MBIA Insurance Corporation v. Bank of America Corp., Country Wide Financial Corporation, Country Wide Home Loans, Et. Al.

COSY
2 3 4 5 6 QUINN EMANUEL URQUHART OLIVER & HEDGES, LLP A. William Urquhart {Bar No . 140996) billurquhart@qurnnemanuel . com ^^^^^ ^^^^^ Harry A. Oi^var Jr. ( Bar No. 143089} [email protected] Danielle L. Gilmore (Bar No. 171457) ^^ daniellegilmore@qu^nnemanuel .com ^Qy 0 ^ ^^ ^^ 865 South Figueroa Street, 10th Floor ^^^ ^^^^^ Los Angeles, California 90017-2543 ^^^^^^ ^Q^.'^` Telephone: (213} 443-3000 (213} 443-3100 Facsimile:

7 Attorneys for Plaintiff MBIA Insurance Corporation 9 SUPERIOR COURT OF THE STATE OF CALIFORNIA 10 COUNTY OF LOS ANGELES 11 12 13 14
vs.

MBIA Insurance Corporation, a New York corporation, Plaintiff,

CASE NO. BC417572 FIRST AMENDED COMPLAINT FOR: (1) VIOLATIONS OF CALIFORNIA CORPORATIONS CODE §§ 25401 AND 25501; (2) VIOLATIONS OF CALIFORNIA CORPORATIONS CODE ^ 2SSO4; (3) VIOLATIONS OF CALIFORNIA CORPORATIONS CODE § 25504.1; (4) COMMON-LAW FRAUD; (5} NEGLIGENT MISREPRESENTATION; AND (G} DECLARATORY RELIEF JURY TRIAL DEMANDED Judge: Department: Complaint Filed: Hon. Anthony J. Mohr 309 July 10, 2009

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b 1592!3182612.1

Bank of America Corporation, a Delaware corporation, Countrywide Financial Corporation, a Delaware corporation, Countrywide Home Loans, Inc., a New York corporation, Countrywide Securities Carp., a Delaware corporation, CWHEQ, Inc., a Delaware corporation, CWABS, Inc., a Delaware corporation, CWABS Revolving Home Equity Trust, Series 2004-I, a Delaware statutory trust, CWABS Revolving Home Equity Loan Trust, Series 2004-P, a Delaware statutory trust, CWHEQ Revolving Home Equity Loan Trust, Series 2005-A, a Delaware statutory trust, CWHEQ Revolving Home Equity Loan Trust, Series 2005-E, a .Delaware statutory trust, CWHEQ Revolving Home Equity Loan Trust, Series 2005-1, a Delaware statutory trust, CWHEQ Revolving Home Equity Loan Series 2005-M, a Delaware

FIRST AMENDED COMPLAINT

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trust, CWHEQ Revolving Home Equity Loan Trust, Series 2006-E, a Delaware statutory trust, C W HEQ Revolving Home Equity Loan Trust, Series 2006-G, a Delaware statutory trust, CWHEQ Home ^ Equity Loan Trust, Series 2406-SS, a New York common law trust, CWHEQ Home Equity Loan Trust, Series 2006-59, a New York common law trust, CWHEQ Home Equity Loan Trust, Series 2006-510, a New York common law trust, CWHEQ Revolving Home Equity Loan Trust, Series 2047-E, a Delaware statutory trust, CWHEQ Home Equity Loan Trust, Series 2007-51, a New York common law trust, CWHEQ Home Equity Loan Trust, Series 204752, a New York common law trust, CWHEQ Home Equity Loan Trust , Series 2007-53, a New York common law trust, Greenwich Capital Markets, Inc., a Delaware corporation, HSBC Securities (USA) Inc., a Delaware corporation, UBS Securities LLC, a Delaware limited liability company, Angelo Mozilo, an individual, David Sambol, an individual, Eric Sieracki, an individual, Ranjit Kripaiani, an individual, Jennifer Sandefur, an individual, Stanford Kurland, an individual, and John and Jane Does 1-100, Defendants.

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6 159213 1 3261 2.1 I^

FIRST AMENDED COMPLAINT

1

Plaintiff MBIA Insurance Corporation ("MBIA"), through its attorneys,

2 Quinn Emanuel Urquhart Oliver & Hedges, LLP, for its First Amended Complaint against 3 defendants Bank of America Corporation, Countrywide Financial Corporation

4 ("Countrywide Financial"}, Countrywide Home Loans, Inc. ("Countrywide Home Loans"), 5 Countrywide Securities Corporation {"Countrywide Securities"), CWHEQ, Inc.

5 ("CWHEQ") and CWABS, Inc. ("CWWABS") (Countrywide Financial, Countrywide Home 7 Loans, CWHEQ and CWABS collectively are referred to as "Countrywide" or "the 8 Countrywide Defendants"}, CWABS Revaluing Home Equity Trust, Series 2004-I,

9 CWABS Revolving Home Equity Laa u Trust, Series 2004-P, CWHEQ Revolving Horne 10 Equity Loan Trust, Series 2005-A, CWHEQ Revolving Home Equity Loan Trust, Series 11 200.5-E, CWHEQ Revolving Home Equity Loan Trust, Series 2005-I, CWHEQ Revolving

12 Home Equity Loan Trust, Series 2005-M, CWHEQ Revolving Home Equity Loan Trust, 13 Series 2005-E, CWHEQ Revolving Home Equity Loan Trust, Series 2006-G, CWHEQ

