deposition transcript of michael schloessman

7/30/2019 Deposition Transcript of Michael Schloessman

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ILED: NEW YORK COUNTY CLERK 12/11/2012 INDEX NO. 602825/

YSCEF DOC. NO. 3969 RECEIVED NYSCEF: 12/11/


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In The Matter Of:

MBIA

INSURANCE

CORPORATION

v.

COUNTRYWIDEHOMELOANS,INC.,etal.

___________________________________________________

MICHAELW.

SCHLOESSMANN

Vol.

3

August29,2012

_________________________________________________

HIGHLY CONFIDENTIAL


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MICHAEL W. SCHLOESSMANN - 8/29/2012

1-800-325-3376 www.merrillcorp.com/law

Merrill Corporation - New York

Page 825

SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK-----------------------------------------xMBIA INSURANCE CORPORATION,

Plaintiff,

Index No. 08/602825vs.

COUNTRYWIDE HOME LOANS, INC.,COUNTRYWIDE FINANCIAL CORP.,COUNTRYWIDE SECURITIES CORP.,COUNTRYWIDE BANK, F.S.B., andBANK OF AMERICA CORP.,

Defendants.-----------------------------------------xHIGHLY CONFIDENTIAL

August 29, 20129:45 a.m.

Continued Videotaped Deposition of

MICHAEL W. SCHLOESSMANN taken by Plaintiff,

pursuant to Notice, at the offices of Quinn

Emanuel Urquhart & Sullivan LLP, 51 Madison

Avenue, New York, New York, before TAMMEY M.

PASTOR, a Registered Professional Reporter,

Certified LiveNote Reporter and Notary Public

within and for the State of New York.


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2 (Pages 826 to 829)

Page 826

1

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

Attorneys for Plaintiff4 51 Madison Avenue

New York, New York 10010

5BY: PHILIPPE Z. SELENDY, ESQ.

6 -and-SARAH E. TROMBLEY, ESQ.

7 ([email protected])([email protected])

8

9

GOODWIN PROCTER LLP10 Attorneys for the COUNTRYWIDE Entity

Defendants11 901 New York Avenue, NW

Washington, D.C. 2000112

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

14

15

GOODWIN PROCTER LLP16 Attorneys for the COUNTRYWIDE Entity

Defendants

17 Exchange PlaceBoston, MA 02109

18

19 BY: SARAH HEATON CONCANNON, ESQ.([email protected])

20

21

22

23

24

25

Page 827

1

2 APPEARANCES CONTINUED:O'MELVENY & MYERS LLP

3 Attorneys for Bank of America Corp.Times Square Tower

4 7 Times SquareNew York, New York 10036

5

BY: ALLEN W. BURTON, ESQ.6 ([email protected])7

8 ALSO PRESENT:9

CHRISTOPHER LUCHT, Assistant General Counsel10 MBIA Insurance Corporation1109:15:21 DAVID SANDERS, Videographer

Merrill Legal Solutions12

13

14

15

16

1718

19

20

21

22

23

24

2509:57:10

Page 828

1 MICHAEL SCHLOESSMAN-HIGHLY CONFIDENTIAL

209:57:59 THE VIDEOGRAPHER: Here begins

309:58:00 volume 3, videotape number 13 in the

409:58:05 deposition of Mike Schloessmann.

509:58:09 Today's date is August 29, 2012. The609:58:12 time on the video monitor is 9:58 a.m.

709:58:18 The video operator today is David

809:58:21 Sanders of Merrill Legal Corporation,

909:58:23 225 Varick Street, New York, New York

1009:58:27 10014.

1109:58:28 Counsel please voice identify

1209:58:33 yourself and state whom you represent.

1309:58:36 MR. SELENDY: Philippe Selendy of

1409:58:40 Quinn Emanuel for Plaintiff MBIA. I am

1509:58:41 here with my colleague Sarah Trombley.

1609:58:45 MS. CONCANNON: Sarah Concannon

1709:58:46 of Goodwin Procter on behalf of the

1809:58:47 Countrywide Defendants and the witness,

1909:58:49 Michael Schloessmann. With me is David

2009:58:52 Freeburg also of Goodwin Procter.

2109:58:54 MR. BURTON: Allen Burton from

2209:58:55 O'Melveny & Myers on behalf of

2309:58:57 Defendant, Bank of America Corporation.

2409:58:58 THE VIDEOGRAPHER Please begin.

25

Page 829


2

3 MICHAEL SCHLOESSMANN,

4 resumed, having been previously duly

5 sworn, was examined and testified6 further as follows:

709:59:00 CONTINUED EXAMINATION BY MR. SELENDY:

809:59:00 Q. Mr. Schloessmann, welcome back.

909:59:02 A. Thank you.

1009:59:04 Q. You understand you are still

1109:59:05 under oath?

1209:59:06 A. Yes.

1309:59:07 Q. Which companies are you working

1409:59:08 for now?

1509:59:10 MS. CONCANNON: Objection.

1609:59:14 A. I am an employee of Countrywide

1709:59:18 Home Loans.

1809:59:18 Q. Is that the only company you

1909:59:20 are an employee of?

2009:59:20 A. Yes, as an employee I have dual

2109:59:23 officer roles with Bank of America National

2209:59:27 Association, as well as my title at

2309:59:30 Countrywide Home Loans and various other

2409:59:32 Countrywide entities.

2509:59:36 Q. Other than Bank of America


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3 (Pages 830 to 833)

Page 830


209:59:37 National Association and Countrywide Home

309:59:39 Loans and the other Countrywide entities, do

409:59:41 you have any titles or positions within Bank

509:59:46 of America?609:59:47 A. I don't believe so.

709:59:50 Q. Do you know which company pays

809:59:51 your salary?

909:59:53 A. Countrywide Home Loans.

1009:59:55 Q. Has your title changed since

1109:59:57 you were last deposed in this case?

1209:59:59 A. No, it hasn't.

1310:00:02 Q. What is your current title?

1410:00:03 A. I am Senior Vice President at

1510:00:06 BANA, Bank of America National Association.

1610:00:11 President of Countrywide Home Loans and

1710:00:12 Countrywide Financial Corporation.

1810:00:17 Q. Have your responsibilities

1910:00:18 changed since March of 2011?

2010:00:20 A. Yes.

2110:00:20 Q. In what respect?

2210:00:21 A. In the approximate fourth

2310:00:24 quarter of 2011 I assumed a role more

2410:00:33 focused on resolution strategy and the rep

2510:00:36 and warrant and mortgage insurance space.

Page 831


210:00:39 Really resolution strategy and settlement

310:00:42 related.

410:00:43 Prior to that I had managed the

510:00:47 entirety of the rep and warrant or610:00:50 representations and warranties organization,

710:00:52 including the operational infrastructure.

810:00:56 Q. Okay. Is there a name for that

910:00:58 representation and warranties organization

1010:01:01 that you previously managed?

1110:01:02 A. It is currently representations

1210:01:05 and warranties. It was previously referred

1310:01:09 to as workout strategies group also.

1410:01:21 Q. Is there an organizational name

1510:01:22 for the resolution strategy group you're

1610:01:27 managing now?

1710:01:28 A. It is not a group. I'm an

1810:01:29 individual contributor focused on helping

1910:01:33 devise resolution strategies and execute

2010:01:36 settlements in the related space.

2110:01:38 Q. Okay. Who do you report to

2210:01:39 today?

2310:01:40 A. John Dixon.

2410:01:42 Q. What is his title?

2510:01:44 A. John Dixon, I believe is also

Page 832


210:01:49 an SVP of BANA. I also believe he is an

310:01:56 employee of Countrywide, although I'm not

410:01:58 sure. And I don't know exactly what his

510:02:02 title is with Countrywide.610:02:03 Q. What are his responsibilities?

710:02:05 A. John basically assumed my

810:02:10 operational role, so he is managing the

910:02:12 representations and warranties organization.

1010:02:16 Which includes the strategy, settlement side

1110:02:19 as well as the operational side.

1210:02:24 Q. Okay. And who reports to you

1310:02:26 today?

1410:02:26 A. As I said, I am an individual

1510:02:29 contributor, so no one reports to me other

1610:02:31 than my administrative assistant.

1710:02:34 Q. All right. When you say you

1810:02:36 are an individual contributor, in what

1910:02:38 capacity are you contributing to the

2010:02:41 resolution organization?

2110:02:42 A. So, I work very closely with

2210:02:47 those in the representations and warranties

2310:02:50 organization helping devise strategies

2410:02:53 around the operational infrastructure, as

2510:02:58 well as resolution strategies which I

Page 833


210:03:00 mentioned.

310:03:01 So, you know, whether it is how

410:03:03 we are executing our responsibilities on a

510:03:08 loan level basis or on a more aggregated610:03:12 basis, alternative resolution strategies.

710:03:17 Q. Are there any people that you

810:03:18 tend to work with on a regular basis in that

910:03:23 connection?

