r r o w e r s ;( i i i ) t h e a p p r a i s a l s of p r o p e r t i e s u n d e r l y i n g t h e mortgage l o a n s ; and ( i v ) t h e d e b t - t o - i n c o m e r a t i o sp e r m i t t e d on t h e l o a n s .

5 . The t r u e f a c t s which were o m i t t e d from t h e R e g i s t r a t i o n S t a t e m e n t w e r e :The o r i g i n a t o r s of t h e u n d e r l y i n g mortgage l o a n s t o C i t i g r o u p Mortgage were i s s u i n gmany of t h e mortgage l o a n s t o b o r r o w e r s who, ( i ) were n o t i n compliance w i t h t h ep r u d e n t o r maximum d e b t - t o - i n c o m e r a t i o p u r p o r t e d l y r e q u i r e d by t h e l e n d e r s ; ( i i )d i d n o t p r o v i d e a d e q u a t e documentation t o s u p p o r t t h e income and a s s e t s r e q u i r e d t oi s s u e t h e l o a n s p u r s u a n t t o t h e l e n d e r s ' s t a t e d g u i d e l i n e s ; ( i i i ) were s t e e r e d t o s t a t e di n c o m e / a s s e t and low documentation mortgage l o a n s by l e n d e r s , l e n d e r s 'c o r r e s p o n d e n t s o r l e nd e r s ' a g e n t s , s u c h a s mortgage b r o k e r s , because t h e borrowersc o u l d n o t q u a l i f y f o r mortgage l o a n s t h a t r e q u i r e d f u l l d o c u m e n t a t i o n ; and ( i v ) d i dn o t have t h e income o r a s s e t s r e q u i r e d by t h e l e n d e r s ' own g u i d e l i n e s t o a f f o r d t h er e q u i r e d mortgage l o a n payments, which r e s u l t e d i n a mismatch between t h e n e e d sand c a p a c i t y of t h e b o r r o w e r s .The l e n d e r s o r t h e l e n d e r s ' a g e n t s knew t h a t t h e borrowers e i t h e r c o u l d n o t p r o v i d et h e r e q u i r e d documentation o r t h e b o r r o w e r s r e f u s e d t o p r o v i d e i t .

The u n d e r w r i t i n g , q u a l i t y c o n t r o l , and due d i l i g e n c e p r a c t i c e s and p o l i c i e s u t i l i z e d i nc o n n e c t i o n with t h e a p p r o v a l and f u n d i n g o f t h e mortgage l o a n s were s o weak t h a tb o r r o w e r s were b e i n g e x t e n d e d l o a n s based on s t a t e d income i n t h e mortgage l o a na p p l i c a t i o n s w i t h p u r p o r t e d income amounts t h a t c o u l d n o t p o s s i b l y be r e c o n c i l e dw i t h t h e j o b s c l a i m e d on t h e l o a n a p p l i c a t i o n o r t h r o u g h a check of f r e e " o n l i n e "s a l a r y d a t a b a s e s such a s s a l a r y . c o m .

The a p p r a i s a l s o f many p r o p e r t i e s were i n f l a t e d , a s a p p r a i s e r s were p r e s s u r e d byl e n d e r s , l e n d e r s ' c o r r e s p o n d e n t s a n d / o r t h e i r mortgage b r o k e r s / a g e n t s t o p r o v i d e t h ed e s i r e d a p p r a i s a l v a l u e r e g a r d l e s s of t h e a c t u a l v a l u e of t h e u n d e r l y i n g p r o p e r t y s ot h e l o a n s would be approved and fund ed . I n t h i s way many a p p r a i s e r s wererewarded f o r t h e i r w i l l i n g n e s s t o s u p p o r t p r e c o n c e i v e d o r p r e d e t e r m i n e d p r o p e r t yv a l u e s v i o l a t i n g USPAP r e g u l a t i o n s . 1

The Uniform S t a n d a r d s of P r o f e s s i o n a l A p p r a i s a l P r a c t i c e ("USPAP") a r e t h e g e n e r a l l ya c c e p t e d s t a n d a r d s f o r p r o f e s s i o n a l a p p r a i s a l p r a c t i c e i n North A m e r i c a . USPAP c o n t a i n s s t a n d a r d sf o r a l l t y p e s o f a p p r a i s a l s e r v i c e s . S t a n d a r d s a r e i n c l u d e d f o r r e a l e s t a t e , p e r s o n a l p r o p e r t y , b u s i n e s sand mass a p p r a i s a l . .

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6 . Asa r e s u l t , t h e C e r t i f i c a t e s s o l d t o p l a i n t i f f and t h e C l a s s were s e c u r e d by a s s e t s t h a thad a much g r e a t e r r i s k p r o f i l e t h a n r e p r e s e n t e d i n t h e R e g i s t r a t i o n S t a t e m e n t . I n t h i s way,d e f e n d a n t s were a b l e t o o b t a i n s u p e r i o r r a t i n g s on t h e t r an c h e s o r c l a s s e s of C e r t i f i c a t e s , when i n f a c tt h e s e t r a n c h e s o r c l a s s e s were n o t e q u i v a l e n t t o o t h e r i n v e s t m e n t s w i t h t h e same c r e d i t r a t i n g s .

7 . By t h e F a l l of 2 0 0 7 , t h e t ru t h a b o u t t h e performance o f t h e mortgage l o a n s t h a ts e c u r e d t h e C e r t i f i c a t e s began t o be r e v e a l e d t o t h e p u b l i c , i n c r e a s i n g t h e r i s k of t h e C e r t i f i c a t e sr e c e i v i n g l e s s a b s o l u t e c a s h f l o w i n t h e f u t u r e and t h e l i k e l i h o o d t h a t i n v e s t o r s would n o t r e c e i v e i ton a t i m e l y b a s i s . The c r e d i t r a t i n g a g e n c i e s a l s o began t o p u t n e g a t i v e watch l a b e l s on t h eC e r t i f i c a t e t r a n c h e s o r c l a s s e s , u l t i m a t e l y downgrading many, As an a d d i t i o n a l r e s u l t , t h eC e r t i f i c at e s a r e no l o n g e r m a r k e t a b l e a t p r i c e s anywhere n e a r t h e p r i c e p a i d by p l a i n t i f f and t h eC l a s s and t h e h o l d e r s of t h e C e r t i f i c at e s a r e exposed t o much more r i s k with r e s p e c t t o b o t h t h et i m i n g and a b s o l u t e c a s h f l o w t o be r e c e i v e d t h a n t h e R e g i s t r a t i o n S t a t e m e n t / P r o s p e c t u sSupplements r e p r e s e n t e d .

JURISDICTION AND VENUE8 . The c l a i m s a l l e g e d h e r e i n a r i s e under l 1 and 1 5 of t h e 1933 A c t , 1 5 U . S . C . 7 7 k

and 7 7 o . J u r i s d i c t i o n i s c o n f e r r e d by 22 o f t h e 1933 Act and venue i s p r o p e r p u r s u a n t t o 22 of t h e1933 A c t . S e c t i o n 2 2 o f t h e 1933 Act e x p l i c i t l y s t a t e s t h a t " [ e ] x c e p t a s provided i n s e c t i o n 1 6 ( c ) , noc a s e a r i s i n g under t h i s t i t l e and b r o u g h t i n any S t a t e c o u r t o f competent j u r i s d i c t i o n s h a l l be removedt o any c o u r t i n t h e U n i t e d S t a t e s . " S e c t i o n 1 6 ( c ) r e f e r s t o " c o v e r e d c l a s s a c t i o n s , " which a r e d e f i n e da s l a w s u i t s b r o u g h t a s c l a s s a c t i o n s o r b r o u g h t on b e h a l f of more t h a n 5 0 p e r s o n s a s s e r t i n g c l a i m sunder s t a t e o r common l a w . T h i s i s a n a c t i o n a s s e r t i n g f e d e r a l law c l a i m s . T h u s , i t does n o t f a l lw i t h i n t h e d e f i n i t i o n of a " c o v e r e d c l a s s a c t i o n " under 1 6 ( b ) - ( c ) and t h e r e f o r e i s n o t removable t of e d e r a l c o u r t under t h e S e c u r i t i e s L i t i g a t i o n Uniform S t a n d a r d s Act of 1 9 9 8 .