14 Howie Equity Loan Trust, Series 2006-59, CWHEQ Home Equity Loan Trust, Series 15 2006-510, CWHEQ Revolving Home Equity Loan Trust, Series 2007-E, CWHEQ Home 16 Equity Loan Trust, Series 2006-58, CWHEQ Hame Equity Laan Trust, Series 2007-51, 17 CWHEQ Home Equity Loan Trust, Series 2007-S2, and CWHEQ Home Equity Laan

i8 Trust, Series 2407-53 {the Revolving Home Equity Loan Trusts and the Home Equity 19 Loan Trusts collectively are referred to as "the Trusts" or "the Trust Defendants"), 20 Greenwich Capital Markets, Inc. ("Greenwich Capital"), HSBC Securities (USA} Inc. 21 ("HSBC"}, and UBS Securities LLC ("UBS") (Greenwich Capital, HSBC, and UBS are 22 referred to collectively as "the Underwriters" ar "the Underwriter Defendants"), Angela 23 Mazilo, David Sambol, Eric Sieracki, Ran^it Kripalani, Jennifer Sandefur and Stanford 24 Kurland (collectively, "the Individual Defendants"}, and John and Jane Does 1-100, hereby 25 26 27
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6159213182b12.1

alleges as follows: NATURE OF ACTION 1. This action arises out of Countrywide's extensive fraudulent

misrepresentations and omissions of material facts related to its sale of certain residential -9.. __ _ FIRST AMENDED COMPLAINT

mortgage-backed securities. Countrywide, once the largest residential mortgage originator and servicer in the country, originated and sold (or otherwise conveyed) pools of mortgage loans to trusts. The trusts in turn securitized the underlying mortgage loans and issued 4 residential mortgage-backed securities ("RMBS Notes" or "Notes"} which were then sold 5 to public investors. Countrywide consistently falsely represented to the investors who

6 purchased the Notes that Countrywide had originated the mortgage loans in strict 7' compliance with its own underwriting standards and guidelines, which supposedly had 8 been developed over time to screen the creditworthiness of borrowers and to increase the 9 likelihood that mortgage loans would be repaid. To make its I^.lv1BS Notes more

14 marketable, Countrywide arranged for Plaintiff MBIA to provide billions of dollars of 11 f nancia! guaranty insurance in the form of guarantees of the trust obligations to make

12 principal and interest payments on particular classes of RIvIBS Notes. 13 2. In reality, however, Countrywide had abandoned any reasonable and prudent

14 underwriting standards. As it fought aggressively to expand its already enormous market 1S 16 share during the mortgage lending boom from 2004 to 2007, Countrywide-under the direction of its former Chief Executive Off cer Angelo Mozilo and former President and

17 Chief Operating Officer David Sambol-developed a systematic pattern and practice of 18 abandoning its awn underwriting guidelines in pursuit of loan origination at all costs: it 19 knowingly loaned billions of dollars to borrowers who could not afford to repay the loans, z0 or who Countrywide personnel knew or should have known were including misstatements 21 22 23 24 2S 26 in their loan applications, often with the assistance and encouragement of Countrywide's employees and brokers, or who otherwise did not satisfy the basic risk criteria far prudent and responsible lending that Countrywide claimed to use. 3. Countrywide's failure to abide by its much-touted and publicly available

underwriting guidelines fundamentally changed the risk profile of the mortgage loans underlying the RMBS Notes from what was publicly represented by Countrywide.

27 Countrywide's abandonment of its stated underwriting practices dramatically increased the 28
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risks of delinquency and default associated with the mortgage loans backing the Notes that

FIRST AMENDED COMPLAINT

1

investors were purchasing from Countrywide. Countrywide knew or should have known

2 this, because it was issuing loans to borrowers that it knew or should have known could 3 not repay them. Consequently, upon the first public reports of the nationwide mortgage

4 crisis, the number of delinquencies and defaults on Countrywide's mortgage loans 5 dramatically increased. As a direct result of Countrywide's deliberate misconduct, tens of

6 thousands of the mortgage loans underlying the securitizations are in default and/or 7 foreclosure, events that would not have occurred if Countrywide had followed its stated

8 loan-origination practices. But far MBIA's provision of financial guaranty insurance, the 9 holders of the RMBS Notes would have been deprived of payments on the Notes. 10 Moreover, as a direct result of Countrywide's wrongdoing, the value of the RMBS Notes 11 today is dramatically impaired. The purchasers of the RMBS Notes did not have

12 knowledge of any significant delinquencies or defaults an the underlying mortgage Ioans 13 until November 2007 at the earliest, when the Trusts' trustees began making claims to

14 MB1A for missed principal and interest payments. 15 4. The allegations herein are confirmed and bolstered in great detail by the

16 SEC's detailed June 4, 2009 Complaint filed in the U.S. District Court for the Central 17 -District of California (the "SEC Complaint") levying civil fraud charges against 18 Countrywide Financial's three mast senior executives, Angelo Mozilo, David Sambol and 19 Eric Sieracki. SEC v. fingelo Mozilo, David Sambol, and Eric Sieracki, CV 09-03994 20 (VBF), The SEC Complaint, attached hereto as Exhibit A and incorporated in full herein 21 by reference, details numerous examples of specific evidence demonstrating both the

22 falsity of Defendants' representations, and Defendants' knowledge that their 23 representations and omissions were materially false and misleading. 24 25 26 27 28
5E592r31826i2.1

5.

As the Attorney General for the State of California concluded: Countrywide's deceptive scheme had one primary goal to supply the secondary market with as many Ioans as passible, ideally loans that would earn the highest premiums. Over a period of several years, Defendants constantly expanded Countrywide's share of the consumer market for mortgage loans through a wide variety of deceptive practices, undertaken

FIRST AMENDED COMPLAINT

1' 21 3 6. 4 5

with the direction, authorization, and ratification of Sambol and Mozilo, in order to maximize its profits from the sale of those loans to the secondary market. MBIA brings these claims as subrogee of the Note purchasers it has insured.