1010:03:23 A. Within representations and

1110:03:25 warranties?

1210:03:25 Q. Yes.

1310:03:26 A. I work with quite a number of

1410:03:29 people on a regular basis.

1510:03:32 Q. Who would you identify as

1610:03:34 people you work with most closely?

1710:03:36 A. John Dixon, Sili Jacobson.

1810:03:49 S-I-L-I Jacobson. Do you want the whole

1910:03:51 litany? There are many I interact with

2010:03:52 daily.

2110:03:53 Q. Yes. Let's have the names of

2210:03:54 people you interact with on a daily basis,

2310:03:57 sure.

2410:03:57 A. Josh Cousins. Elizabeth Chen.

2510:04:08 Oleg Kotylar, K-O-T-Y-L-A-R, I believe.


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4 (Pages 834 to 837)

Page 834


210:04:21 Laurence Howard. By the way, this isn't

310:04:23 necessarily a daily basis. I am having

410:04:26 trouble differentiating those quite possibly

510:04:28 I talk to daily and others that are less610:04:30 frequent.

710:04:32 Patrick Yousef, Y-O-U-S-E-F.

810:04:42 I'm not sure that is an exhaustive list. It

910:04:44 probably is not.

1010:04:49 Q. How did you come to get the

1110:04:50 position of being a contributor to the

1210:04:56 resolution strategies function at BANA?

1310:05:02 A. Pardon me?

1410:05:04 Q. How did you, how were you

1510:05:07 selected for this position to contribute to

1610:05:09 the resolution strategies function?

1710:05:11 A. Okay. It is not BANA. It's

1810:05:17 within Countrywide. I think it occurred a

1910:05:21 couple months after the head of legacy asset

2010:05:24 servicing, Terry Laughlin assumed chief risk

2110:05:29 officer role within the bank. Ron

2210:05:32 Sturzenegger assumed Terry's job.

2310:05:36 And as we continue to monitor

2410:05:38 the evolution of the activity in the

2510:05:41 representations and warranties space and the

Page 835


210:05:46 substantial amount of growth, I think there

310:05:49 was a desire to have me focus on an area

410:05:54 that was less operationally intense, you

510:05:57 know, had grown to a group in excess of a610:06:00 thousand employees. And focus on the

710:06:05 transactional strategy related issues while

810:06:07 leveraging John's experience managing, you

910:06:12 know, large organizations.

1010:06:15 Q. When you refer to a thousand

1110:06:16 employees, that's in the workout strategies

1210:06:19 group; is that right?

1310:06:20 A. Now, again, the group is

1410:06:24 referred to as representations and

1510:06:25 warranties, previously workout strategies,

1610:06:28 but, yes, that was the group I was referring

1710:06:30 to.

1810:06:39 Q. Did you have any

1910:06:40 responsibilities regarding repurchases prior

2010:06:41 to the merger of Bank of America and

2110:06:42 Countrywide?

2210:06:44 MR. BURTON: Objection.

2310:06:50 A. I was involved in repurchases

2410:06:51 in a number of realms. One of which was my

2510:06:58 former role in Countrywide Capital Markets

Page 836


210:07:02 and Countrywide Securities Corporation.

310:07:05 That was very limited and I would also

410:07:09 clarify that it wasn't responsibility so

510:07:13 much as awareness and involvement in terms610:07:17 of representing our investor base.

710:07:22 Subsequent to that and really

810:07:23 going to early 2008, and I can't remember

910:07:28 the dates exactly, I had at some point in

1010:07:34 that first half of the year, prior to the,

1110:07:37 you know, Legal Day 1, July 1, I was getting

1210:07:43 increasingly involved in it. I can't be

1310:07:45 sure exactly when that occurred, however.

1410:07:50 Q. When you say you were getting

1510:07:51 increasingly involved, in what respect were

1610:07:54 you involved in repurchases?

1710:07:57 A. Outside of -- well, as we were

1810:08:00 leading up to midyear, I was, my role had

1910:08:08 continued to change in light of market

2010:08:09 conditions, we had consolidated, for

2110:08:12 instance, all the transaction management

2210:08:13 functions.

2310:08:15 So I assumed a role, similar

2410:08:17 role in addition to having the capital

2510:08:19 markets portfolio. Also having Countrywide

Page 837


210:08:23 Home Loans, transaction management team and

310:08:24 investor relations group.

410:08:27 I also believe around that time

510:08:32 we started, although I can't be sure, we610:08:35 started to get involved in light of the up

710:08:40 tick in repurchase activity, in interfacing

810:08:43 with lawyers, interfacing with

910:08:46 counterparties such as MBIA and other

1010:08:51 stakeholders within Countrywide. Again, I'm

1110:08:56 unclear as to when that actually happened in

1210:08:59 2008.

1310:09:01 Q. Is it fair to say your interest

1410:09:03 in repurchases started to increase at least

1510:09:05 as early as 2006?


1710:09:10 A. I -- well my interest in

1810:09:12 repurchases, again you have to, I feel like

1910:09:17 differentiation is needed.

2010:09:19 In 2006 I was Managing Director

2110:09:23 overseeing Countrywide Capital Markets,

2210:09:26 Countrywide -- and Countrywide Securities

2310:09:30 Corporation's transaction management group.

2410:09:31 In that capacity I dealt with

2510:09:35 or I interacted with the repurchase space in


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5 (Pages 838 to 841)

Page 838


210:09:39 two respects. One, is the responsibility

310:09:45 for a limited number of repurchase or

410:09:50 limited repurchase activity related solely

510:09:53 to Countrywide Capital Markets, you know,610:09:57 whole loan purchases from third parties.

710:10:02 And to be differentiated from Countrywide

810:10:06 Home Loans and its activities.

910:10:07 And the second was my role in

1010:10:12 basically providing a voice for our investor

1110:10:18 base in terms of what we were hearing in the

1210:10:22 fixed income investor community. I was

1310:10:25 involved in communicating those concerns as

1410:10:32 well as trying to formulate or articulate,

1510:10:35 you know, recommendations for consideration

1610:10:37 of Countrywide Home Loans, although with

1710:10:39 respect to that aspect I had no direct

1810:10:42 responsibility in terms of decision-making

1910:10:45 at that time.

2010:10:47 Q. Starting with the first of

2110:10:48 those two functions, you mentioned that you

2210:10:51 had responsibility for repurchase activity

2310:10:54 for the Countrywide Capital Markets whole

2410:10:56 loan purchases.

2510:10:58 Was that in connection with

Page 839


210:11:01 CCM's outbound repurchase demands?

310:11:05 MS. CONCANNON: Object to the

410:11:06 form.

510:11:06 Q. Is that fair?610:11:07 A. In connection with that, that

710:11:10 is what I'm referring so. So we would buy

810:11:15 loans and the activity was predominantly

910:11:19 related to early payment defaults where we

1010:11:24 had explicit contractual protection. So if

1110:11:29 a loan went down within the contractually

1210:11:32 covered period, we would have recourse back

1310:11:34 to our sellers.

1410:11:35 So as part of our

1510:11:37 responsibility within the transaction

1610:11:39 management group we would monitor and

1710:11:43 prosecute those claims where contractually

1810:11:47 appropriate.

1910:11:47 Q. Do you call those outbound

2010:11:50 repurchase demands versus inbound?

2110:11:53 A. Yes.

2210:11:54 Q. With respect to your valuation

2310:11:56 of the outbound repurchases, were there

2410:12:00 standard guidelines you had from entities

2510:12:03 that sold whole loans to CCM?

Page 840



310:12:08 A. Can you be more specific around

410:12:10 guidelines?

510:12:11 Q. Right. How would you determine610:12:12 whether or not to initiate repurchase

710:12:14 demands for the outbound repurchases?

810:12:20 A. It was, as I said earlier,

910:12:24 predominantly, if not entirely, early

1010:12:27 payment default related. So it is an

1110:12:31 entirely objective measure.

1210:12:33 You would post purchase of a

1310:12:34 loan or portfolio of loans, you would

1410:12:39 monitor the performance such that if that

1510:12:41 loan went delinquent or whatever the

1610:12:43 specific triggering event was, you could

1710:12:46 monitor that by querying the data, since we

1810:12:51 would take on, in the vast majority of the

1910:12:55 cases, the servicing as well.

2010:12:56 And so, by monitoring the

2110:12:59 performance, the early performance of those

2210:13:02 loans during the contractually covered

2310:13:04 period, we would then generate repurchase

2410:13:10 demands based on those findings.

2510:13:12 Q. And you referred to that as an

Page 841


210:13:14 objective basis for the repurchase demand?

310:13:17 A. I did use the word objective.

410:13:20 Q. Do you distinguish the inbound

510:13:21 repurchase demands as not being objective?610:13:26 MS. CONCANNON: Objection.

710:13:27 Q. Or not being evaluated on an

810:13:29 objective standard?