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9 . The v i o l a t i o n s o f law complained of h e r e i n o c c u r r e d i n t h i s C o u n t y , i n c l u d i n g t h ed i s s e m i n a t i o n o f m a t e r i a l l y f a l s e a n d m i s l e a d i n g s t a t e m e n t s c o m p l a i n e d o f h e r e i n i n t o t h i s C o u n t y .C i t i g r o u p Mortgage and C i t i g r o u p G l o b a l c o n d u c t b u s i n e s s i n t h i s C o u n t y .

PARTIES1 0 . P l a i n t i f f C i t y of Ann Arbor Employees ' R e t i r e m e n t System a c q u i r e d C e r t i f i c a t e s

p u r s u a n t a n d t r a c e a b l e t o t h e R e g i s t r a t i o n S t a t e m e n t a n d P r o s p e c t u s S u p p l e m e n t s a n d h a s b e e ndamaged t h e r e b y .

1 1 . Defendant C i t i g r o u p Mortgage i s a Delaware c o r p o r a t i o n h e a d q u a r t e r e d i n NewYork, New York. I t i s a s p e c i a l purpose c o r p o r a t i o n formed i n 2 0 0 2 . Defendant C i t i g r o u pMortgage was t h e D e p o s i t o r .

1 2 . The Defendant I s s u e r s o f t h e v a r i o u s C e r t i f i c a t e s a r e each New York common lawt r u s t s . Each of t h e s e T r u s t s i s s u e d hundreds o f m i l l i o n of d o l l a r s worth of C e r t i f i c a t e s p u r s u a n t t o aP r o s p e c t u s Supplement which l i s t e d numerous c l a s s e s o f t h e C e r t i f i c a t e s . The Defendant I s s u e r sa r e :

C i t i g r o u p Mortgage Loan T r u s t 2007-2C i t i g r o u p Mortgage Loan T r u s t 2007-6C i t i g r o u p Mortgage Loan T r u s t 2007-AHL2C i t i g r o u p Mortgage Loan T r u s t 2007-AMC1C i t i g r o u p Mortgage Loan T r u s t 2007-AMC3C i t i g r o u p Mortgage Loan T r u s t 2007-ARIC i t i g r o u p Mortgage Loan T r u s t 2007-AR5C i t i g r o u p Mortgage Loan T r u s t 2007-OPX1C i t i g r o u p Mortgage Loan T r u s t 2007-WFHE2

C i t i g r o u p Mortgage Loan T r u s t 2007-WFHE4C i t i g r oup Mortgage Loan T r u s t 2007-AHLIC i t i g r o u p Mortgage Loan T r u s t 2007-AFIL3C i t i g r o u p Mortgage Loan T r u s t 2007-AMC2C i t i g r o u p Mortgage Loan T r u s t 2007-AMC4C i t i g r o u p Mortgage Loan T r u s t 2007-AR4C i t i g r o u p Mortgage Loan T r u s t 2007-AR7C i t i g r o u p Mortgage Loan T r u s t 2007-WFHE12C i t i g r o u p Mortgage Loan T r u s t 2007-WFHE3

1 3 . Defendant C i t i g r o u p G l o b a l Markets I n c . ( " C i t i g r o u p G l o b a l " ) ) i s a s e c u r i t i e s f i r mwhich p r o v i d e s a range of f i n a n c i a l s e r v i c e s , i n c l u d i n g engaging i n t h e mortgage banking b u s i n e s s .

x The WFHE C e r t i f i c a t e s a r e Asset-Backed Pass-Through C e r t i f i c a t e s whereas t h e o t h e r T r u s tS e r i e s a r e Mortgage Pass-Through C e r t i f i c a t e s .

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rCase 2:08-cv-01418 - LDW-ETB Document 1 F i l e d 0 4 / 0 7 / 2008 Page 20 ' o f 44

C i t i g r o u p G l o b a l i s a c o r p o r a t i o n b a s e d i n New York, New Y o r k . C i t i g r o u p G l o b a l a c t e d a s t h eu n d e r w r i t e r i n t h e s a l e of a l l t h e C i t i g r o u p Mortgage o f f e r i n g s , h e l p i n g t o d r a f t and d i s s e m i n a t e t h eo f f e r i n g documents. C i t i g r o u p G l o b a l was t h e u n d e r w r i t e r f o r a l l of t h e T r u s t s .

1 4 . Defendant R a n d a l l C o s t a ( " C o s t a " ) was P r i n c i p a l E x e c u t i v e O f f i c e r , P r e s i d e n t andd i r e c t o r of C i t i g r o u p Mortgage d u r i n g t h e r e l e v a n t t i m e p e r i o d . Defendant Costa s i g n e d t h eDecember 1 2 , 2006 R e g i s t r a t i o n S t a t e m e n t .

1 5 . Defendant S c o t t F r i e d e n r i c h ( " F r i e d e n r i c h " ) was P r i n c i p a l F i n a n c i a l O f f i c e r andT r e a s u r e r of C i t i g r o u p Mortgage d u r i n g t h e r e l e v a n t time p e r i o d . Defendant F r i e d e n r i c h s i g n e d t h eDecember 1 2 , 2006 R e g i s t r a t i o n S t a t e m e n t .

I& Defendant P e t e r P a t r i c o l a ( " P a t r i c o l a " ) was C o n t r o l l e r o f C i t i g r o u p Mortgage d u r i n gt h e r e l e v a n t t i m e p e r i o d , Defendant P a t r i c o l a s i g n e d t h e December 1 2 , 2006 R e g i s t r a t i o n S t a t e m e n t .

1 7 . Defendant Mark 1 . T s e s a r s k y ( " T s e s a r s k y ) was a d i r e c t o r of C i t i g r o u p Mortgaged u r i n g t h e r e l e v a n t t i m e p e r i o d . Defendant T s e s a r s k y s i g n e d t h e December 1 2 , 2006 R e g i s t r a t i o nS t a t e m e n t .

1 8 . Defendant J e f f r e y P e r l o w i t z ( " P e r l o w i t z " ) was a d i r e c t o r of C i t i g r o u p Mortgaged u r i n g t h e r e l e v a n t t i m e p e r i o d . Defendant P e r l o w i t z s i g n e d t h e December 1 2 , 2006 R e g i s t r a t i o nS t a t e m e n t .

1 9 . D e f e n d a n t E v e l y n E c h e v a r r i a ( " E c h e v a r r i a " ) was a d i r e c t o r o f C i t i g r o u p M o r t g a g ed u r i n g t h e r e l e v a n t t i m e p e r i o d . Defendant E c h e v a r r i a s i g n e d t h e December 1 2 , 2006 R e g i s t r a t i o n

S t a t e m e n t .2 0 . The d e f e n d a n t s i d e n t i f i e d i n 11l4-19 a r e r e f e r r e d t o h e r e i n a s t h e " I n d i v i d u a l

D e f e n d a n t s . " The I n d i v i d u a l Defendants f u n c t i o n e d a s d i r e c t o r s t o t h e T r u s t s a s t h e y were d i r e c t o r s

t o C i t i g r o u p Mortgage a n d s i g n e d t h e R e g i s t r a t i o n S t a t e m e n t f o r t h e r e g i s t r a t i o n o f t h e s e c u r i t i e s

i s s u e d by t h e T ru s t s ,-6 -


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ICase 2 : 08-cv-01418 - LDW-ETB Document 1 F i l e d 0 4 / 0 7 / 2008 Page 2 1 o f 44

2 1 . These d e f e n d a n t s a i d e d and a b e t t e d , a n d / o r p a r t i c i p a t e d w i t h a n d / o r c o n s p i r e d w i t ht h e named d e f e n d a n t s i n t h e wrongful a c t s and c o u r s e o f c o n d u c t o r o t h e r w i s e c a u s e d t h e damagesand i n j u r i e s c l a i m e d h e r e i n and a r e r e s p o n s i b l e i n some manner f o r t h e a c t s , o c c u r r e n c e s and e v e n t sa l l e g e d i n t h i s C o m p l a i n t .