As a result of Countrywide's misrepresentations and omissions of material facts explained herein, the Note purchasers have incurred severe losses that have been passed onto MBIA, 6 as insurer under its Note Guaranty Insurance Policies and companion Insurance 7 Agreements (collectively, the "Policies"). MBIA has already paid out over $ 1.5 billion on 8 its guarantees and is exposed to claims in excess of several hundred million dollars more. 9 7. 10subrogee, now brings this action against Defendants far violations of California 11 Corporations Code Sections 25401, 25501, 25504 and 25504.1. MBIA also asserts claims 12 for common-law fraud, negligent misrepresentation, and declaratory relief. 13 14 PARTIES 15 8. 16 principal place of business at 113 King Street, Armonk, New York. MBIA is one of the 17 nation's oldest and largest manoline insurers, providing financial guarantee insurance and 18 other forms of credit protection, generally on fnancial obligations which are sold in the 19 new issue and secondary markets. 20 9. 21 corporation with its principal executive offices in Charlotte, North Carolina. Defendants 22 Countrywide Financial Corporation, Countrywide Home Loans, Inc., and Countrywide 23 Securities Corporation became wholly-owned subsidiaries of Bank of America fallowing 24 the merger of Countrywide Financial Corporation into a Bank of America subsidiary on 25 July 1, 2008 and, on information and belief, Bank of America is asuccessor-in-interest to 26 these Countrywide entities' liabilities. 27 28
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Accordingly, MBIA, standing in the shoes of the Note purchasers as a

Plaintiff MBIA Insurance Corporation is a New York corporation with its

Defendant Bank of America Corporation ("Bank of America") is a Delaware

FIST AMENDED COMPLAINT

_..

_ _.

1

10.

Defendant Countrywide Financial is a Delaware corporation with its

2 principal place of business in Calabasas , California. Countrywide Financial, itself or 3 4 through its subsidiaries, is engaged in mortgage lending and other real estate financerelated businesses , including mortgage banking, securities dealing, and insurance

5 ^ underwriting. 6 i 1. Defendant Countrywide Home Loans, awholly-owned subsidiary of

7 Countrywide Financial, is a New York corporation with its principal place of business in 8 Calabasas, California. Countrywide Home Loans originates and services residential home

9 mortgage loans. 10 11 12. Defendant Countrywide Securities, a whalIy-owned subsidiary of

Countrywide Financial, is a Delaware corporation with its principal places of business in

12 Calabasas, California and in New York, New York. Countrywide Securities is a registered 13 14 1S broker-dealer and underwrites offerings ofmortgage-backed securities. 13. Defendant CWHEQ is a Delaware Corporation and alimited-purpose

subsidiary of Countrywide Financial with its principal place of business in Calabasas,

16 California. CWHEQ was the depositor in thirteen of the relevant securitizations, collecting 17 and securitizing mortgage loans and overseeing the securitization process. 1$ 14. Defendant CWABS is a Delaware Corporation and alimited-purpose

19 subsidiary of Countrywide Financial with its principal place of business in Calabasas, 20 California. CWABS was the depositor in two of the relevant securitizations, collecting 21 22 23 24 25 and securitizing mortgage loans and overseeing the securitization process. 15. Defendant CWABS Revolving Home Equity Trust, Series 2004-I is a

Delaware statutory trust, organized by Countrywide for the purpose of issuing notes to investors pursuant to a registration statement and prospectus f led with the SEC. 16. Defendant CWABS Revolving Home Equity Loan Trust, Series 2004-P is a

25 Delaware statutory trust, organized by Countrywide for the purpose of issuing notes to 27 investors pursuant to a registration statement and prospectus filed with the SEC.

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6i59213i82512.i II _ _

FIRST AMENDED COMPLAINT

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i7.

Defendant CWHEQ Revolving Home Equity Loan Trust, Series 2005-A is a

Delaware statutory trust, organized by Countrywide for the purpose of issuing notes to investors pursuant to a registration statement and prospectus filed with the SEC. 18. Defendant CWHEQ Revolving Home Equity Loan Trust, Series 2005-E is a

Delaware trust, organized by Countrywide for the purpose of issuing notes to investors

6 pursuant to a registration statement and prospectus filed with the SEC. 7 8 19. Defendant CWHEQ Revolving Home Equity Loan Trust, Series 2005-1 is a

Delaware trust, organized by Countrywide for the purpose of issuing Hates to investors

9 pursuant to a registration statement and prospectus filed with the SEC. 10 ii 20. Defendant CWHEQ Revaluing Home Equity Loan Trust, Series 2005-M is a

Delaware trust, organized by Countrywide for the purpose of issuing notes to investors

I2 pursuant to a registration statement and prospectus filed with the SEC. 13 21. Defendant CWHEQ Revolving Home Equity Loan Trust, Series 2006-E is a

i4 Delaware trust, organized by Countrywide for the purpose of issuing notes to investors i5 16 pursuant to a registration statement and prospectus filed with the SEC. 22. Defendant CWHEQ Revolving Home Equity Loan Trust, Series 2006-G is a

17 Delaware trust, organized by Countrywide for the purpose of issuing notes to investors 18 :pursuant to a registration statement and prospectus f led with the SEC. 19 23. Defendant CWHEQ Home Equity Loan Trust, Series 2006-58 is a common

20 law trust formed under the laws of the State of New York by Countrywide for the purpose 21 of issuing notes to investors pursuant to a registration statement and prospectus filed with