1010:13:30 A. I would use the term object --

1110:13:33 I wouldn't use the term objective

1210:13:35 exclusively for outbound or inbound for that

1310:13:39 matter.

1410:13:42 It would come down to specific

1510:13:43 contractual terms that were being implicated

1610:13:46 in the activity. And looking at what the

1710:13:50 standard was, and whether it required

1810:13:52 subjective or judgmental input or whether it

1910:13:55 was purely objective in describing an

2010:14:01 inbound or outbound claim along those lines.

2110:14:05 Q. And in your judgment did

2210:14:07 Countrywide evaluate inbound repurchase

2310:14:10 demands on an objective standard?


2510:14:17 A. Did we evaluate? It would


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6 (Pages 842 to 845)

Page 842


210:14:19 depend entirely on each and every loan level

310:14:22 claim. Okay. And the contractual term that

410:14:27 was cited by a claimant in bringing such a

510:14:30 claim.610:14:31 There are, I imagine specific

710:14:38 representations and warranties that are at

810:14:40 least relatively speaking more objective

910:14:42 than others. And, conversely, others that

1010:14:44 are more subjective than others.

1110:14:48 So I would hesitate to

1210:14:50 characterize, you know, claims in a sort of

1310:14:54 broad sweeping way that your question

1410:14:57 suggests.

1510:14:58 Q. How would you distinguish

1610:15:00 between the objective and subjective claims

1710:15:02 for inbound repurchases?


1910:15:07 A. First of all, I don't, I don't

2010:15:12 believe my description of objective or

2110:15:15 subjective, there is no formality associated

2210:15:19 with that. We don't bucket claims or

2310:15:21 process claims by categorizing them as

2410:15:24 objective or subjective.

2510:15:26 I'm simply referring to the

Page 843


210:15:30 subjective quality or judgmental quality

310:15:34 required to assess the merits of a

410:15:38 particular claim.

510:15:39 Again, wholly dependent on what610:15:42 that claim is, which rep and warrants is

710:15:44 cited, what factual base, evidentiary

810:15:47 support is provided by the claimant and so

910:15:52 forth.

1010:15:52 Q. Let me show you an exhibit we

1110:15:54 had previously introduced as Exhibit 260.

1210:16:06 (Deposition Exhibit 260

1310:16:06 for identification previously marked,

1410:16:06 email string dated 5/17/06 production

1510:16:06 numbers CWMBIA 0009882017 through 221.)

1610:16:18 BY MR. SELENDY:

1710:16:18 Q. As you will recall this is the

1810:16:20 paper you wrote up in 2006; is that right?

1910:16:30 A. I would like a minute just to

2010:16:31 look at this.

2110:16:32 Q. Sure.

2210:16:39 A. Yes, I'm familiar with this

2310:16:41 write-up, which is mine and which is from

2410:16:43 2006, to answer your question.

2510:16:45 Q. Right. In the paper you

Page 844


210:16:46 identified on the page ending in Bates

310:16:52 number 218, a problem which you described as

410:16:57 a course of discontent from buyers of

510:16:59 Countrywide bonds largely attributable to610:17:02 the following two factors "The observed

710:17:04 performance, particularly in the early

810:17:07 stages of Countrywide's prime and Alt-A

910:17:10 deals is inferior to our peer group after

1010:17:13 normalizing for collateral differences; and

1110:17:16 two, Countrywide's unwillingness to

1210:17:19 repurchase loans absent a clear showing of a

1310:17:23 rep and warranty breach, irrespective of the

1410:17:26 nature of default, e.g. fraud."

1510:17:29 Then you go on to say, "While

1610:17:31 all of these investors readily acknowledge

1710:17:34 the inherent risk embedded in first loss and

1810:17:37 other credit sensitive bonds and have paid a

1910:17:42 significant risk premium in turn for

2010:17:44 repurchasing the bonds, none of them accept

2110:17:45 the premise they should have to price for

2210:17:47 the fraud and other similar risks which they

2310:17:50 believe are impossible to quantify."

2410:17:54 Let me pause right there. What

2510:17:56 did you mean when you said "they don't

Page 845


210:17:57 accept the premise they should have to price

310:17:59 for the fraud?"


510:18:05 A. I was trying to communicate610:18:06 that which certain of our investors and I

710:18:11 can't remember with particularity which

810:18:15 ones, but that which certain of our

910:18:17 investors had communicated to me either

1010:18:19 directly or most likely indirectly through

1110:18:21 our sales force. And that basically

1210:18:25 represented the position of at least one

1310:18:28 fixed income investor, which is what I was

1410:18:30 trying to communicate knowing that the

1510:18:32 audience for this would be at Countrywide

1610:18:35 Home Loans where the repurchase activity

1710:18:39 responsibility resided.

1810:18:41 Q. What does it mean to price for

1910:18:42 the fraud?


2110:18:46 A. What I was intending to

2210:18:49 communicate, again, by virtue of what was

2310:18:52 communicated to me is that you're pricing

2410:18:59 these credit sensitive assets based on

2510:19:02 expected performance.


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Page 846


210:19:03 So, therefore you are modeling

310:19:06 a number of attributes like expected default

410:19:09 rate, loss severity, things of that nature.

510:19:11 Prepay speeds.610:19:14 And that certain risks, at

710:19:17 least based on what one or more investors

810:19:20 had communicated were not part of those

910:19:24 default rate assumptions. And therefore, to

1010:19:28 the extent the assumptions are assisting

1110:19:32 buyers in generating a price they are

1210:19:35 willing to pay for their, for a bond, a

1310:19:38 given bond, that that would not be built in

1410:19:43 or incorporated into their pricing of the

1510:19:45 bond.

1610:19:46 Q. And specifically you singled

1710:19:48 out fraud as not incorporated into the

1810:19:50 investor's pricing of the bonds as an

1910:19:53 example?


2110:19:54 A. That's what my write-up

2210:19:57 indicates, yes.

2310:19:58 Q. And did you think that was a

2410:20:01 fair objection on the part of the investors?


Page 847


210:20:05 A. Quite honestly I don't know

310:20:07 exactly what I thought. Again, my goal or

410:20:11 my role at this time was to ensure we gave

510:20:16 voice to what we were hearing from610:20:18 investors. And to the extent that was

710:20:19 impacting our, you know, our pricing levels

810:20:24 that we were seeing on our securities, I

910:20:26 thought it was worthy of consideration.

1010:20:30 And as I later advocate, or

1110:20:34 asked for consideration of, I wanted people

1210:20:36 to think about, you know, whether there was

1310:20:38 a different way, a more pragmatic way of

1410:20:42 addressing this, this issue.

1510:20:46 Q. You clearly gave credit to the

1610:20:47 concern you're proposing that Countrywide's

1710:20:50 repurchase policy be changed; right?


1910:20:55 A. I, again, my role here, okay,

2010:20:58 is representing our fixed income investors

2110:21:02 and providing CHL with market color.

2210:21:06 So, we had an interest in

2310:21:09 Countrywide Capital Markets of developing,

2410:21:13 maintaining and enhancing customer

2510:21:17 relationships. So, I viewed that as, you

Page 848


210:21:20 know, one of a large number of

310:21:23 responsibilities I had in my organization.

410:21:26 And, frankly, others in a customer facing

510:21:29 business, you know, had similar610:21:32 responsibilities to, again, give voice to

710:21:35 our investors inside of Countrywide and give

810:21:39 them basically market color or market

910:21:41 commentary.

1010:21:42 Q. And as reflected on page 220 of

1110:21:45 the document you gave credit to the concern

1210:21:50 about not pricing for fraud in proposing

1310:21:53 specific modifications to the repurchase

1410:21:57 policy. And you state -- isn't that right?


1610:22:00 Q. Section sub C of your document.


1810:22:13 A. I apologize, can you repeat the

1910:22:14 question. I'm now looking at subsection C.

2010:22:17 Q. You gave credit to the investor

2110:22:19 concerns about repurchases including as to

2210:22:23 not pricing for fraud in proposing a

2310:22:26 modification of Countrywide's repurchase

2410:22:29 policy as reflected in subsection C of your

2510:22:32 white paper; correct?

Page 849



310:22:38 A. Not having restudied this, you

410:22:42 know, exhaustively, I think generally what I

510:22:46 am proposing for consideration is a, you610:22:54 know, I don't know I would characterize it

710:22:56 as a change, that we ought to rethink our

810:23:00 repurchase process, in here -- I think,

910:23:06 again, as written, you know, the white

1010:23:09 paper, if you want to call it that as

1110:23:11 written is basically asking CHL to rethink

1210:23:19 how it goes about repurchases.

1310:23:24 Q. Is it fair to say that you

1410:23:25 encouraged CHL to adopt a more reasonable

1510:23:28 repurchase standard?


1710:23:35 A. I think that's a, you know, not

1810:23:38 unreasonable inference from this. I was

1910:23:40 bringing investor concerns to the table. I

2010:23:43 was articulating what it was doing in terms

2110:23:46 of execution on our bonds at Countrywide.