CLASS ACTION ALLEGATIONS2 2 . P l a i n t i f f b r i n g s t h i s a c t i o n a s a c l a s s a c t i o n p u r s u a n t t o CPLR 9 0 1 , e t s e q. , on b e h a l f

o f a c l a s s c o n s i s t i n g of a l l p e r s o n s o r e n t i t i e s w h o a c q u i r e d t h e C e rt i f i c a t e s between January 2007and October 2007 p u r s u a n t a n d / o r t r a c e a b l e t o t h e f a l s e and m i s l e a d i n g R e g i s t r a t i o n S t a t e m e n t( R e g i s t r a t i o n No. 333-138237) and who were damaged t h e r e b y ( t h e " C l a s s " ) . Excluded from t h eC l a s s a r e d e f e n d a n t s , t h e o f f i c e r s a n d d i r e c t o r s o f t h e d e f e n d a n t s , a t a l l r e l e v a n t t i m e s , members oft h e i r immediate f a m i l i e s and t h e i r l e g a l r e p r e s e n t a t i v e s , h e i r s , s u c c e s s o r s o r a s s i g n s and any e n t i t y i nwhich d e f e n d a n t s have o r had a c o n t r o l l i n g i n t e r e s t .

2 3 . The members o f t h e C l a s s a r e s o numerous t h a t j o i n d e r of a l l members i si m p r a c t i c a b l e . While t h e e x a c t number of C l a s s members i s unknown t o p l a i n t i f f a t t h i s time andc a n o n l y be a s c e r t a i n e d t h r o u g h a p p r o p r i a t e d i s c o v e r y , p l a i n t i f f b e l i e v e s t h a t t h e r e a r e hundreds ofmembers i n t h e proposed C l a s s . Record owners and o t h e r members of t h e C l a s s may be i d e n t i f i e dfrom r e c o r d s m a i n t a i n e d by C i t i g r o u p Mortgage and C i t i g r o u p G l o b a l o r t h ei r t r an s f e r a g e n t s andmay be n o t i f i e d of t h e pendency of t h i s a c t i o n by m a i l , u s i n g t h e form of n o t i c e s i m i l a r t o t h a tc u s t o m a r i l y used i n s e c u r i t i e s c l a s s a c t i o n s . The R e g i s t r a t i o n S t a t e m e n t i s s u e d b i l l i o n s of d o l l a r sworth of C e r t i f i c a t e s .

2 4 . P l a i n t i f f ' s c l a i m s a r e t y p i c a l of t h e c l a i m s of t h e members o f t h e C l a s s a s a l l memberso f t h e C l a s s a r e s i m i l ar l y a f f e c t e d by d e f e n d a n t s ' wrongful c o n d u c t i n v i o l a t i o n of f e d e r a l law t h a t i scomplained of h e r e i n .


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2 5 . P l a i n t i f f w i l l f a i r l y and a d e q u a t e l y p r o t e c t t h e i n t e r e s t s of t h e members o f t h e C l a s sand h a s r e t a i n e d c o u n s e l competent and e x p e r i e n c e d i n c l a s s and s e c u r i t i e s l i t i g a t i o n .

2 6 , Common q u e s t i o n s of law and f a c t e x i st a s t o a l l members o f t h e C l a s s andpredominate o v e r any q u e s t i o n s s o l e l y a f f e c t i n g i n d i v i d u a l members of t h e C l a s s . Among t h eq u e s t i o n s of law and f a c t common t o t h e C l a s s a r e : whether d e f e n d a n t s v i o l a t e d t h e 1933 A c t ;whether t h e R e g i s t r a t i o n S t a t e m e n t i s s u e d by d e f e n d a n t s t o t h e i n v e s t i n g p u b l i c n e g l i g e n t l y o m i t t e da n d / o r m i s r e p r e s e n t e d m a t e r i a l f a c t s a b o u t t h e u n d e r l y i n g mortgage l o a n s c o m p r i s i n g t h e p o o l s ; a n dt o what e x t e n t t h e members of t h e C l a s s have s u s t a i n e d damages and t h e p r o p e r measure o fdamages.

2 7 . A c l a s s a c t i o n i s s u p e r i o r t o a l l o t h e r a v a i l a b l e methods f o r t h e f a i r and e f f i c i e n ta d j u d i c a t i o n of t h i s c o n t r o v e r s y s i n c e j o i n d e r of a l l members i s i m p r a c t i c a b l e . F u r t h e r m o r e , a s t h edamages s u f f e r e d by i n d i v i d u a l C l a s s members may be r e l a t i v e l y s m a l l , t h e expense and burden ofi n d i v i d u a l l i t i g a t i o n make i t i m p o s s i b l e f o r members of t h e C l a s s t o i n d i v i d u a l l y r e d r e s s t h e wrongsdone t o t h e m . There w i l l be no d i ff i cu l ty i n t h e management of t h i s a c t i o n a s a c l a s s a c t i o n .

BACKGROUND2 8 . C i t i g r o u p Mortgage i s engaged i n mortgage l e n d i n g and o t h e r r e a l e s t a t e f i n a n c e -

r e l a t e d b u s i n e s s e s , i n c l u d i n g mortgage l o a n b a n k i n g , mortgage l o a n warehouse l e n d i n g , a n d

i n s u r a n c e u n d e r wr i t i n g . C i t i g r o u p Mortgage was s e t up t o a c q u i r e mortgage l o a n p o o l s t h a t weret r a n s f e r r e d t o t h e T r u s t s , from which t h e C e r t i f i c a t e s of v a r i o u s c l a s s e s were s o l d t o i n v e s t o r sp u r s u a n t t o t h e R e g i s t r a t i o n S t a t e m e n t and P r o s p e c t u s S u p p l e m e n t s . While t h e s e o f f e r i n gdocuments c o n t a i n e d d a t a a b o u t t h e mortgage l o a n s , some of t h e most i m p o r t a n t i n f o r m a t i o n f o rp l a i n t i f f and t h e o t h e r members of t h e C l a s s , which was o m i t t e d from t h e R e g i s t r a t i o n S t a t e m e n t andP r o s p e c t u s S u p p l e m e n t s , a c t u a l l y i n v o l v e d t h e u n d e r w r i t i n g , q u a l i t y c o n t r o l , due d i l i g e n c e , a p p r o v a l

and f u n d i n g p r a c t i c e s and p o l i c i e s f o r t h e mortgage l o a n s and t h e l i k e l i h o o d and a b i l i t y o f b o r r o w e r s ..g_


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t o r e p a y t h e mortgage l o a n s a c c o r d i n g t o t h e t e r m s of t h e mortgage n o t e and t h e mortgage o r t h edeed of t r u s t . T h i s depended on s e v e r a l f a c t o r s , i n c l u d i n g c r e d i t w o r t h i n e s s of b o r r o w e r s , d e b t - t o -income l e v e l s , l o a n - t o - v a l u e r a t i o s , a s s e t s of t h e b o r r o w e r , occupancy of t h e p r o p e r t y s e c u r i n g t h emortgage l o a n , and t h e . a c c u r a c y of o t h e r d a t a c o l l e c t e d d u r i n g t h e o r i g i n at i o n of t h e mortgage l o a n s .

THE FALSE AND MISLEADING REGISTRATIONSTATEMENT/PROSPECTUS SUPPLEMENTS

2 9 , D e f e n d a n t s c a u s e d t h e R e g i s t r a t i o n S t a t e m e n t / P r o s p e c t u s S u p p l e m e n t s t o b e f i l e dw i t h t h e SEC between J a n u a r y 2007 and October 2007 i n c o n n e c t i o n w i t h t h e i s s u a n c e o f b i l l i o n s o fd o l l a r s i n C e r t i f i c a t e s , The R e g i s t r a t i o n S t a t e m e n t / P r o s p e c t u s Supplements were f a l s e andm i s l e a d i n g . The R e g i s t r a t i o n S t a t e m e n t i n c o r p o r a t e d by r e f e r e n c e t h e s u b s e q u e n t l y f i l e d P r o s p e c t u sS u p p l e m e n t s . The December 1 2 , 2006 R e g i s t r a t i o n S t a t e m e n t r e p r e s e n t e d t h a t :