22 the SEC. 23 24. Defendant CWHEQ Home Equity Loan Trust, Series 2006-59 is a common

24 law trust farmed under the laws of the State of New York, by Countrywide for the purpose 25 of issuing notes to investors pursuant to a registration statement and prospectus filed with

26 the SEC.
27 25. Defendant CWHEQ Home Equity Loan Trust, Series 2006-510 is a common

28 law trust formed under the laws of the State of New York, by Countrywide for the purpose
61592/3182612.1

FIRST AMENDED CQMPLAINT

1

of issuing notes to investors pursuant to a registration statement and prospectus filed with

2 the SEC. 3 26. Defendant CWHEQ Revolving Home Equity Loan Trust, Series 2007-E is a

4 Delaware trust, organized by Countrywide for the purpose of issuing notes to investors 5 6 7 pursuant to a registration statement and prospectus filed with the SEC.
27. Defendant CWHEQ Home Equity Loan Trust, Series 2007-51 is a common

iaw trust formed under the laws of the State of New York by Countrywide for the purpose of issuing notes to investors pursuant to a registration statement and prospectus filed with

9 the SEC.

la
11

28.

Defendant CWHEQ Home Equity Loan Trust, Series 2007-52 is a common

law trust formed under the laws of the State of New York by Countrywide for the purpose

12 of issuing notes to investors pursuant to a registration statement and prospectus filed with 13 14 15 the SEC. 29. Defendant CWHEQ Home Equity Loan Trust, Series 2007 - 53 is a common

law trust formed under the laws of the State of New York by Countrywide for the purpose i 16' of issuing notes to investors pursuant to a registration statement and prospectus filed with 17i the SEC. 18 19 i 20 i 21' 22 23 24 action. Greenwich Capital's headquarters are located in Greenwich, Connecticut. 31. Defendant HSBC, a Delaware corporation, is an investment bank and acted 30. Defendant Greenwich Capital, a Delaware corporation, is an investment

bank and acted as an underwriter with respect to several Nate offerings relevant to this

as an underwriter with respect to several Note offerings relevant to this action. HSBC's U.S. headquarters are located in Prospect Heights, Illinois. 32. Defendant UBS, a Delaware limited liability company, is abroker-dealer

25 which acted as underwriter with respect to a Note offering relevant to this action. UBS's
i 26^ U.S. headquarters are located in New York, New York. 27 28
b159213182612.1 ^II

33.

Defendant Angelo Mozilo, Countrywide FinanciaPs co-founder, was

Chairman of Countrywide Pinancial's Board of Directors starting in March 1999 and Chief
_

FIRST AMENDED COMPLACNT

1 2 3

Executive Officer ("CEO"} starting in February 1998. Mozilo resigned on July 1, 2008. Upon information and belief, Mozilo resides in the County of Los Angeles. 34. Defendant David Sambol was Countrywide Financial's President and Chief

4 Operating Officer ("COO") From September 2006 through mid-200$, when he retired. 5 Beginning in 2407, Sambol was both Chairman and CEO of Countrywide Home Loans 6 and a member of its Board of Directors. From 2004 to 2005, Sambol was President and

7 COO of Countrywide Home Loans. Upon information and belief, Sambol resides in the 8 County of Los Angeles. 9 35. Defendant Eric Sieracki was at all relevant times Executive Vice President,

10 Chief Financial Officer ("CFO"}, Treasurer and member ofthe Board of Directors of 11 12 13 CWHEQ. Upon information and belief, Sieracki resides in the County of Los Angeles. 36. Defendant Ranjit Kripalani was at all relevant times a member of the Board

of Directors of CWHEQ. Upon information and belief, Kripalani resides in the County of

14 Los Angeles. 15 37. Defendant Jennifer Sandefur was at all relevant times a member of the Board

16 of Directors of CWHEQ. Upon information and belief, Sandefur resides in the County of 17 18 19 Las Angeles. 38. Defendant Stanford Kurland was at all relevant times CEO, President and

Chairman of the Board of CWABS. Upon information and belief, Kurland resides in the

20 County of Los Angeles. 21 39. Lehman Brothers Inc. ("Lehman Brothers"}, a Delaware corporation, is an

22 investment bank and acted as an underwriter with respect to a Note offering relevant to this 23 action. Lehman Brothers is not named as a Defendant in this Complaint due to the petition 24 for bankruptcy protection under Section 11 of the Bankruptcy Code filed by Lehman 25 Brothers Holdings Inc. on September 15, 2008 and the Order Commencing Liquidation

26 entered on September 19, 2008 in Securities Investor Protection Corp. v. Lehman Brothers 27 Inc., No. 08 Civ. 8119 (GEL) (S.D.N.Y.}. But for this bankruptcy petition and Order 28 Commencing Litigation, Lehman Brothers would be a named Defendant in this action.
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FIRST AMENDED COMPLAINT

1

40.

MBIA does not know the true names and capacities of the defendants sued

2 herein as John and Jane Doss i-100, inclusive , and therefore sues these defendants by 3 fictitious names pursuant to California Code of Civil Procedure Section 474. These

4 defendants are the employees , agents, affiliates , affiliated persons, professional 5 practitioners , alter egos and/or professional consultants of the named defendants , and the s attorneys who had knowledge or reason to know that the named defendants' misconduct 7 would cause those who purchased the Notes substantial injury. MBIA will amend this 8 Complaint to allege the true names and capacities of these defendants when ascertained.