2210:23:52 And was suggesting that a more

2310:23:55 accommodative policy that wasn't, you know,

2410:24:01 built squarely on, you know, the contractual

2510:24:04 obligations or at least interpretation,


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Page 850


210:24:08 strict interpretation of the contractual

310:24:11 obligations where there was flexibility to

410:24:13 do so that we ought to think about being

510:24:15 more accommodative to those investor610:24:19 concerns.

710:24:21 Q. And you state, "The single most

810:24:24 important prerequisite to turning around

910:24:27 this problem is to adopt a more reasonable

1010:24:30 repurchase standard, one that is better

1110:24:31 aligned with that of our competition and the

1210:24:34 reasonable expectations of our bondholders."

1310:24:37 Is that fair?


1510:24:40 A. You're reading that from where?

1610:24:42 Q. It is the first sentence of

1710:24:43 your paper under the heading Modify

1810:24:46 Repurchase Policy.

1910:24:51 A. Okay. That's what it says.

2010:24:52 Q. That's what you were

2110:24:53 recommending; right?


2310:24:59 A. What I appear to be indicating

2410:25:03 here is presuppose if you want to change the

2510:25:08 course we were on, which I've articulated

Page 851


210:25:11 earlier in this write-up, then the single

310:25:16 most important prerequisite was to adopt a

410:25:21 more reasonable or accommodative repurchase

510:25:25 policy or standard.610:25:29 Q. And you go on to say as an

710:25:31 example that "Certain loans with fraud or

810:25:33 substantial value discrepancies should be

910:25:36 considered for repurchase to a greater

1010:25:38 extent than the current policy allows, even

1110:25:42 absent specific fraud or value reps and

1210:25:46 warrants."

1310:25:47 Is that right?

1410:25:50 A. Is it right that it says that?

1510:25:51 Q. That was part of your

1610:25:53 recommendation; correct?


1810:25:56 A. I can't tell without sitting

1910:25:58 here reading the whole thing what I'm

2010:26:00 recommending and what I am putting up for

2110:26:04 consideration. Whether or not it is

2210:26:05 important or not, I don't know where you're

2310:26:07 going with this. But, I wanted them to

2410:26:12 consider the problem and possible solutions.

2510:26:17 So I tried to, in an expansive

Page 852


210:26:21 way, tried to lay out what the issues were

310:26:25 and how we might go about addressing them if

410:26:31 Countrywide Home Loans was so inclined in

510:26:33 terms of doing a cost/benefit analysis.610:26:39 Q. And in developing your

710:26:41 recommendations is it fair to say you had

810:26:43 reviewed conclusions on repurchase claims in

910:26:46 order to assess whether investors'

1010:26:50 objections had merit?


1210:26:55 A. I don't know if I reviewed any

1310:26:58 repurchase claims in a context of this and

1410:27:03 what was informing this write-up.

1510:27:06 As I recall, many of the

1610:27:12 concerns expressed were not based on actual

1710:27:16 repurchase activity. Bondholders were

1810:27:21 observing loans, for instance, that went

1910:27:23 down or had some anomalous, you know, loss

2010:27:28 severity relative to -- whatever their

2110:27:32 concern they expressed it not necessarily

2210:27:34 within the context or confines of a

2310:27:36 repurchase demand, but just that, you know,

2410:27:40 more in terms of inquiry what it was we were

2510:27:43 going to do about, for instance, an early

Page 853


210:27:47 payment default.

310:27:50 Q. Well can I direct you to the

410:27:55 next page, page 221, you will notice under

510:27:57 subheading I in the middle paragraph that610:28:01 you write "It is clear to me based on having

710:28:04 reviewed the LERC conclusions on countless

810:28:08 repurchase claims that in many, if not most

910:28:12 cases a reasonable argument can be proffered

1010:28:15 in support of a repurchase claim based upon

1110:28:18 this particular rep and warranty, even

1210:28:22 though LERC may have come to the opposite,

1310:28:24 but also not unreasonable conclusion."

1410:28:24 Do you see that?

1510:28:28 A. Yes, I do.

1610:28:30 Q. So in fact you had reviewed the

1710:28:31 conclusions on what you characterize as

1810:28:33 countless repurchase claims?


2010:28:35 A. That's what it indicates, yes.

2110:28:37 Q. What was LERC?

2210:28:41 A. LERC was Countrywide's Loss

2310:28:46 Exposure Review Committee.

2410:28:46 Q. It was after you had reviewed

2510:28:49 these countless repurchase claims that you


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Page 854


210:28:51 developed your recommendations to

310:28:52 Countrywide Home Loans?

410:28:53 A. I don't know if -- well, I'm

510:28:58 not sure if you're suggesting one610:29:00 precipitated the other.

710:29:01 I obviously stand by what I

810:29:07 indicated here. I said I reviewed countless

910:29:10 findings from the LERC materials, then I

1010:29:15 reviewed countless findings. That was my

1110:29:17 impression when I wrote this six years ago.

1210:29:21 Q. Okay. And the rep and warranty

1310:29:24 you were referring to states and this is the

1410:29:26 sentence immediately preceding "The

1510:29:29 origination, underwriting servicing and

1610:29:34 collection practices used by Countrywide

1710:29:36 with respect to each mortgage loan have been

1810:29:38 in all respects legal, proper, prudent and

1910:29:42 customary in the mortgage lending and

2010:29:44 servicing business."


2210:29:45 A. Yes.

2310:29:48 Q. Why did you conclude based on

2410:29:50 that rep and warranty a reasonable argument

2510:29:52 could be proffered in support of a

Page 855


210:29:54 repurchase claim in many, if not most cases?


410:30:02 A. So, well in answering that I

510:30:03 will provide some contractually grounding.610:30:07 We, nor any issuer for that

710:30:12 matter is at liberty of repurchasing loans

810:30:18 or otherwise depositing monies in a trust

910:30:20 that aren't specifically contemplated in the

1010:30:24 governing contracts.

1110:30:29 So in order to repurchase a

1210:30:30 loan, you would have to cite or be able to

1310:30:34 invoke one of, you know, one of several

1410:30:38 enabling provisions, including repurchase

1510:30:41 for breaches of representations and

1610:30:44 warranties which materially and adversely

1710:30:47 affects the interest of the bondholders, for

1810:30:49 instance, is a fairly common standard in

1910:30:52 many PSAs.

2010:30:54 So, with that as a grounding,

2110:30:57 what I was saying here is that given that

2210:31:04 many, there would appear to be many of the,

2310:31:06 you know, repurchase claim conclusions that

2410:31:08 I am indicating here having reviewed were

2510:31:11 predicated on notions of prudent

Page 856


210:31:13 underwriting, that that standard is

310:31:20 sufficiently subjective and judgmental that

410:31:23 you could have two reasonable people coming

510:31:27 to different conclusions on the same set of610:31:31 facts.

710:31:32 And so, in fact I think I cite

810:31:35 here that LERC may have come to an opposite,

910:31:39 but also not unreasonable conclusion. So

1010:31:41 suggesting that if we wanted to be more

1110:31:46 accommodative, like some of our, or we were

1210:31:49 lead to believe some of our competitors were

1310:31:51 being, that we had the ability, in my

1410:31:55 judgement to come to a different conclusion

1510:32:00 around subjective issues like prudent

1610:32:03 underwriting, even if it didn't call into

1710:32:06 question the appropriateness of LERC's

1810:32:09 conclusion, we still had the ability, again,

1910:32:15 in my judgment at the time, to do that.

2010:32:18 And that I wanted CHL to

2110:32:20 consider doing that. And I didn't think the

2210:32:24 fact that issues around true sale

2310:32:28 accounting, which is very important, which

2410:32:30 means we had to have enabling provisions to

2510:32:34 do whatever it is we were doing, vis-a-vis

Page 857


210:32:37 the trust, we had what I believed to be the

310:32:41 latitude to rethink that or recalibrate

410:32:45 that.

510:32:47 Q. In what capacity did you610:32:48 conduct the review of the repurchase claims

710:32:51 prior to writing up this paper?

810:32:56 A. I'm sorry, in what capacity?

910:32:58 Q. Right. What was your purpose in

1010:33:01 reviewing the repurchase claims before you

1110:33:02 wrote up this paper?


1310:33:06 A. I, having testified earlier

1410:33:08 today that I don't recall this white paper

1510:33:11 being precipitated specifically by reviewing

1610:33:14 these -- reviewing repurchase requests, I

1710:33:18 have since refreshed my recollection reading

1810:33:21 this, my understanding still to this day is

1910:33:26 much of that, the impetus for this came from

2010:33:31 investors, directly or indirectly to my

2110:33:34 attention. And I felt in my role it was my

2210:33:39 responsibility to bring that to the

2310:33:40 attention of CHL.