T h i s R e g i s t r a t i o n S t a t e m e n t c o n s i s t s of ( i ) a b a s i c p r o s p e c t u s f o r u s e i n ar e s i d e n t i a l o r m u l t i f a m i l y t r a n s a c t i o n and ( i i ) two f orms of p r o s p e c t u s supplement( o n e form t o be u s e d i n o f f e r i n g a S e r i e s of S e n i o r / S u b o r d i n a t e C e r t i f i c a t e s and t h es e c o n d form t o be used i n o f f e r i n g Mortgage-Backed N o t e s ) . Each b a s i c p r o s p e c t u sused ( i n e i t h e r p r e l i m i n a r y o r f i n a l f o r m ) w i l l be accompanied b y t h e a p p l i c a b l ep r o s p e c t u s s u p p l e m e n t .3 0 . The T r u s t s and C i t i g r o u p Mortgage were t h e " I s s u e r s " t h a t c a u s e d t h e R e g i s t r a t i o n

S t a t e m e n t , d a t e d December 1 2 , 2 0 0 6 , t o be f i l e d w i t h t h e SEC, which R e g i s t r a t i o n S t a t e m e n td i s c u s s e d t h e mortgage l o a n s c o n t a i n e d i n t h e mortgage p o o l s h e l d by t h e Defendant I s s u e r s .Defendants r e p r e s e n t e d t h a t t h e l o a n s u n d e r l y i n g t h e C e r t i f i c a t e s were l o a n s made t o b o r r o w e r swhose income documentation was n o t s u b j e c t t o q u i t e a s r i g o r o u s a s e t of s t a n d a r d s a s f o r o t h e rb o r r o w e r s , b u t t h a t t h e l o a n s were made based on t h e v a l u e of t h e u n d e r l y i n g p r o p e r t i e s , a sc o n f i r m e d by t h e a p p r a i s a l s o f t h e p r o p e r t i e s .Omitted V e r i f i c a t i o n Data

3 1 . The R e g i s t r a t i o n S t a t e m e n t / P r o s p e c t u s Supplements emphasized t h e u n d e r w r i t i n gs t a n d a r d s u t i l i z e d t o g e n e r a t e t h e u n d e r l y i n g mortgage l o a n s h e l d by t h e Defendant I s s u e r s , b u t

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o m i t t e d m a t e r i a l f a c t s r e l a t e d t h e r e t o . The R e g i s t r a t i o n S t a t e m e n t s t a t e d t h a t . w i t h r e s p e c t t o e a c hmortgage l o a n , u n d e r w r i t i n g s t a n d a r d s were a p p l i e d by o r on b e h a l f of a l e n d e r t o e v a l u a t e t h eb o r r o w e r ' s c r e d i t s t a n d i n g and repayment a b i l i t y and t h e v a l u e and adequacy of t h e mortgagedp r o p e r t y a s c o l l a t e r a l . The R e g i s t r a t i o n . S t a t e m e n t f u rt h e r s t a t e d t ha t i n many c a s e s an employmentv e r i f i c a t i o n was o b t a i n e d from a n i n d e p e n d e n t s o u r c e , t y p i c a l l y t h e b o r r o w e r ' s e m p l o y e r . Thev e r i f i c a t i o n p u r p o r t e d l y c o n f i r m e d , among o t h e r t h i n g s , t he l e n g t h of employment w i t h a no r g a n i z a t i o n , t h e b o r r o w e r ' s a c t u al s a l a r y and whether i t i s e x p e c t e d t h a t t h e borrower wouldc o n t i n u e employment i n t h e f u t u r e . W he re a p r o s p e c t i v e borrower was s e l f - e m p l o y e d , t h eR e g i s t r a t i o n S t a t e m e n t / P r o s p e c t u s Supplements s t a t e d t h a t t h e borrower was r e q u i r e d t o s u b m i to t h e r v e r i f i c a t i o n m a t e r i a l s .

3 2 . These r e p r e s e n t a t i o n s were m a t e r i a l l y f a l s e and m i s l e a d i n g because t h e y o m i t t e d t h ef ac t t ha t t h e l e n d e r s ( a n d t h e l e n d e r s ' a g e n t s , s u c h a s mortgage b r o k e r s ) t h a t t r a n s f e r r e d l o a n s t o

C i t i g r o u p Mortgage, which were t h e n p l a c e d i n t o t h e Defend a n t I s s u e r s , had become s o a g g r e s s i v ei n a p p r o v i n g and f u n d i n g t h e mortgage l o a n s t h a t many of t h e mortgage l o a n s were made t oborrowers wh o had e i t h e r n o t s u b m i t t e d o r had a l t e r e d t h e r e q u i r e d d o c u m e n t a t i o n . S i m i l a r l y , t h o s es e l f - e m p l o y e d borrowers wh o were a c t u a l l y r e q u i r e d t o s u b m i t s t a t e d income a p p l i c a t i o n s wouldi n c l u d e income l e v e l s which were r o u t i n e l y i n f l a t e d t o extreme l e v e l s and o b j e c t i v e l y u n r e a s o n a b l e

r e l a t i v e t o t h e s t a t e d j o b t i t l e s . These p r a c t i c e s had t h e e f f e c t of b o t h d r a m a t i c a l l y i n c r e a s i n g t h e r i s kp r o f i l e of t h e C e r t i f i c a t e s a n d s u b s t a n t i a l l y d i m i n i s h i n g t h e i r a c t u a l v a l u e .

D e f e c t i v e Appraisals3 3 . The R e g i s t r a t i o n S t a t e m e n t and P r o s p e c t u s Supplements a l s o r e p r e s e n t e d t h a t i n

d e t e r m i n i n g t h e adequacy of t h e p r o p e r t y t o be u s e d a s c o l l a t e r a l , a n a p p r a i s a l was made o f e a c hp r o p e r t y c o n s i d e r e d f o r f i n a n c i n g . I n i n s t a n c e s where a p p r a i s a l s were c o n d u c t e d , t h e a p p r a i s e r s

were p u r p o r t e d l y r e q u i r e d t o i n s p e c t t h e p r o p e r t y t o v e r i f y t h a t i t was i n good r e p a i r and t h a t , i f new,_l0_


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c o n s t r u c t i o n had been completed . The R e g i s t r a t i o n S t a t e m e n t a s s e r t e d t h a t a p p r a i s a l s werep u r p o r t e d l y based on t h e market v a l u e o f comparable homes, t h e e s t i m a t e d r e n t a l income ( i fc o n s i d e r e d a p p l i c a b l e by t h e a p p r a i s e r ) and t h e c o s t of r e p l a c i n g t h e home , and a d h e r e d t o USPAPr e g u l a t i o n s and r e q u i r e m e n t s .

3 4 . These r e p r e s e n t a t i o n s were m a t e r i a l l y f a l s e and m i s l e a d i n g i n t h a t t h e y o m i t t e d t os t a t e t h a t t h e a p p r a i s a l s were i n a c c u r a t e due t o : ( i ) a complete l a c k of c o n t r o l s a t t h e o r i g i n a t o r s andt h e D e p o s i t o r ; and ( i i ) t h e l e n d e r s a n d / o r t h e i r a g e n t s , s u c h a s mortgage b r o k e r s , e x e r t e d p r e s s u r e ona p p r a i s e r s t o come back w i t h p r e - d e t e r m i n e d , p r e c o n c e i v e d - and f a l s e - a p p r a i s a l v a l u e s .A p p r a i s e r s were s e c r e t l y p r e s s u r e d t o a p p r a i s e p r o p e r t i e s a t a r t i f i c i a l l e v e l s o r t h e y would n o t beh i r e d a g ai n , r e s ul t i n g i n a p p r a i s a l s b e i n g done on a " d r i v e - b y " b a s i s where a p p r a i s e r s i s s u e d t h e i ra p p r a i s a l s w i t h o u t r e a s o n a b l e b a s e s f o r doing s o .Th e Prospectus Supplements Contained F a l s e StatementsAbout t h e O r i g i n a t o r s ' Underwriting P r a c t i c e s

3 5 . The P r o s p e c t u s Supplements o m i t t e d m a t e r i a l f a c t s a b o u t t h e u n d e r w r i t i n g p r a c t i c e sof American Home Mortgage C o r p . ( ` A I I M " ) , which was a key o r i g i n a t o r i n t h e f o l l o w i n g T r u s t s :

2007-AR 12007-62007-AR7

3 6 . For example, t h e P r o s p e c t u s Supplement d a t e d J a n u a r y 3 0 , 2 0 0 7 , f o r S e r i e s 2 0 0 7 -AR I , s t a t e d :