9 Each of the fictitiously named defendants caused , participated in, or aided and abetted the 10 wrongful acts alleged in the causes of action set forth below. 11 12 13 41. JURISDICTION AND VENUE Subject matter jurisdiction is appropriate in this Court because the amount in

14 controversy exceeds this Court's jurisdictional minimum. Venue is appropriate in Los 15 Angeles County because a substantial part of the events giving rise to the claims far relief 16 occurred in Los Angeles County and Defendants' conduct caused injury in Los Angeles 17 County. This Court also has personal jurisdiction over all Defendants. 18 42. This action is not removable under the Class Action Fairness Act ("CAFA"}

19 ^ because it does not seek damages on behalf of at least one hundred persons, 20 2$ U.S.C. § 1332 (d}(11 }(B}(i}, and if it did , it would nevertheless fall within the securities 21 22 23 and/or home-state exceptions to CAFA. 2S U.S.C. § 1332 (d)(3}, (d)(4)( B}, (d}(9}. 43. This action is not removable under the Securities Litigation Uniform

Standards Act {"SLUSA") because SLUSA only allows removal of "covered " class actions

24 alleging misrepresentations " in connection with the purchase or sale of a covered security" 25 and seeking damages on behalf of more than fifty persons . 15 U_S.C. § 77bb(f}. This

26 action does not involve a "covered security" and it does not seek damages on behalf of 27 more than fifty persons or on a representative basis . Further, this action "seeks to enforce 28
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FIRST AMENDED COMPLAINT

1

a contractual agreement between an issuer and an indenture trustee ," 15 U.S.C. §

2 ^ 77bb(f)(3)(C}, an exception to SLUSA. 3 4 5 f I. 6 FACTUAL ALLEGATIONS Countrvwide's Promotion of Itself as a Conservative Loan Originator 44. Co-founded in 1969 by Defendant Angelo Mozilo, Countrywide was for

7 decades an industry leader in the residential mortgage lending industry. As the SEC noted, S "^b]y 2005, Countrywide was the largest U.S. mortgage lender in the United States,

9 originating over $490 billion in mortgage loans in 2005, aver $4S0 billian in 2006, and 10 over $408 billion in 2007." SEC Complaint at 7. By March 31, 2008, Countrywide was 11 the largest originator and servicer of residential mortgage loans in the country. In the first

12 quarter of 2008 alone, despite a sharp decline in residential home sales, Countrywide 13 originated $73 billion in mortgage loans. During that same quarter, Countrywide serviced

14 and administered approximately $ i.5 trillion of residential loans originated by itself and 15 16 17 1$ 19 other Ienders, generating $1.4 billion in revenues. 45. In addition to the origination and servicing of residential mortgage loans,

Countrywide, itself or through affiliates, purchased and sold mortgage loans, provided loan closing services, provided residential real estate and home appraisal services in connection with loan origination and servicing, managed a captive mortgage reinsurance company,

20 packaged and arranged securitizations of pools of mortgage loans, and underwrote public 21 22 23 offerings ofmortgage-backed securities in the secondary market. 46. On information and belief, prior to 2004, the substantial majority of

mortgage loans that Countrywide originated each year were traditional long term, fixed-

24 rate, first lien mortgage loans to prime borrowers that met the guidelines for sale to the 25 Federal National Mortgage Association ("Fannie Mae"} or the Federal Home Loan 26 Mortgage Corporation ("Freddie Mac"). Fannie Mae and Freddie Mac are authorized to 27 purchase only mortgage loans that conform to specific regulatory guidelines (known in the 28
61592!3182612.] II

industry as "conforming loans"}. Conforming loans, if properly underwritten and serviced,
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FlItST AMENDED COMPLAINT

1

historically have been the most conservative loans, with the lowest rates of delinquency

2 and default, in the residential mortgage industry. Mortgage loans that fail to meet the 3 4 S regulatory guidelines are known in the industry as "non-conforming loans." 47. In its public filings and elsewhere, Countrywide extolled its conservative

credit policy. For example, in its 2044 Annual Report, Countrywide proclaimed that its

6 credit policy was "designed to produce high quality loans through a rigorous pre-loan 7 screening procedure and post-loan auditing and appraisal and underwriting reviews." $ 4$. Countrywide consequently claimed that its disciplined underwriting

9 standards not only distinguished it from other lenders in the industry, but reflected best-in10 class practices to be emulated.
11 II. Count fide's Attem is to Ex and Its Market Share

12 13

49.

In or around 2003, there was rising de^^and on Wall Street for "private label"

securitizations ofnon-conforming loans. Private Iabel securitizations are arranged and

l4 .underwritten by private firms (i.e., not government-sponsored entities) and are comprised 15 of non-conforming loans that cannot be purchased by Fannie Mae and Freddie Mac.

16 Because they nay be comprised of riskier Ioans than those meeting Fannie Mae and 17 Freddie Mac's criteria, private Iabel securitizations generate higher returns for investors, as

1$ well as greater revenues For originators. l9 50. Increased securitizations required increased loan origination to generate the

20 underlying pools of loans. As it pressed to generate mare loans, Countrywide continued to 21 pledge that the growth in its originations would not compromise its strict underwriting

22 standards. 23 51. Starting in 2004 and accelerating in 2005, Countrywide expanded its

24 origination and securitizatian of riskier lines of products, including subprime mortgages, 25 interest--only loans, Pay Option ARMS (an adjustable rate mortgage loan that allows a 26 borrower to make initial minimum monthly payments less than monthly accrued interest), 27 closed-end second liens ("CES"}, and home equity lines of credit ("HELOCs"}, with a 28 much broader base of potential borrowers. A HELOC is a variable-rate second lien on
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I:IRST AMENDED COMPLAINT

I

residential property in which a homeowner may borrow against home equity as needed.