2410:33:42 Perhaps in developing this

2510:33:45 write-up, which was not just a top of mind


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Page 858


210:33:49 stream of consciousness, I think I put a

310:33:51 considerable amount of thought into it, I

410:33:55 may have leveraged, right, I may have -- not

510:33:58 leveraged, but I may have wanted to see what610:34:01 it was that we were observing in the

710:34:05 repurchase space. It could have been in

810:34:07 response to what CHL was communicating, you

910:34:12 know, back to us in terms of our inability

1010:34:15 to just repurchase loans without showing a

1110:34:19 contractual enabling provision.

1210:34:23 Q. In the next subparagraph you

1310:34:26 say, "Given the inherent subjectivity of the

1410:34:32 aforementioned rep and warranty, the concern

1510:34:35 about one string of repurchases requiring

1610:34:38 another is easily overcome. The unique

1710:34:42 facts and circumstances involved in each

1810:34:44 individual repurchase claim should allow us

1910:34:46 to make subjective judgment calls in favor

2010:34:49 of repurchases for some loans and against

2110:34:53 repurchase on others without it all being

2210:34:55 inconsistent in our approach."


2410:34:59 A. Yes.

2510:34:59 Q. What did you mean by that?

Page 859


210:35:06 A. I think what you read, I am

310:35:12 trying to think how to expand on that. I

410:35:15 guess I would underscore the importance of

510:35:21 the fact that every single loan has its own610:35:25 individual and unique facts and

710:35:26 circumstances. Right.

810:35:28 Yes, there are attributes

910:35:30 common to many a loan. But the combination

1010:35:34 of attributes and specific borrower profile

1110:35:36 and other facts around the origination or

1210:35:40 the borrower's credit capacity, the, you

1310:35:43 know, collateral being pledged against the

1410:35:45 loan when taken together in totality,

1510:35:48 present a unique profile on each and every

1610:35:51 single loan.

1710:35:52 And so, we were not, you know,

1810:35:56 what I was suggesting to the extent, I think

1910:35:58 I was responding to a concern or I'm going

2010:36:02 to assume I put this in here to blunt any

2110:36:06 concern that if we did this selectively and

2210:36:11 accommodatively in the interest of

2310:36:13 furthering our customer relationship. That

2410:36:17 it was not going to necessarily bind us or

2510:36:22 should not bind us on other loans.

Page 860


210:36:26 Q. Meaning you could favor one

310:36:28 investor without favoring another and in

410:36:30 your view not be subject to a charge of

510:36:33 inconsistency?610:36:34 MS. CONCANNON: Objection.

710:36:37 A. I don't know if it was favoring

810:36:38 one investor over another. It was trying to

910:36:41 address a specific issue brought to our

1010:36:45 attention from investors.

1110:36:48 So there is a natural tension

1210:36:51 that exists in the relationship between

1310:36:58 subsidiaries, in this case, you have

1410:37:00 Countrywide Home Loans and, you know, the

1510:37:03 parent company responsible for credit policy

1610:37:05 and risk management for the broader

1710:37:07 organization.

1810:37:09 And then we had our, we being

1910:37:11 Countrywide Capital Markets and Countrywide

2010:37:13 Securities Corporation, had very specific

2110:37:17 interests in furthering the client

2210:37:20 relationship.

2310:37:21 So, I am basically an advocate

2410:37:26 for what we're seeing take place in the

2510:37:29 marketplace. What we're hearing from

Page 861


210:37:31 investors. It was not as though, you know,

310:37:35 my recommendations, decisions, judgments,

410:37:38 were dispositive of this issue.

510:37:43 I think it was part of a610:37:45 healthy tension that exists between, you

710:37:48 know, subsidiaries, as I said, to have, make

810:37:54 sure you are considering all the angles.

910:37:55 My job wasn't necessarily to

1010:37:57 focus on a more top of the house view, but

1110:38:02 rather, again, focus on the customer

1210:38:04 relationship and what we were seeing happen

1310:38:06 in the marketplace.

1410:38:08 Q. Is it fair to say that you were

1510:38:11 arguing that Countrywide Home Loans could be

1610:38:14 more accommodative to one investor than to

1710:38:17 another without being subject to a charge of

1810:38:19 inconsistency?


2010:38:23 A. I don't believe my thinking was

2110:38:25 at all around favoring one investor over

2210:38:28 another. In fact, it's not what I was

2310:38:31 trying to communicate is just, you know,

2410:38:37 because you buy back some loans, okay, maybe

2510:38:43 it could be, for instance, the fraud that I


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Page 862


210:38:46 cited, right.

310:38:48 You know, that to the extent we

410:38:49 had the contractual flexibility for certain

510:38:53 kind of issues that were, you know, viewed610:38:56 most problematic or as most problematic as

710:38:59 investors, that that didn't necessarily need

810:39:01 to be viewed as a slippery slope.

910:39:05 That was my view as the voice

1010:39:07 of the investor, right, that I wanted the

1110:39:10 top of the house to consider as part of it's

1210:39:13 on going, you know, review and assessment of

1310:39:18 its repurchase policies.

1410:39:20 Q. And you said that "CHL could

1510:39:22 make subjective judgment calls in favor of

1610:39:24 repurchase for some loans and against

1710:39:27 repurchase on others." Right?

1810:39:32 MS. CONCANNON: Where are you?

1910:39:33 Q. Same section. Second sentence

2010:39:41 of your sub point 2. Isn't that what you

2110:39:43 were arguing you could subjectively decide

2210:39:45 to accept repurchases on some loans and not

2310:39:48 others without it being inconsistent?

2410:39:50 MS. CONCANNON: Objection to form.

2510:39:51 A. Yes. I think that's, I think

Page 863


210:39:53 that's further to the point I just made.

310:39:56 That it's, you know, some loans, some fact

410:39:59 patterns, for instance, again, you know the

510:40:04 issues that borrowers -- that investors610:40:07 found most problematic we could address

710:40:10 without necessarily consigning ourselves to

810:40:15 buy back every claim. Consign ourselves to

910:40:19 have to legitimately buy back every claim.

1010:40:21 That doesn't, you know, so far

1110:40:25 as I can tell suggest one investor versus

1210:40:27 another.

1310:40:27 Q. Well in fact Countrywide did

1410:40:31 take into account the relationship with its

1510:40:34 investors in determining whether to

1610:40:36 implement repurchases; isn't that right?


1810:40:41 A. When you say implement

1910:40:42 repurchases, I don't follow.

2010:40:45 Q. Countrywide did in fact take

2110:40:46 into account the relationship with its

2210:40:48 investors in determining whether to

2310:40:50 repurchase loans that were the subject of

2410:40:53 repurchase demands; correct?


Page 864


210:40:57 A. Are you asking did we factually

310:40:59 do that?

410:40:59 Q. Yes.

510:41:00 A. Am I recommending that we --610:41:02 Q. Didn't Countrywide in fact do

710:41:03 that?


910:41:05 A. So in the period in question,

1010:41:11 what I can say is not having been

1110:41:13 responsible for the repurchase activity at

1210:41:14 Countrywide, but having had conversations

1310:41:18 implied by this note, that it was always

1410:41:23 central to Countrywide's repurchase policy

1510:41:29 that its activities be grounded upon the

1610:41:33 contractual obligations that we undertook in

1710:41:36 selling loans into the marketplace.

1810:41:41 How Countrywide Home Loans at

1910:41:43 the time went about repurchasing loans from

2010:41:46 the variety of investors to whom Countrywide

2110:41:49 sold loans, I can't recall and I wasn't, you

2210:41:55 know, front and center in that, as I didn't

2310:41:57 have responsibility for it. I clearly had

2410:41:59 awareness as evidenced by this write-up.

2510:42:04 Q. After the merger of Countrywide

Page 865


210:42:05 and Bank of America, is it fair to say that

310:42:10 Countrywide Home Loans did in fact take into

410:42:14 account the nature of its relationships with

510:42:17 counterparties in determining whether to610:42:18 repurchase loans that were the subject of

710:42:20 repurchase demands?


910:42:29 A. Well I'm a little bit confused

1010:42:30 by the reference after the purchase.

1110:42:36 So, as I said, back in this

1210:42:38 time it may or may not have influenced

1310:42:40 Countrywide. I'm unaware of it. And I'm

1410:42:44 unaware of it being untethered again from

1510:42:47 what we thought our contractual obligations

1610:42:49 were.

1710:42:49 You know, post 2008, latter

1810:42:51 part of it where I assumed an increasing

1910:42:55 role I can speak of firsthand experience in

2010:43:01 terms of what the standards were that we

2110:43:05 established for repurchasing loans. And

2210:43:11 those were with, again, always grounded upon

2310:43:13 what our contractual obligations were.