( a ) American Home's u n d e r w r i t i n g p h i l o s o p h y i s t o weigh a l l r i s k f a c t or si n h e r e n t i n t h e l o a n f i l e , g i v i n g c o n s i d e r a t i o n t o t h e i n d i v i d u a l t r a n s a c t i o n , borrowerp r o f i l e , t h e l e v e l o f . d o c u m e n t a t i o n p r o v i d e d and t h e p r o p e r t y used t o c o l l a t e r a l i z et h e d e b t . These s t a n d a r d s a r e a p p l i e d i n a c c o r d a n c e w i t h a p p l i c a b l e f e d e r a l and s t a t elaws and r e g u l a t i o n s . E x c e p t i o n s t o t h e u n d e r w r i t i n g s t a n d a r d s may be p e r m i t t e dwhere compensating f a c t o r s a r e p r e s e n t . I n t h e c a s e o f i n v e s t m e n t p r o p e r t i e s andt w o - t o f o u r - u n i t d w e l l i n g s , income d e r i v e d from t h e mortgaged p r o p e r t y may havebeen c o n s i d e r e d f o r u n d e r w r i t i n g p u r p o s e s , i n a d d i t i o n t o t h e income o f t h emortgagor from o t h e r s o u r c e s , With r e s p e c t t o second homes and v a c a t i o np r o p e r t i e s , . no income d e r i v e d from t h e p r o p e r t y w i l l have been c o n s i d e r e d f o ru n d e r w r i t i n g p u r p o s e s , Because e a c h l o a n i s d i f f e r e n t , American Home e x p e c t s and

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1

Case 2:08-cv-01418-LDW-ETB Document 1 F i l e d 04/07/2008 Page 26 o f 44

e n c o u r a g e s u n d e r w r i t e r s t o u s e p r o f e s s i o n a l judgment based on t h e i r e x p e r i e n c e i nmaking a l e n d i n g d e c i s i o n .

Omitted I n f o r m a t i o n : The s t a n d a r d s a p p l i e d i n c o n n e c t i o n w i t h t h e u n d e r w r i t i n g of l o a n s g e n e r a t e dby AHM.were n o t i n compliance w i t h a p p l i c a b l e f e d e r a l and s t a t e l a w s and r e g u l a t i o n s , I n f a c t , i no r d e r t o c o n t i n u e t o a v o i d a d e c l i n e i n l o a n volume, AHM r e g u l a r l y g r a n t e d e x c e p t i o n s even where"compensating f a c t o r s " were n o t p r e s e n t . A t h i r d of i t s mortgages were p a y - o p t i o n a d j u s t a b l e r a t emortgages ("ARMS") which a l l o w e d borrowers t o make payments of l e s s t h a n even t h e i n t e r e s ta c c r u i n g on t h e l o a n , . w h i c h bad t h e e f f e c t o f n o t j u s t n e v e r r e d u c i n g t h e p r i n c i p a l , b u t a c t u a l l y addedt h e d e f e r r e d i n t e r e s t payments t o t h e p r i n c i p a l b a l a n c e . I n f a c t , AHM encouraged u n d e r w r i t e r s t o

g e n e r a t e - l o a n s r e g a r d l e s s o f t h e a p p l i c a b l e r i s k f a c t o r s w i t h o u t r e g a r d t o r e a s o n a b l e p r o f e s s i o n a ljudgment i n o r d e r t o g e n e r a t e l o a n p r o d u c t i o n , because i t r e p o r t e d f e w , i f a n y , of t h e l o a n s on i t sb a l a n c e s h e e t and i t s b u s i n e s s r e l i e d on volume. T h u s , AH.M was g r a n t i n g e x c e p t i o n s a s a m a t t e r ofc o u r s e .

( b ) American Home u n d e r w r i t e s a b o r r o w e r ' s c r e d i t w o r t h i n e s s b a s e ds o l e l y on i n f o r m a t i o n t h a t American Home b e l i e v e s i s i n d i c a t i v e of t h e a p p l i c a n t ' sw i l l i n g n e s s and a b i l i ty t o pay t h e d e b t t h e y w oul d b e i n c u r r i n g .

Omitted I n f o r m a t i o n : AHM was g r a n t i n g l o a n s t o a p p l i c a n t s whose c r e d i t w o r t h i n e s s was i m p a i r e di n o r d e r t o g e n e r a t e l o a n volume r e g a r d l e s s of t h e a p pl i c a n t s ' a b i l i t y o r w i l l i n g n e s s t o r e p a y t h e d e b tt h e y were i n c u r r i n g . I n f a c t , AIM w a s , a s a m a t t e r o f c o u r s e , awarding l o a n s t o s p e c u l a t o r s wh owere n o t occupying t h e homes w i t h o u t p r o p e r l y v e r i f y i n g i n c o m e . AHMknew t h e h i g h p r o p o r t i o nof non-owner o c c u p i e d l o a n s would d e c r e a s e t h e b o r r o w e r s ' " w i l l i n g n e s s " t o c o n t i n u e t o pay l o a npayments i f home p r i c e s s t a g n a t e d o r d r o p p e d . AHM s u b s e q u e n t l y s u f f e r e d massive l o s s e s due t ot h e f a i l u r e of l o a n s made t o "borrowers whose income JA,/M] hadn't v e r i l e d . " Smartmoney. com,J ul y 3 1 , 2 0 0 7 .

( c ) Non-conforming l o a n s a r e g e n e r a l l y documented t o t h e r e q u i r e m e n t sof F a n n i e Maeand F r e d d i e Mac, i n t h a t t h e borrower p r o v i d e s t h e same i n f o r m a t i o non t h e l o a n a p p l i c a t i o n a l o n g w i t h documentation t o v e r i f y t h e a c c u r a c y of t h e

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i n f o r m a t i o n on t h e a p p l i c a t i o n such a s i n c o m e , a s s e t s , o t h e r l i a b i l i t i e s , e t c . C e r t a i nnon-conforming s t a t e d income o r s t a t e d a s s e t p r o d u c t s a l l o w f o r l e s s v e r i f i c a t i o ndocumentation t h a n Fannie Mae or F r e d d i e Mac r e q u i r e . C e r t a i n non-conformingAlt-A p r o d u c t s a l s o a l l o w f o r l e s s v e r i f i c a t i o n documentation t h a n Fannie Mae o rF r e d d i e Mac r e q u i r e . For t h e s e Alt-A p r o d u c t s , t h e borrower may n o t be r e q u i r e d t ov e r i f y employment income, a s s e t s r e q u i r e d t o c l o s e o r b o t h . For some o t h e r Alt-Ap ro d u c t s , t h e borrower i s n o t r e q u i r e d t o p r o v i d e ' any i n f o r m a t i o n r e g a r d i n gemployment i n c o m e , a s s e t s r e q u i r e d t o c l o s e o r b o t h . A l t : . products w i t h l e s sv e r i f i c a t i o n documentation g e n e r a l l y have o t h e r compensating f a c t o r s such a shigher c r e d i t s c o r e o r lower loan - t o - v a l u e r e q u i r e m e n t s .

Omitted I n f o r m a t i o n : G r a n t i n g l o a n s under s t a t e d income a p p l i c a t i o n s enhanced t h e i m p o r t a n c e o fa c c u r a t e p r o p e r t y a p p r a i s a l s and c r e d i t s c o r e d a t a . However, p r i o r t o 2007 t h e a p p r a i s a l p r o c e s s hadbeen s u b s t a n t i a l l y e r o d e d s u c h t h a t many of t h e r e a l e s t a t e p r o p e r t i e s u n d e r l y i n g t h e Alt-A l o a n s

w e r e . n o t t h e s u b j e c t o f l e g i t i m a t e a p p r a i s a l s done i n compliance w i t h USPAP s t a n d a r d s , i n c l u d i n gmany of t h e a p p r a i s a l s done i n Texas and I l l i n o i s . Moreover, t h e c r e d i t s c o r e s o f many AHMb o r r o w e r s , which was t h e p u r p o r t e d r e a s o n f o r p e r m i t t i n g l o a n s w i t h l e s s v e r i f i c a t i o n , weremanipulated by borrowers wh o e i t h e r . b e c a m e . an approved u s e r on a n o t h e r p e r s o n ' s c r e d i t c a r d wh ohad b e t t e r c r e d i t o r by complaining w i t h o u t b a s i s t o t h e c r e d i t s c o r e companies.