2 The borrower's equity in the property {i.e., the value of the property above the amount of 3 the first lien) cailateralizes a specified line of credit that may be drawn dawn by the

4 borrower similar to a credit card. ACES is also collateralized by the borrower's equity, 5 but the loan is of a fixed amount. Because both are second liens, HELOCs and CESs are b junior in priority to the first lien. By their terms, if the property is foreclosed on, the 7 proceeds from the sale of the property must be used to fully satisfy the first lien before the 8 second-lien HELOCs and CESs are paid. 9 S2. At the same time as it was expanding its origination of riskier second-lien

l0 mortgage products, Countrywide continued to reassure investors that its underwriting i1 procedures and credit risk management remained highly rigorous. For example, in its

i2 2004 Annual Report, Countrywide summarized the comprehensive standards and 13 procedures of its credit policy: 14 15 15 l^ I& 1^ 20 21 22 23 24 25 26 27 Our Credit Policy establishes standards far the determination of acceptable credit risks. Those standards encompass borrower and collateral quality, underwriting guidelines and loan origination standards and procedures. Borrower quality includes consideration of the borrower's credit and capacity to pay. We assess credit and capacity to pay through the use of credit scores, application of a mortgage scorecard, and manual or automated underwriting of additional credit characteristics . ... Our loan origination standards and procedures are designed to produce high quality loans. These standards and procedures encompass underwriter quaiif cations and authority levels, appraisal review requirements, fraud prevention, funds disbursement controls, training of our employees and ongoing review of their work. We help to ensure that our origination standards are met by employing accomplished and seasoned management, underwriters and processors and through the extensive use of technology. We also have a comprehensive training program far the continuing development of both our existing staff and new hires. In addition, we employ proprietary underwriting systems in our loan origination process that improve the consistency of underwriting standards, assess collateral adequacy and help to prevent fraud, while at the same time increasing productivity.

2s
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FIRST AMENDED COMPLAINT

1

53.

Nonetheless, despite Countrywide's pledge that its underwriting practices

2 would remain rigorous, those practices were effectively abandoned as Countrywide 3 increased its market share at all costs.
The Structure and Sale of the Secnritizations

4 TTY.

5 6

54.

At issue in this action are f fteen securitizations issued by the Trusts between

October 29, 2004 and March 30, 2007: CWABS 2004-1, CWABS 2004-P, CWHEQ 2005-

7 A, CWHEQ 2005-E, CWHEQ 2005-I, CWHEQ 2005-M, CWHEQ 2006-E, CWHEQ 8 2006-G, CWHEQ 2406-58, CWHEQ 2006-59, CWHEQ 2006-510, CWHEQ 2007-E, 9 CWHEQ 2007-51, CWHEQ 2007-52, and CWHEQ 2007-53. Investors ("the Note 10 Purchasers"j were able to purchase Notes, representing a portion of pools of underlying 11 mortgage loans. The Notes were purchased originally through public offerings of

12 mortgage-backed securities issued by the Trusts. Countrywide Securities Corporation and i 3 the Underwriter Defendants offered the Notes to the public. 14 15 55. Each of the RMBS securitizations here was comprised of pools of HELOCs

or pools of CESs. For each of the securitizations at issue, Countrywide Home Loans

16 originated, or acquired through external mortgage brokers or correspondent banks, the 17 underlying second-lien residential mortgages. Countrywide Home Loans or Countrywide 1$ Home Loans Servicing, L.P, also acted as servicer for the mortgage loans in each 19 securitization. Countrywide Home Loans then conveyed pools of these mortgage loans to 20 a depositor, also a Countrywide entity, in exchange for cash. The depositor in turn 21 conveyed the pools of mortgage loans to the Countrywide-created Trusts for the purposes

22 of using the mortgage Ioans as collateral for asset--backed securities that would be sold to 23 investors. The Countrywide-created Trusts then worked with the underwriter, to price and 24 sell the RMBS Notes to investors. 25 56. Countrywide Securities and Greenwich Capital acted as underwriters for the

26 offering of the CWABS 2004-P, CWHEQ 2406-58, CWHEQ 2006-59, CWHEQ 240627 S 10, CWHEQ 2007-5 1, CWHEQ 2007-52 and C WHEQ 2007-53 Notes. Countrywide 28 Securities and UBS acted as underwriters for the offering of the CWHEQ 2005-A Notes.
6159213182612 .1 I( _._.. ^ ^ ^ - " . _ _.

FIRST AMENDED COMPLAINT

1

Countrywide Securities acted as underwriter for the offering of the CWABS 2004-I,

2 CWHEQ 2045-E, CWHEQ 2445-I, CWHEQ 2006-E, CWHEQ 2406-G, and CWHEQ 3 2407-E Notes. Countrywide Securities, Lehman Brothers , and HSBC acted as

4 .underwriters for the offering of the CWHEQ 2005-M Notes. S 57. The Trusts issued the Notes, and Countrywide Securities and the

6 I Underwriters offered the Notes for sale to investors. 7 5$. The cashflows from the pooled loans {payments of interest and principal)

8 were used to pay obligations on the RMBS Notes . The purchase of each Note was thus the 9 purchase of a right to participate in the cashflows generated by the pool of mortgages. I4 Because the mortgages were the only collateral supporting the Notes, their credit quality 11 12 13 was, and continues to be, of critical importance to any Noteholder. 59. Countrywide arranged and securitized each of the fifteen RN1BS Note

securitizations through substantially similar contracts and transaction documents. Each