2410:43:15 Q. Sir, I guess I need to be a

2510:43:20 little more specific. Is it fair to say


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Page 866


210:43:22 that for the past few years while you've had

310:43:26 direct responsibility for repurchases in the

410:43:30 Bank of America organization, that in fact

510:43:34 repurchases of Countrywide Home Loans have610:43:38 taken into account the nature of the

710:43:40 relationship between Countrywide Home Loans

810:43:43 and its counterparties?


1010:43:48 A. I think that is -- well, I'll

1110:43:50 answer it this way: We, again, focus on the

1210:43:55 specific contractual relationship we have

1310:43:57 with a counterparty. We focus on the

1410:44:03 specific and unique fact pattern associated

1510:44:05 with each loan in the execution of our

1610:44:13 repurchase activities.

1710:44:14 Now, where we have issues that

1810:44:15 arise, disputes, I think it's fair to say

1910:44:19 that in sizing up those disputes and where,

2010:44:25 you know, and how best to resolve those

2110:44:26 disputes, I think it's fair to say that, you

2210:44:30 know, that we, you know, there is

2310:44:33 consideration given to okay, who is the

2410:44:35 counterparty, what is our status with them.

2510:44:38 Okay. By no means divorces the process from

Page 867


210:44:43 what I had just referenced, specific

310:44:45 contractual obligations, unique fact pattern

410:44:49 on each and every loan.

510:44:50 I do think that's -- I think610:44:53 that's a fair assessment to say that we were

710:44:55 not unmindful of the fact that, you know,

810:45:01 for instance, a, you know, GSE investor,

910:45:03 right, what is our ongoing business, our

1010:45:08 current business. But more as a means of

1110:45:10 how do we resolve disputes. Not how do we

1210:45:15 decision loan level or make loan level

1310:45:18 decisions on repurchase claims.

1410:45:21 Q. Your testimony is that that

1510:45:22 does not relate to whether Countrywide

1610:45:25 actually repurchases loans? You're saying it

1710:45:29 is only with respect to the resolution of

1810:45:32 disputes?

1910:45:33 A. Well it's -- I want to make

2010:45:37 sure I'm careful it is not misinterpreted.

2110:45:40 We're going to review and respond to every

2210:45:46 claim on a loan level basis based on the

2310:45:50 specific contractual language.

2410:45:53 It is not uncommon that we find

2510:45:56 ourselves in disagreement with a

Page 868


210:45:58 counterparty who has asserted the claim.

310:46:00 We've done our review. Responded

410:46:03 thoughtfully and expansively typically to

510:46:05 those claims. And we're at an impasse.610:46:10 And so, you know, recognizing I

710:46:13 think this also sort of underscores the

810:46:16 inherent subjectivity of some claims, right,

910:46:20 where you have two sides coming to different

1010:46:22 conclusions.

1110:46:23 And in terms of how we resolve

1210:46:25 those, or do we resolve those, short of

1310:46:29 litigation, for instance, I do think it is a

1410:46:31 consideration to understand what the nature

1510:46:34 of the relationship with a counterparty is.

1610:46:36 And what, for instance, litigation might do

1710:46:39 to that relationship.

1810:46:43 Q. So let me go back to your 2006

1910:46:44 paper. Do you know what use, if any, was

2010:46:47 made of your paper?

2110:46:51 A. I don't know specifically. I

2210:46:52 know it went to CHL. David Spector, I

2310:46:55 believe at the time was managing secondary

2410:46:59 marketing for Countrywide Home Loans.

2510:47:02 I sent this to David. I know

Page 869


210:47:04 it got some circulation around Countrywide.

310:47:12 I don't know exactly who saw this and

410:47:15 exactly what, if anything, was done in

510:47:17 response to it.610:47:20 Q. Let me show you a document

710:47:21 that's previously has been marked as

810:47:22 Plaintiff's Exhibit 573.


1010:47:22 for identification previously marked,

1110:47:22 Memo undated, production numbers CWMBIA

1210:47:22 0009912977 through 80.)


1410:47:37 Q. My question here is whether you

1510:47:38 have seen this before? You will note at the

1610:47:40 top it states "This memo is intended to be

1710:47:45 read and evaluated with conjunction with the

1810:47:48 white paper drafted by Michael Schloessmann

1910:47:50 M.D. Countrywide Securities Corp. regarding

2010:47:53 our current standing in the investor

2110:47:55 community and the impact on liquidity that

2210:47:57 our policies are having."

2310:47:59 Have you seen this paper

2410:48:00 before?

2510:48:10 A. It does look familiar. I'm


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Page 870


210:48:12 thinking perhaps I saw this in connection

310:48:15 with earlier testimony with you back in

410:48:18 March, if memory serves me. But I don't

510:48:24 remember prior to that time if I saw this.610:48:26 Perhaps I was on a distribution, I don't see

710:48:28 a distribution. I always welcome having my

810:48:32 recollection refreshed. But I'm not sure

910:48:37 sitting here right now.

1010:48:39 Q. Are you aware of any steps that

1110:48:40 were taken at Countrywide Financial or

1210:48:46 Countrywide Home Loans to make the

1310:48:48 repurchase policy more reasonable as of the

1410:48:52 2006, 2007 period prior to the merger with

1510:48:55 Bank of America?


1710:48:57 MR. BURTON: Objection.

1810:49:00 A. Sorry, could you restate your

1910:49:01 question.

2010:49:01 Q. Yes. Let's take the entire

2110:49:03 period after you wrote your white paper, up

2210:49:07 until the merger with Bank of America.

2310:49:09 Are you aware of any steps that

2410:49:11 were taken during that period to make a

2510:49:14 Countrywide repurchase policy more

Page 871


210:49:15 reasonable?


410:49:21 A. I think I just testified, I

510:49:25 don't know what steps were taken. If you're610:49:26 talking about specifically in response to my

710:49:29 recommendation, I don't know.

810:49:31 Overall, I'm not really sure as

910:49:34 I didn't have responsibility for that. And

1010:49:36 I don't have a specific recollection of what

1110:49:39 might have actually been done.

1210:49:42 Q. Did you seek to become more

1310:49:43 involved with the repurchase process as --

1410:49:48 after the merger had been announced, the

1510:49:50 prospective merger had been announced?


1710:49:54 A. Did I -- I am not sure if I

1810:49:56 sought to be more involved. I had testified

1910:49:59 earlier, although I couldn't remember

2010:50:03 specifically when in 2008, but I, outside of

2110:50:09 the realm we've just explored in terms of my

2210:50:11 role in Countrywide Capital Markets, I don't

2310:50:16 know when exactly in 2008, or whether,

2410:50:18 frankly I, you know, affirmatively sought

2510:50:21 out more responsibility in this realm.

Page 872


210:50:24 I think there was a tremendous

310:50:27 amount of change due to the market

410:50:28 conditions going on and, for instance,

510:50:32 securitization basically ceased, you know,610:50:35 on and after August 2007.

710:50:41 And, you know, as we got into

810:50:43 2008, you know, including, you know, what we

910:50:45 saw from MBIA in the first half of 2008 it

1010:50:49 obviously, you know, warranted, you know,

1110:50:52 more attention because it was something

1210:50:55 that, you know, heretofore we had not seen.

1310:50:58 Q. And do you recall any specific

1410:51:00 functions that you had before Bank of

1510:51:03 America purchased Countrywide with respect

1610:51:05 to repurchases in that 2008 period?


1810:51:10 A. Other than as I just testified,

1910:51:13 my recollection that I had been getting

2010:51:18 increasingly involved, and I think it

2110:51:22 predated, I don't think it was related to

2210:51:25 the merger, but predated the merger, July 1,

2310:51:30 I can't remember specifically what that

2410:51:34 involvement was.

2510:51:36 I -- well, full stop.

Page 873


210:51:56 MR. SELENDY: I am going to mark

310:51:57 as Exhibit 4051, BACMBIA-P 000092542 --

410:52:08 sorry Exhibit 4044. Excuse me.

510:52:19 BACMBIA-P 92542 through 543.610:52:24 (Deposition Exhibit 4044

710:52:24 for identification, email string dated

810:52:19 11/20/08, production numbers BACMBIA-P

910:52:21 0000092542 through 543.)

1010:52:28 MS. CONCANNON: I assume you

1110:52:29 allocated numbers to Minton and to this

1210:52:32 deposition so we are not duplicating?

1310:52:35 MS. TROMBLEY: Yes.


1510:52:37 Q. Just take a moment to look at

1610:52:39 that document. Top of the second page

1710:53:01 states this is the email from Len Clamp

1810:53:04 entitled Secondary Marketing Repurchasing

1910:53:08 and Claims Business Process Follow-Up dated

2010:53:10 November 13, 2008.

2110:53:12 "Net net, our team (LOB and

2210:53:14 change) kicked off a process reengineering

2310:53:17 effort for the repurchases/investor claims

2410:53:21 area coming out of assessment. Mike

2510:53:28 Schloessmann will head this group and they


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Page 874


210:53:30 are now moving into Brucker's world from

310:53:33 secondary from an organization perspective."