( d ) I n o r d e r t o d e t e r m i n e i f a borrower q u a l i f i e s f o r a non-conformingl o a n , t h e l o a n s have been e i t h e r approved by F a n n i e Mae's Desktop U n d e r w r i t e r ,F r e d d i e Mac's Loan P r o s p e c t o r automated u n d e r w r i t i n g s y s t e m s , a customized formof F a n n i e M a c ' s : Desktop U n d e r w r i t e r c a l l e d Custom Desktop U n d e r w r i t e r , o r t h e yhave been manually u n d e r w r i t t e n by American Home's u n d e r w r i t e r s . AmericanHome's. Alt-A l o a n p r o d u c t s g e n e r a l l y have been ap p r oved manually by c o n t r a c tu n d e r w r i t e r s . p r o v i d e d by c e r t a i n mortgage i n s u r a n c e companies o r by AmericanH o r n e ' s s e n i o r u n d e r w r i t e r s . American Home S o l u t i o n s p r o d u c t s must r e c e i v e a na p p r o v a l from t h e Assetwise automated u n d e r w r i t i n g s y s t e m . For manuallyu n d e r w r i t t e n l o a n s , t h e u n d e r w r i t e r must e n s u r e t ha t t h e b o r r o w e r ' s income w i l ls u p p o r t t h e t o t a l housing expense on an ongoing b a s i s . U n d e r w r i t e r s may g i v ec o n s i d e r a t i o n t o b o r r o w e r s wh o have d e m o n s t r a t e d a n a b i l i t y t o c a r r y a s i m i l a r o rg r e a t e r housing e x p e n s e f o r a n e x t e n d e d p e r i o d . I n a d d i t i o n t o t h e monthly housinge x p e n s e , t h e . u n d e r w r i t e r must e v a l u a t e t h e b o r r o w e r ' s a b i l i t y t o manage a l l r e c u r r i n gpayments on a l l d e b t s , i n c l u d i n g t h e monthly housing e x p e n s e . When e v a l u a t i n g t h er a t i o o f a l l monthly d e b t payments t o t h e b o r r o w e r ' s monthly income ( d e b t - t o -income r a t i o ) , t h e u n d e r w r i t e r s h o u l d be aware o f t h e d e g r e e and frequency of c r e d i tu s a g e and i t s i m p a c t on t h e b o r r o w e r ' s a b i l i t y t o r e p a y t h e l o a n . For example,borrowers wh o lower t h e i r t o t a l o b l i g a t i o n s s h o u l d r e c e i v e f a v o r a b l e c o n s i d e r a t i o nand borrowers w i t h a h i s t o r y of heavy usage and a p a t t e r n of slow o r l a t e paymentss h o u l d r e c e i v e l e s s f l e x i b i l i t y .

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Omitted i n f o r m a t i o n : C o n t r a r y t o t h e r e p r e s e n t a t i o n s i n t h e R e g i s t r a t i o n S t a t e m e n t a b o u t t h e s t r i c tq u a l i f i c a t i o n s and s t a n d a r d s used t o u n d e r w r i t e conforming l o a n s , l o a n s were b e i n g r e g u l a r l y g r a n t e dwhere t h e b o r r o w e r s ' income d i d n o t s u p p o r t t h e t o t a l housing expense on a n ongoing b a s i s . I n f a c t ,many of t h e l o a n s g r a n t e d d i d n o t comply w i t h t h e r e q u i r e m e n t s o f t h e u n d e r w r i t i n g s y s t e m s useda n d / o r were g r a n t e d n o t w i t h s t a n d i n g t h e ir f a i l u r e t o meet t h e e x i s t i n g p r o c e s s i n g s t a n d a r d s . I n f a c t ,AHM was n o t n e a r l y a s m e t i c u l o u s w i t h e v a l u a t i n g b o r r o w e r s a s t h e s t a t e m e n t above i m p l i e s .Borrowers were e x t e n d e d l o a n s d e s p i t e d o c u m e n t a t i o n , a b i l i t y t o pay and a p p r a i s a l problems a s w e l la s a b u s i v e b a i t and s w i t c h t a c t i c s . During 2007 t h e r e were r e p e a t e d c o m p l a i n t s due t o AHM'se f f o r t s i n 2006-2007 t o i n f l a t e i t s l o a n volume . I n f a c t , d u r i n g 2007 borrowers l o d g e d r e p e a t e dc o m p l a i n t s t h a t l o a n s were s w i t c h e d on then by AHM, l e a v i n g them with mortgages t h e y c o u l d n o tp a y -

( e ) Every mortgage l o a n i s s e c u r e d by a p r o p e r t y t h a t h a s been a p p r a i s e dby a l i c e n s e d a pp ra i s e r i n a c c o r d a n c e w i t h t h e Uniform S t a n d a r d s of P r o f e s s i o n a lA p p r a i s a l P r a c t i c e o f t h e A p p r a i s a l F o u n d a t i o n . The a p p r a i s e r s perform o n - s i t ei n s p e c t i o n s of t h e p r o p e r t y and r e p o r t on t h e neighborhood and p r o p e r t y c o n d i t i o n i nf a c t u a l and s p e c i f i c t e r m s . Each a p p r a i s a l c o n t a i n s an o p i n i o n o f v a l u e t h a t r e p r e s e n t st h e a p p r a i s e r ' s p r o f e s s i o n a l c o n c l u s i o n based on market d a t a o f s a l e s of comparablep r o p e r t i e s and a l o g i c a l a n a l y s i s with a d j u s t m e n t s f o r d i f f e r e n c e s between t h ecomparable s a l e s and t h e s u b j e c t p r o p e r t y and t h e a p p r a i s e r ' s judgment. I n a d d i t i o n ,e a c h a p p r a i s a l i s reviewed f o r a c c u r a c y and c o n s i s t e n c y by American Home's vendormanagement company o r an u n d e r w r i t e r of American Home o r a mortgage i n s u r a n c ecompany c o n t r a c t u n d e r w r i t e r .

The a p p r a i s e r ' s v a l u e c o n c l u s i o n i s used t o c a l c u l a t e t h e r a t i o ( l o a n - t o - v a l u e )o f t h e l o a n amount t o t h e v a l u e o f t h e p r o p e r t y . For l o a n s made t o p u r c h a s e ap r o p e r t y , t h i s r a t i o i s based on t h e lower of t h e s a l e s p r i c e of t h e p r o p e r t y and t h ea p p r a i s e d v a l u e . American Home s e t s v a r i o u s maximum l o a n - t o - v a l u e r a t i o s basedon t h e l o a n amount, p r o p e r t y t y p e , l o a n purpose and occupancy of t h e s u b j e c tp r o p e r t y s e c u r i n g t h e l o a n . I n g e n e r a l , American Home r e q u i r e s lower l o a n - t o - v a l u er a t i o s f o r t h o s e l o a n s t h a t a r e p e r c e i v e d t o have a h i g h e r r i s k , such a s h i g h l o a na m o u n t s , l o a n s i n which a d d i t i o n a l c a s h i s b e i n g t a k e n o u t on a r e f i na n c e t r a n s a c t i o n ,l o a n s on second homes o r l o a n s on i n v e s t m e n t p r o p e r t i e s . A lower l o a n - t o - v a l u e r a t i or e q u i r e s a borrower t o have more e q u i t y i n t h e p r o p e r t y , which i s a s i g n i f i c a n ta d d i t i o n a l i n c e n t i v e t o t h e borrower t o a v o i d d e f a u l t on t h e l o a n. I n a d d i t i o n, f or a l ll o a n s i n which t h e l o a n - t o - v a l u e r a t i o e x c e e d s 80%, American Home r e q u i r e s t h a tt h e l o a n be i n s u r e d by a p r i v a t e mortgage i n s u r a n c e company t h a t i s approved byF a n n i e Maeand F r e d d i e Mac. Loans w i t h h i g h e r l o a n - t o - v a l u e r a t i o s r e q u i r e h i g h e r

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c o v e r a g e l e v e l s . F o r e x a m p l e , non-conforming l o a n s w i t h l o a n - t o - v a l u e r a t i o s o f85%, 90% and 95% r e q u i r e mortgage i n s u r a n c e c o v e r a g e o f 12%, 25% and 30%,r e s p e c t i v e l y . Alt-A l o a n s w i t h f i l l o r a l t e r n a t i v e documentation and l o a n - t o - v a l u er a t i o s of 8 5 %, 90 %, 95 % and 97% r e q u i r e mortgage i n s u r a n c e c o v e r a g e of 12-20%,25%, 30% and 35%, r e s p e c t i v e l y . A l t - A l o a n s w i t h l o a n - t o - v a l u e r a t i o s up t o 100%r e q u i r e 35% c o v e r a g e .