1 ^- securitization included: (a} a Purchase Agreement that provided for the sale of mortgage 15 loans to a depositor, a Countrywide affiliate created to effect the securitizations; {b) a Sale

lb and Servicing Agreement or a Pooling and Servicing Agreement that transferred the 17 mortgage loans to a single purpose trust, and confirmed the terms of Countrywide's 18 engagement by the trust to service the mortgage loans; and (c) a Trust Indenture ar a 19 Pooling and Servicing Agreement, which, among other things, established the rights of 20 holders of securities and the obligations of the trustee (collectively, the "Transaction 21 22 23 24 Documents"). 64. Each Trust also filed a Prospectus and Supplement Prospectus, which

Countrywide used to sell the mortgage-backed securities. 61. Countrywide Home Loans, each Trust and MB1A entered into an Insurance

25 Agreement that provided the terms for the issuance of an MBIA financial Note Guaranty 26 Insurance Policy that would be issued to the ^C'rust. In each transaction, the Insurance 27 Agreement incorporated the representations and the obligations of the parties in the 28 Transaction Documents.
6E592/3k82b12 .1 jl ,^4_

ilfl

FIRST AMENDED COMPLAfIVT

1 Z 3 4

A. 62.

The Role of the Underwrifer Defendants The Underwriter Defendants chosen by Countrywide to sell the Notes were

paid for their work only if the particular offering was completed and the Notes were offered for sale. The Underwriter Defendants were less likely to be re-hired by Countrywide to underwrite future RMBS Note offerings if they were unable to bring Note

6 7

i^ offerings to the public for sale.
i

63.

Typically, the fee paid to the Underwriter Defendants on a securitization was

a certain percentage of the value of the deal The Underwriter Defendants generally were 9 10 11 12 13 14 15 i6 17 18 included culling out mortgage Ioans that were non-compliant with Countrywide's 19 2Q 66. 21 the due diligence firm and brought to the attention of Countrywide Securities andlor the 22 Underwriter Defendants. Countrywide Securities andlor the Underwriter Defendants 23 24 25 determined whether the deviation was permissible or could be cured. If Countrywide Securities andlor the Underwriter Defendants determined that the deviation was per>issible or curable, the noncompliant mortgage loan would remain in the pool of loans Loans that did not comply with the underwriting guidelines were flagged by underwriting guidelines. 65. Part of the due diligence firms' assessment included evaluation of a sample of the loans underlying each securitization. The loans from which the sample was drawn were selected by Countrywide Securities andlor the Underwriter Defendants. This process paid a higher percentage if riskier loans were included in the securitization. Thus, the Underwriter Defendants had significant financial incentive to finalize and close risky securitizations and to bring the Notes to the public for sale. 64. As part of their responsibilities in connection with the securitizations and the

sale of the Notes, Countrywide Securities, the Underwriter Defendants or the issuers retained due diligence firms, ostensibly to assess whether the underlying mortgage loans complied with Countrywide`s stated underwriting guidelines.

26 underlying the securitization. If Countrywide Securities andlor the Underwriter 27 Defendants determined that the deviation was material and could not be cured, they were

28 then supposed to remove the non-compliant loan from the pool of loans underlying the
6159213132612.1 ^^ _

FIiZST AMENDED COMPLAMT

securitization. If a significant number ofnon-compliant loans were discovered, 2 3 4 5 i Countrywide Securities andlor the Underwriter Defendants were supposed to select another sample from the pool for the due diligence firm to analyze. Frequently in practice, however, a second sample was not reviewed because it would delay the sale of the Notes and increase the expenses associated with the offering. 67. On information and belief, Countrywide Securities and the Underwriter

6
7 8 9

Defendants failed to disclose the true risk profile of the underlying mortgage loans adequately. They classified non-compliant loans flagged by the third-party due diligence firms as permissible by pointing to so-called "compensating factors" or by classifying breaches of underwriting guidelines as curable when they were not. If adequate disclosures had been made, the credit rating firms rating the Notes would have viewed the

10
11

Notes as riskier investments, the ratings would have been materially lower, and the Note i2 13 58. 14 the true level ofnon-compliance with Countrywide's underwriting guidelines, 15 lb 17 i8 Countrywide Securities and the Underwriter Defendants knew or should have known that the third-party due diligence firms retained to review the quality of the underlying mortgages either were not capable of performing andlor had built-in incentives not to perform a thorough review of the loan files. Countrywide Securities, the Underwriter On information and belief, in addition to their failure to disclose adequately Purchasers would not have purchased the Notes.

19 Defendants and the due diligence firms they supervised were under pressure to handle

za zl
23 24 25

numerous securifiizations across multiple issuers in very short time frames. Countrywide Securities and the Underwriter Defendants knew that only superficial due diligence, at

22 best, could be and was being undertaken. 69. Moreover, given Countrywide Securities' and the Underwriter Defendants'

financial incentives to complete as many deals as possible, these Defendants lacked incentive to ensure that only compliant loans were included in the pools of loans

2b underlying the securitizations. The result was inadequate due diligence andlor disregard
27 and non-disclosure of the true risk prof le of the underlying loans, leading^to an alarmingly 28 high number ofnon-compliant loans being included in each of the securitizations.
G159213182G12.1

-lh- _^

__
FIRST AMENDED COMPLAINT

1 2 3

B. 70.

A Sample RMBS Securitization The manner in which the CWHEQ 2005-E securitization was created,

marketed and sold, is described in greater detail below. Each of the other transactions is

4 substantially similar in every material respect. 5 6 71. {a} The Purchase Agreement

On or about August 30, 2005, Countrywide Home Loans entered into the

7 Purchase Agreement with its affiliate CWHEQ for the CWHEQ 2005-E transaction, in 8 9 IO 11 72. which Countrywide Home Loans agreed to soil the pool of mortgage loans to CWHEQ. {b} The Sale and Servicing Agreement

On or about August 30, 2005, CWHEQ, Cauntry^vide Home Loans, .