510:53:36 A. Yes.610:53:36 Q. Do you know what that's

710:53:38 referring to?


910:53:39 A. I believe, it is my

1010:53:40 understanding that as it involves change

1110:53:49 management. I believe this was part of a

1210:53:56 far more expansive undertaking to assess the

1310:54:02 function, you know the various functions,

1410:54:05 systems and the like within Countrywide in

1510:54:06 figuring out what was to become those

1610:54:11 functions. And people, process, systems as

1710:54:16 a result of Bank of America's purchase of

1810:54:18 Countrywide. Which is common place in any

1910:54:22 sort of merger transaction.

2010:54:25 One of those, in a small sort

2110:54:27 of way, the repurchase world, this is

2210:54:31 indicating that, as I testified earlier, I

2310:54:34 had assumed responsibility some time in 2008

2410:54:38 for a part of the repurchase activity.

2510:54:45 Q. Were you involved in the Bank

Page 875


210:54:47 of America assessment?

310:54:50 A. I am not sure what Bank of

410:54:52 America assessment means, but inasmuch as it

510:54:56 was part of the multitude of discussions610:55:00 that took place as far as transition in

710:55:05 terms of what the organization was going to

810:55:07 look like following the merger, I was

910:55:10 involved in some of those. As I said, there

1010:55:14 were hundreds if not more that took place

1110:55:17 across Countrywide as Bank of America was

1210:55:19 assessing what it was they were, you know,

1310:55:22 purchasing, I believe.

1410:55:26 Q. Do you have any understanding

1510:55:27 of the conclusions reached as part of the

1610:55:29 transition assessment with respect to the

1710:55:32 Countrywide repurchases?


1910:55:36 Q. Or the repurchase process at

2010:55:37 Countrywide?


2210:55:43 A. One conclusion or outcome,

2310:55:44 rather, of that was in terms of my role,

2410:55:54 that that role would include, among other

2510:55:56 things, responsibility for part of the

Page 876


210:56:01 repurchase activity. By part of, I'm

310:56:03 differentiating, you know, the strategy and

410:56:06 related components from the, what was then

510:56:10 referred to as investor audit, basically the610:56:14 team of underwriters that were actually

710:56:16 reviewing the loan level claims.

810:56:19 That was not directly in my

910:56:24 purview, although there was, you know,

1010:56:25 interaction obviously in terms of the role

1110:56:28 that is described in Len's email.

1210:56:30 Q. Just to clarify that, you said

1310:56:32 the investor audit function refers to the

1410:56:34 team of underwriters that would review,

1510:56:37 actually review the repurchase demands?

1610:56:39 A. That's correct.

1710:56:42 Q. And your function instead was

1810:56:43 part of the strategy of how to deal with the

1910:56:46 results of those reviews; is that fair?

2010:56:48 A. Well, no. At that time my role

2110:56:55 which was developing, was, you know,

2210:56:56 recognizing the changing landscape, that we

2310:57:03 needed more to address given the landscape

2410:57:05 had changed and was changing considerably.

2510:57:11 That we needed more focus

Page 877


210:57:13 around counterparty, among other things,

310:57:16 counterparty engagement. Consultation with

410:57:18 legal around, you know, governing contracts,

510:57:21 contractual interpretation and assorted610:57:24 other issues to augment the underwriting

710:57:29 group, whose subject matter expertise was,

810:57:34 you know, limited to reviewing and

910:57:35 responding to loan level claims. But

1010:57:37 certainly not interpreting legal contracts

1110:57:41 and engaging in counterparty dialogue

1210:57:44 outside of, again, a very limited, you know,

1310:57:46 loan level -- I shouldn't say limited, but

1410:57:49 aside from a loan level universe of

1510:57:53 activities.

1610:57:57 Q. Is it fair to say that one of

1710:57:58 the outcomes of the BAC transition review

1810:58:02 was that the reengineering effort -- sorry,

1910:58:05 the repurchase effort had to be reengineered

2010:58:09 as to process, as this email reflects?


2210:58:16 A. Well, whether Len described it

2310:58:19 as such, I would describe it as we were

2410:58:23 developing, in response to again a changing

2510:58:26 repurchase landscape, we were developing


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Page 878


210:58:29 greater functionality or more diverse

310:58:33 functionality that we thought the existing

410:58:38 landscape called for that at that time or

510:58:43 previous to that time we did not believe was610:58:47 sufficient given, again, the changing

710:58:49 circumstances that we were observing.

810:58:52 Q. Other than adding functionality

910:58:55 to the process, do you recall specific

1010:58:58 changes that were made to how Countrywide

1110:59:01 evaluated repurchase demands?


1310:59:07 A. I don't -- well, other than the

1410:59:11 guidance of, you know, reviewing or guidance

1510:59:17 stemming from review of the governing

1610:59:20 contracts and what our obligations were in

1710:59:22 providing guidance that could be

1810:59:25 incorporated into loan level claim

1910:59:29 decisioning parameters I'm not sure what

2010:59:34 else you're -- or I'm not sure what else to

2110:59:38 say about, you know, the repurchase claim

2210:59:43 decisioning itself.

2310:59:50 Q. Okay. So you said that one of

2410:59:51 the changes was to ensure that the governing

2510:59:53 contracts were reviewed in the process of

Page 879


210:59:58 deciding whether to repurchase loans; is

311:00:01 that fair?


511:00:06 A. Repeat that back, I'm sorry.611:00:11 Q. You said that one of the

711:00:12 changes was to ensure the governing

811:00:14 contracts were reviewed in the process of

911:00:17 deciding whether to repurchase loans; is

1011:00:19 that fair?


1211:00:20 A. Let me -- I'm not sure that is

1311:00:26 or not. What I said is we wanted to make

1411:00:29 sure, given the increase in repurchase

1511:00:34 claims that we had, particularly in the

1611:00:39 non-GSE segments, including from MBIA, you

1711:00:45 know, given that that process was less

1811:00:48 mature, because we really had no historical

1911:00:51 precedent or experience outside of the GSE

2011:00:56 space in any meaningful numbers, that we

2111:01:00 needed to ensure that each and every

2211:01:03 contract governing a transaction and loans

2311:01:07 included in that transaction was reviewed.

2411:01:09 And we clearly understood and

2511:01:12 the team understood what the contractual

Page 880


211:01:14 obligations were, which necessarily informs

311:01:16 how you would review and respond to a claim.

411:01:20 So I'm not sure if I was clear.

511:01:22 Q. I guess I'm trying to611:01:23 understand what changed. How was that

711:01:26 different than the way in which the investor

811:01:31 audit team previously looked at repurchase

911:01:33 requests?


1111:01:34 A. Well, I wasn't responsible for

1211:01:37 that area beforehand. My understanding is

1311:01:40 that that activity was limited predominantly

1411:01:48 to GSE claims. It was an established

1511:01:51 process, had been selling loans to the GSEs

1611:01:56 for 20-some-odd years, if not more.

1711:02:00 That there was, while nothing

1811:02:02 of the magnitude that we have seen in the

1911:02:04 last four years, we had a steady flow of

2011:02:09 repurchase activity that investor audit was

2111:02:13 established at least in part, it perhaps had

2211:02:16 other duties to review and respond to

2311:02:18 pursuant to those two unique contracts

2411:02:22 within that case Fannie and Freddie.

2511:02:25 So the introduction of

Page 881


211:02:26 repurchase claims in meaningful numbers from

311:02:31 non-GSE claimants implicated issues that I

411:02:38 don't know to what extent we would have had

511:02:40 occasion to review and study from a611:02:43 contractual and other standpoints.

711:02:49 Q. Okay. I would like to show you

811:02:50 a document I marked as Exhibit 4045. It is

911:02:53 an email from 2008 attaching a draft

1011:02:58 document entitled Investor Loan Claim

1111:03:02 Process Target State And Action Plan for

1211:03:05 Secondary Marketing Investor Relations,

1311:03:08 Credit Risk Investor Audit, Investor Claim

1411:03:12 Analytics and Reporting.


1611:03:12 for identification, email string dated

1711:03:12 7/21/08, production numbers CWMBIA-B

1811:03:12 000009808 through 824.)


2011:03:27 Q. In the middle of the first page

2111:03:29 you'll see that you are one of the cc's on

2211:03:31 the page.

2311:03:38 My first question will be

2411:03:39 whether you recall the document that's

2511:03:40 attached to the email?


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Page 882


211:04:42 MS. CONCANNON: Do you have some

311:04:43 magnifying glasses floating around the

411:04:46 firm?

511:04:47 MR. SELENDY: I keep wishing you611:04:48 would produce pages that can be better

711:04:50 read.

811:04:50 MS. CONCANNON: We produced them

911:04:51 in the best form available to us.

1011:04:53 MR. SELENDY: You didn't produce

1111:04:54 magnifying glasses with the document,

1211:04:56 so.