Omitted I n f o r m a t i o n : I n f a c t , a p p r a i s a l s were n o t done w i t h v i g o r o u s o n s i t e i n s p e c t i o n s of eachp r o p e r t y and i n compliance w i t h USPAP s t a n d a r d s , b u t r a t h e r were r e g u l a r l y i n f l a t e d i n o r d e r t og e n e r a t e a p r e o r d a i n e d v a l u e t o j u s t i f y l o a n a p p r o v a l . Moreover, t h e a p p r a i s a l s were s u b j e c t t o o n l ya c u r s o r y review a n d / o r no r e v i e w a t a l l f o r a c c u r a c y and c o n s i s t e n c y by AHM a n d / o r i t sr e p r e s e n t a t i v e s . Loans were r e g u l a r l y b e i n g e x t e n d e d w i t h h i g h l o a n - t o - v a l u e r a t i o s w i t h o u tr e q u i r i n g h i g h e r coverage l e v e l s a n d / o r b e i n g approved v i a t h e u s e of i n f l a t e d a p p r a i s a l s . AHM'sl o a n - t o - v a l u e r a t i o s assumed v a l i d a p p r a i s a l s were p e r f o r m e d , T h i s was n o t t h e c a s e , a s a p p r a i s e r sf e l t p r e s s u r e d t o a p p r a i s e t o p r e d e t e r m i n e d v a l u e s and a r t i f i c i a l l y i n f l a t e d a p p r a i s a l s were common.

( f ) American Home r e a l i z e s t h a t t h e r e may be some a c c e p t a b l e q u a l i t yl o a n s t h a t f a l l o u t s i d e p u b l i s h e d g u i d e l i n e s and e n c o u r a g e s "common s e n s e "u n d e r w r i t i n g . Because a m u l t i t u d e o f f a c t o r s a r e i n v o l v e d i n a l o a n t r a n s a c t i o n , nos e t of g u i d e l i n e s c a n c o n t e m p l a t e e v e r y p o t e n t i a l s i t u a t i o n . T h e r e f o r e , e a c h c a s e i sweighed i n d i v i d u a l l y on i t s own m e r i t s and e x c e p t i o n s t o American Home'su n d e r w r i t i n g g u i d e l i n e s a r e a l l o w e d i f s u f f i c i e n t compensating f a c t o r s e x i s t t o o f f s e tany a d d i t i o n a l r i s k due t o t h e e x c e p t i o n .

Omitted I n f o r m a t i o n : AHM was u s i n g a n y t h i n g b u t "common s e n s e " i n g r a n t i n g mortgages t oc u s t o m e r s w i t h l i t t l e o r no money down. E x c e p t i o n s were n o t made f o r " q u a l i t y " l o a n s , b u t r a t h e rwere g r a n t e d a s a m a t t e r of c o u r s e . I n f a c t , one t h i r d o f t h e mortgages h e l d i n t h e p o o l s were p a y -o p t i o n ARMs, many of which were made t o s p e c u l a t o r s .

3 7 . S i m i l a r r e p r e s e n t a t i o n s a b o u t AHM's u n d e r w r i t i n g p r a c t i c e s were made i n t h eP r o s p e c t u s Supplements of o t h e r T r u s t s i n which AHM was a key o r i g i n a t o r .

3 8 . The P r o s p e c t u s Supplements made f a l s e s t a t e m e n t s a b o u t t h e u n d e r w r i t i n g p r a c t i c e so f A c c r e d i t e d Home L e n d e r s , I n c . ( " A c c r e d i t e d " ) w h i c h , on i t s own and t h r o u g h i t s a c q u i s i t i o n of

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Aames C a p i t a l C o r p o r a t i o n ("ACC") a n d i t s s u b s i d i a r y Aames F u n d i n g , was a key o r i g i n a t o r i n t h ef o l l o w i n g T r u s t s :

2007-AHLI2007-AHL22007-AHL3

3 9 . F o r e x a m p l e , t h e P r o s p e c t u s S u p p l e m e n t d a t e d F e b r u a r y 2 7 , 2 0 0 7 , f o r S e r i e s 2 0 0 7 -AHLI, s t a t e d :

( a ) A l l mortgage l o a n s were u n d e r w r i t t e n g e n e r a l l y i n a c c o r d a n c e w i t hu n d e r w r i t i n g g u i d e l i n e s developed by Aames F u n d i n g , a s d e s c r i b e d b e l o w , s u b j e c tt o c e r t a i n e x c e p t i o n s w i t h r e s p e c t t o i n d i v i d u a l mortgage l o a n s .

Aames F u n d i n g ' s u n d e r w r i t i n g g u i d e l i n e s were d e s i g n e d t o a s s e s s t h eb o r r o w e r ' s c r e d i t w o r t h i n e s s and t h e adequacy of t h e r e a l p r o p e r t y a s c o l l a te r al f o rt h e l o a n . The b o r r o w e r ' s c r e d i t w o r t h i n e s s was a s s e s s e d by e x a m i n a t i o n of a numberof f a c t o r s , i n c l u d i n g c a l c u l a t i o n of d e b t - t o - i n c o m e r a t i o s , which i s t h e sum of t h eb o r r o w e r ' s monthly d e b t payments d i v i d e d by t h e b o r r o w e r ' s monthly incomeb e f o r e : t a x e s and o t h e r p a y r o l l d e d u c t i o n s , a n e x a m i n a t i o n o f t h e b o r r o w e r ' s c r e d i th i s t o r y and c r e d i t s c o r e t h r o u g h s t a n d a r d c r e d i t r e p o r t i n g b u r e a u s , and by e v a l u a t i n gt h e b o r r o w e r ' s payment h i s t o r y w i t h r e s p e c t t o e x i s t i n g m o r t g a g e s , i f a n y , on t h ep r o p e r t y .

Aames Funding's underwriting policy was t o analyze t h e o v e r a l l s i t u a t i o n oft h e borrower and t o t a k e i n t o account compensating f a c t o r s t h a t may be used t oo f f s e t c e r t a i n a r e a s of weakness. These compensating f a c t o r s include t h e borrower'sh i s t o r y of payments on h i s p r i o r mortgage, c r e d i t s c o r e s , proposed reductions i n t h eborrower's debt s e r v i c e expense, employment s t a b i l i t y , number of years i n residenceand n e t disposable income.

Omitted I n f o r m a t i o n : I n f a c t , .Ames Funding was r e g u l a r l y e x t e n d i n g l o a n s w i t h o u t r e g a r d t o t h eb o r r o w e r s ' c r e d i t w o r t h i n e s s o r t h e adequacy of t h e u n d e r l y i n g r e a l p r o p e r t y , which s e r v e d a sc o l l a t e r a l f o r t h e l o a n . I n s t e a d of t a k i n g i n t o a c c o u n t t h e p o t e n t i a l b o r r o w e r ' s d e b t - t o - i n c o m e r a t i o s

and : c r e d i t h i s t o r y , c r e d i t s c o r e and a p p r a i s a l s , ACC a n d Aames Funding were g r a n t i n g l o a n s w i t h o u tr e g a r d t o c r e d i t w o r t h i n e s s . Loans g e n e r a t e d by mortgage b r o k e r s were a c c e p t e d even though t h e yhad l i t t l e o r no i n t e r n a l c o n t r o l s o v e r u n d e r w r i t i n g p ra c t i c e s . I n f a c t , Aames Funding was makingl o a n s t o low-income e l d e r l y borrowers w i t h o u t r e g a r d t o t h e i r a b i l i t y t o c o n t i n u e t o f u n d t h e ongoing

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mortgage payment a s l o n g a s t h e p o t e n t i a l borrower p u r p o r t e d l y had s u b s t a n t i a l e q u i t y i n t h ep r o p e r t y . I n d i c a t i v e of i t s a g g r e s s i v e n e s s was a m a i l e r s e n t t o e l d e r l y low-income b o r r o w e r s :

Even i f you have c r e d i t p r o b l e m s , we c a n p r o b a b l y s t i l l h e l p you o u t . T h a t ' s b e c a u s ei t ' s y o u r e q u i t y , n o t y o u r income o r c r e d i t t h a t m a t t e r s m o s t .