1311:04:57 MS. CONCANNON: No. But they

1411:04:59 have been provided to us at prior

1511:05:01 depositions in response to witness

1611:05:02 requests. I know you have them

1711:05:04 available.

1811:05:04 MR. SELENDY: If that is a

1911:05:05 serious request.

2011:05:06 MS. CONCANNON: It is a serious

2111:05:08 request, I am not being snide about the

2211:05:10 document, but there are portions of it

2311:05:11 I'm unable to read.

2411:05:12 MR. SELENDY: I don't disagree

2511:05:14 with you. We will see if we can get a

Page 883


211:05:15 glass.

311:05:21 A. Okay. I reviewed the email and

411:05:23 the attachment. I don't recall this deck

511:05:30 specifically, but it is consistent with my611:05:34 general understanding during this period we

711:05:35 were evolving the repurchase process in

811:05:40 response to, you know, in response to again

911:05:44 the changing landscape insofar as

1011:05:47 repurchases were concerned.

1111:05:48 Q. On the first page in the email

1211:05:52 from James Baker to Frank Aguilera, the

1311:05:55 second sentence states, "Please keep Mike

1411:05:58 and I posted as to the status of the

1511:05:59 presentation so that Mike can review any

1611:06:02 final deliverable prior to its presentation

1711:06:04 to senior management."


1911:06:06 A. Yes.

2011:06:07 Q. And did you in fact make a

2111:06:11 presentation of this deck to senior

2211:06:12 management at Bank of America?


2411:06:16 A. I, having made a number of

2511:06:18 presentations, I don't remember specifically

Page 884


211:06:19 this one. But inasmuch as we had developed

311:06:22 the deck and James is indicating -- I think

411:06:29 it is James, where are we here -- yes, James

511:06:32 is indicating we are scheduled or expected611:06:35 to present, I don't have any reason to think

711:06:37 that didn't happen. But I don't have

811:06:38 specific recollection of that presentation.

911:06:42 Q. If you would turn to the page

1011:06:43 ending in 9814 there is a slide entitled

1111:06:46 Executive Management Post LD 1. Do you see

1211:06:53 that?

1311:06:53 A. Yes.

1411:06:54 Q. Were you put in charge of the

1511:06:55 operations at this time for repurchasing?


1711:06:58 A. I was not.

1811:06:58 Q. I am noting your name Michael

1911:07:04 Schloessmann operations in the second box.


2111:07:06 A. Yes.

2211:07:06 Q. So what does that signify to

2311:07:09 you?

2411:07:09 A. So that was, that was a

2511:07:12 secondary marketing related role. My role

Page 885


211:07:15 was evolving through '08. I think in the

311:07:21 first part of '08 I was chief operations

411:07:24 officer or something along those lines for

511:07:27 secondary marketing.611:07:29 The operations really referred

711:07:31 to, as I recall, managing the loan delivery

811:07:36 system, the GSE loan delivery system. That

911:07:38 is the front end business where we were, you

1011:07:40 know, delivering newly originated loans to

1111:07:43 the GSEs. And I recall specifically it was

1211:07:46 not the repurchase operations at this time,

1311:07:52 July 2008.

1411:07:52 Q. Okay. So did you subsequently

1511:07:54 assume responsibility for the operational

1611:07:57 side of repurchases or no?

1711:07:59 A. Yes.

1811:08:00 Q. When was that?

1911:08:00 A. I believe that was in the first

2011:08:03 quarter of 2009.

2111:08:09 Q. I do have a magnifying glass,

2211:08:11 if that's helpful for you.

2311:08:13 A. Okay.

2411:08:13 Q. Just to keep handy.

2511:08:15 MS. CONCANNON: Thank you.


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Page 886


211:08:19 Q. If you would turn please to the

311:08:20 page ending Bates number 9819 entitled

411:08:27 Target State Organizational Proposal. Do

511:08:27 you see that?611:08:36 A. Yes.

711:08:37 Q. There is a the top bullet

811:08:39 refers to investor relations transaction

911:08:41 management. The second bullet refers to

1011:08:42 investor audit group. What is the

1111:08:48 distinction there drawn between those two

1211:08:50 parts of the organization?

1311:08:52 A. What is the operational

1411:08:53 distinction?

1511:08:54 Q. Yes.

1611:08:55 A. So, as I testified to earlier,

1711:08:59 the investor audit group had responsibility

1811:09:04 for the review and response, review

1911:09:09 assessment response to each loan level

2011:09:11 claim.

2111:09:11 So while we were plugged into

2211:09:15 the process, obviously we had awareness, we

2311:09:17 had engagement with the group, we had to

2411:09:20 work, you know, in sync with one another

2511:09:23 because we both owned different parts of the

Page 887


211:09:26 repurchase process, that group exclusively

311:09:30 reviewed loans and tendered responses.

411:09:38 Whereas investor relations and

511:09:41 transaction management, and -- I'm sorry, is611:09:44 your question as it pertains, what is the

711:09:46 difference as it pertains only to repurchase

811:09:49 activity because there were other activities

911:09:51 and responsibilities within my portfolio

1011:09:52 that didn't necessarily have anything to do

1111:09:54 with repurchases?

1211:09:55 Q. So let's first start with the

1311:09:59 distinction as it pertains to repurchases.


1511:10:09 A. Sorry, is this -- I'm confusing

1611:10:11 myself -- is this, you're asking what this

1711:10:14 is contemplating or what actually existed at

1811:10:17 the time? I'm sorry.

1911:10:22 Q. We can again break that down as

2011:10:24 of July 2008 what was the structure that

2111:10:26 existed in the immediate aftermath of LD 1?


2311:10:34 A. I continue to testify to lack

2411:10:35 of total clarity around when each of these,

2511:10:40 other than, you know, the exhibits you're

Page 888


211:10:44 putting in front of me which is in part

311:10:46 refreshing my recollection. I had

411:10:49 repurchase responsibility at some point in

511:10:52 2008 that continued to develop as we were611:10:54 developing a process for managing the

711:10:59 changed repurchase landscape, which included

811:11:01 what's referred to as the strategy

911:11:05 component, counterparty engagement, you

1011:11:07 know, legal engagement.

1111:11:09 Those kind of things I believe

1211:11:12 resided, if not in July it was to my

1311:11:18 recollection some time shortly after that.

1411:11:23 Again, it was an evolving process. Just as

1511:11:26 the repurchase activity we were observing

1611:11:28 was evolving.

1711:11:29 Q. And what was the proposal with

1811:11:30 respect to the development of the target

1911:11:34 state organization?

2011:11:36 A. So I'm going to need to refresh

2111:11:38 my memory because -- we did not, as I

2211:11:41 testified to prior to '09 we, my group did

2311:11:44 not have ownership for the loan level

2411:11:47 claims. I want to read what this target

2511:11:52 state is contemplating.

Page 889


211:11:53 Q. Yes.

311:11:54 A. I can tell you when and if this

411:11:55 actually came to pass.

511:12:48 Okay. So this, this was not611:12:55 the state that existed in July, clearly

711:12:59 investor audit managed that. This

811:13:01 contemplated target state references

911:13:06 investor relations transaction management

1011:13:09 which was the organization I managed,

1111:13:11 logging in all incoming claims, you know,

1211:13:14 subjecting claims to a review to ensure, you

1311:13:19 know, a number of things like proper

1411:13:22 standing and things of that nature. And

1511:13:27 making definitive decisions on resolution

1611:13:29 outcome of all claims.

1711:13:33 That was, you know, the

1811:13:35 decisioning parameters contemplated here, I

1911:13:38 don't know when exactly we took

2011:13:41 responsibility for those. I believe it's my

2111:13:46 understanding those, you know, became

2211:13:50 basically joint responsibilities between the

2311:13:52 two groups, because we were obviously

2411:13:55 reliant on investor audit to do the loan

2511:14:00 level claim and report out its findings.


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Page 890


211:14:02 We also had an interest in

311:14:03 ensuring those findings were consistent with

411:14:07 contractual standards and other relative

511:14:11 criteria, but contractual standards being611:14:16 first and foremost. As they are generally

711:14:18 consistent across the board.

811:14:21 As I think back to that time my

911:14:23 desire to involve my organization which

1011:14:24 wasn't doing loan level reviews was an

1111:14:27 effort to provide basically a check and

1211:14:29 balance to what the investor audit group was

1311:14:31 doing.

1411:14:33 Q. What criteria did the investor

1511:14:37 relations transaction management group look

1611:14:39 at other than contractual standards with

1711:14:42 respect to the review of the findings from

1811:14:45 investor audit?


2011:14:47 A. Sorry, what did they -- at this

2111:14:53 time they didn't.

2211:14:54 Q. Right. Once this target state

2311:14:56 was implemented. So as of first quarter

2411:14:59 2009, thereafter you indicated that the

2511:15:04 transaction management group looked at

Page 891


211:15:08 contractual standards as well as other

311:15:10 crite

deposition transcript of michael schloessman

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