Aames F u n d i n g ' s emphasis on subprime b o r r o w e r s r e s u l t e d i n i t i n c r e a s i n g t h e p e r c e n t a g e of i t sl o a n s t o s u c h b o r r o w e r s by o v e r 80% between 2004 and 2005 , r e a c h i n g 90% of a l l l o a n s made by2 0 0 5 .

( b ) An a s s e s s m e n t of t h e adequacy of t h e r e a l p r o p e r t y a s c o l l a t e r a l f o rt h e l o a n i s p r i m a r i l y b a s e d upon an a p p r a i s a l of t h e p r o p e r t y and a c a l c u l a t i o n of t h el o a n - t o - v a l u e r a t i o s o f t h e l o an a p p l i e d f o r and of a l l . mortgages e x i s t i n g on t h ep r o p e r t y , i n c l u d i n g t h e l o a n a p p l i e d f o r t h e combined l o a n - t o - v a l u e r a t i o , t o t h ea p p r a i s e d v a l u e of t h e p r o p e r t y a t t h e time o f o r i g i n a t i o n . A p p r a i s e r s d e t e r m i n e ap r o p e r t y ' s v a l u e by r e f e r e n c e t o t h e s a le s , p r i c e s of comparable p r o p e r t i e s r e c e n t l ys o l d , a d j u s t e d t o r e f l e c t t h e c o n d i t i o n o f t h e p r o p e r t y a s determined t h r o u g hi n s p e c t i o n .

Omitted I n f o r m a t i o n : Aames Funding was n o t e x e r c i s i n g r e a s o n a b l e c o n t r o l o v e r b r o k e r s t o p r e v e n tthem from p r e s s u r i n g a p p r a i s e r s t o a p p r a i s e t o c e r t a i n v a l u e s , c a u s i n g l a r g e r numbers of i n f l a t e d( a n d hence w o r t h l e s s ) a p p r a i s a l s . Because of t h e c r e d i t problems of many of t h e b o r r o w e r s , t h ea p p r a i s a l s were e x t r e m e l y i m p o r t a n t and t h e o m i s s i o n o f t h e i n f o r m a t i o n a b o u t weakness i n t h e

a p p r a i s a l p r o c e s s was s i g n i f i c a n t .( c ) A c r i t i c a l f u n c t i o n of Aames F u n d i n g ' s u n d e r w r i t i n g p r o c e s s was t o

i d e n t i f y t h e l e v e l of c r e d i t r i s k a s s o c i a t e d w i t h e a c h a p p l i c a n t f o r a mortgage l o a n .Aames Funding e s t a b l i s h e d s i x p r i n c i p a l c l a s s i f i c a t i o n s , w i t h r e s p e c t t o t h e c r e d i tp r o f i l e of p o t e n t i a l b o r r o w e r s , and a s s i g n e d a r a t i n g t o each l o a n based upon t h e s ec l a s s i f i c a t i o n s . Aames Funding a s s i g n e d c r e d i t g r a d e s by a n a l y z i n g mortgagepayment h i s t o r y , consumer c r e d i t h i s t o r y , c r e d i t s c o r e , bankruptcy h i s t o r y and d e b t -to-income r a t i o . I f a n i n d i v i d u a l l o a n a p p l i c a t i o n d i d n o t meet Aames F u n d i n g ' sf o r m a l w r i t t e n u n d e r w r i t i n g g u i d e l i n e s , i t s u n d e r w r i t e r s c o u l d make u n d e r w r i t i n ge x c e p t i o n s up t o c e r t a i n l i m i t s w i t h i n i t s f o r m a l e x c e p t i o n p o l i c i e s and a p p r o v a la u t h o r i t i e s . From t i m e t o t i m e , Aamcs Funding may have a p p l i e d u n d e r w r i t i n gc r i t e r i a t h a t were e i t h e r more s t r i n g e n t o r more f l e x i b l e depending upon t h eeconomic c o n d i t i o n s of a p a r t i c u l a r g e o g r a p h i c m a r k e t .

Omitted I n f o r m a t i o n : Aames Funding was n o t a s s e s s i n g c r e d i t r i s k a s r e p r e s e n t e d . As a " p r e d a t o r yl e n d e r " Aames Funding g r a n t e d e x c e p t i o n s t o i t s u n d e r w r i t i n g g u i d e l i n e s , a s a m a t t e r o f c o u r s e , i n

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o r d e r t o a c h i e v e volume g o a l s . And f o r t h i s r e a s o n , Aames Funding l a t e r e x p e r i e nced a l a r g enumber o f f o r e c l o s u r e s .

( d ) The u n d e r w r i t i n g o f a mortgage l o a n t o be o r i g i n a t e d o r p u r c h a s e d byAames Funding g e n e r a l l y i n c l u d e d a review of t h e completed l o a n p a c k a g e , whichi n c l u d e d t h e l o a n a p p l i c a t i o n , a c u r r e n t a p p r a i s a l , a p r e l i m i n a r y t i t l e r e p o r t and ac r e d i t r e p o r t . A l l l o a n a p p l i c a t i o n s a n d . a l l c l o s e d l o a n s o f f e r e d t o Aames Fundingf o r p u r c h a s e were r e q u i r e d t o b e approved by Aames Funding i n accordance w i t h i t su n d e r w r i t i n g c r i t e r i a . Aames Funding r e g u l a r l y r e v i e w e d i t s u n d e r w r i t i n g g u i d e l i n e sand made changes when a p p r o p r i a t e t o respond t o market c o n d i t i o ns , t h eperformance of l o a n s r e p r e s e n t i n g a p a r t i c u l a r l o a n p r o d u c t o r changes i n l a w s o rr e g u l a t i o n s .

Omitted ! I n f o r m a t i o n : Aames F u n d i n g ' s r e v i e w of p u r p o r t e d l y completed l o a n packages wasc u r s o r y and i n some c a s e s n o n - e x i s t e n t . T h u s , t h e r e was no r e a s o n a b l e b a s i s t o s t a t e and i t was n o tt r u e t h a t a l l of t h e l o a n a p p l i c a t i o n s and l o a ns c l o s e d were approved i n accordance w i t h AamesF u n d i n g ' s u n d e r w r i t i n g c r i t e r i a . I n f a c t , due t o Aames F u n d i n g ' s l a c k of c o n t r o l s o v e r . i t s b r o k e r s ,t h e r e was o f t e n l i t t l e , i f a n y , review o f t h e u n d e r w r i t i n g p r o c e s s . I n f a c t , t h e o p p o s i t e was t r u e , s i n c et h e l o a n s were b e i n g s o l d o f f v i a s e c u r i t i z a t i o n s ( n o t h e l d on Aames Funding's b a l a n c e s h e e t ) ,b r o k e r s were compensated o n l y f o r g e t t i n g l o a n s approved - n o t disapproved - and t h e r e were nom a t e r i a l a d v e r s e consequences t o t h e b r o k e r i f t h e l o a n s u b s e q u e n t l y went b a d .

4 0 . The P r o s p e c t u s Supplements a l s o o m i t t e d m a t e r i a l f a c t s about t h e u n d e r w r i t i n gp r a c t i c e s of Countrywide Home L o a n s , I n c . , which was t h e key o r i g i n a t o r i n t h e f o l l o w i n g T r u s t s :

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4 1 . For example , t h e . P r o s p e c t u s Supplement f o r S e r i e s 2007- 6 , d a t e d A p r i l 3 0 , 2 0 0 7 ,s t a t e d ,

( a ) The c r e d i t r e p o r t t y p i c a l l y c o n t a i n s i n f o r m a t i o n r el at in g. t o s u c hm a t t e r s a s c r e d i t h i s t o r y w i t h l o c a l and n a t i o n a l merc

ann arbor v citi

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