CWHEQ Revolving Home Equity Loan Trust, Series 2005-E and rPMargan Chase Bank,

12 N.A. (the "Indenture Trustee"} entered into the Sale and Servicing Agreement. For CES 13 securitizations, the terms covered in the Sale and Servicing Agreement are included in

I4 Pooling and Servicing Agreements.l 15 73. Through these documents, CWHEQ agreed to convey all right, title and

16 interest in the mortgage loans to the Trust for the purpose of using the mortgage loans as 17 18
19 74.

collateral for Notes to be sold to investors. (c) The Prospectus

The Prospectus for the CWHEQ Revolving Home Equity Loan Trust, Series

20 2005-E, issued on August 4, 2005, described Countrywide' s business and operations. The 21 Prospectus provided a description of Countrywide's purportedly disciplined and

22 conservative underwriting standards: "[after obtaining all applicable employment, credit 23 and property information, the related seller or originator will use adebt-to-income ratio to

24 assist in determining whether the prospective borrower has sufficient monthly income
2S available to support the payments of principal and interest on the mortgage loan in addition 26

27 28
6^592131$26E2 .1 ^

' In some instances Countrywide Home Loans Servicing L.P. instead of Countrywide Home Loans is a party to the Sale and Servicing or Pooling and Servicing Agreements.

_

-t 7-

-

FIRST AMENDED COMPLAINT

1 2 3 4 5

to other monthly credit obligations." It also described the mortgage Ioans, and advised that a Supplemental Prospectus would be f led with the SEC at the time of each offering of the Notes. (d) 7S. The Supplemental Prospectus

The Supplemental Prospectus for CWHEQ Revolving Home Equity Loan

6 Trust, Series 2005-E, issued on August 2b, 2005, provided more specific information about 7 the mortgage loans backing the Notes, including representations that each mortgage loan S was underwritten in accordance with Countrywide's traditional underwriting standards.

9 For example, the Supplemental Prospectus reiterated that the underwriting procedures 10 customarily employed with respect to home equity loans included "a debt-to-income ratio 11 12 13 to assist in determining whether the prospective borrower has sufficient monthly income available to support the payments on the home equity loan," and that "If]ull appraisals are generally performed on all home equity loans ....determined on the basis of a sponsor-

14 approved, independent third-party, fee-based appraisal completed on forms approved by IS 16 17 76. Fannie Mae or Freddie Mac." (e) The Insurance Policies

On or about August 30, 2005, MBIA executed the Note Guaranty Insurance

I $ Policy, which provided that "MBIA . ^.. , in consideration of the payment of the premium I9 and subject to the terms of this Note Guaranty Insurance Policy ... ,hereby

ZO unconditionally and irrevocably guarantees to any Owner that an amount equal to each full 21 and complete Credit Enhancement, Draw Amount will be received from the Insurer by

22 dPMorgan Chase Bank, N.A.... as indenture trustee for the Owners ... on behalf of the 23 Owners for distribution by the Indenture Trustee to each Owner of each Owner's

24 proportionate share of the Credit Enhancement Draw Amount, except as otherwise 25 26 provided ...with respect to Preference Amounts." 77. On or about August 30, 2005, MBIA, Countrywide, CWHEQ, the Trust, and

27 the Indenture Trustee entered into the Insurance Agreement with respect to the CWHEQ 28 Revolving Home Equity Loan Trust, Series 2005-E transaction. The Insurance Agreement
61592!3 3 82612. [

FIRST AMENDED COMPLAINT

1

provided that the Note Guaranty Insurance Policy "guarantees certain payments due from

2 the Issuer an the Securities." 3 4 5 6
G The Remaining Fourteen Securitizations

78.

Like CWHEQ 2005-E, the other fourteen transactions (CWABS 2004-I,

CWABS 2004-P, CWHEQ 2005-A, CWHEQ 2005-I, CWHEQ 2005-M, CWHEQ 2006-E, CWHEQ 2006-G, CWHEQ 2006-5$, CWHEQ 2006-59, CWHEQ 2006-510, CWHEQ

7 2007-E, CWHEQ 2007-S1, CWHEQ 2007-52, and CWHEQ 2007-53) were securitized 8 9 10 11 through the use of virtually identical agreements and Transaction Documents containing identical terms, representations, and/or obligations. In addition, Countrywide, the Trust, and MBIA entered into identical Insurance Agreements and META issued identical Note Guaranty Insurance Policies. Therefore, this Complaint will not set forth in detail the

12 Transaction Documents for all the subsequent transactions. The dates of the remaining 13 14 1S 16 17 1$ fourteen transactions are as follows: CWABS 2004-I CWABS 2044-P CWHEQ 2005-A CWHEQ 2005-1 CWHEQ 2005-M CWHEQ 2006-E September 29, 2004 October 29 2004 February 24, 2005 December 28, 2005 December 29, 2005 .Tune 29, 2006 August 30, 2006

19

2a
21 22 23 24 25 26 27 28 ^I
bis9zr} isa6i2.^ I^

cwHEQ 2oo6 -G
CWHEQ 2006 -58 CWHEQ 2006-59 CWHEQ 2006-5 l 0 CWHEQ 2007-E CWHEQ 2007-Si CWHEQ 2007 -52 CWHEQ 2007-53

December 28, 2006
December 29, 2006
December 29, 2006 May 31, 2007 February 28, 2007 March 3 0, 2407 March 30, 2007

- ----

-19-

^FIRST AMENDED COMPLAINT

--^-

i 2 3

IV.

Defendants ' Material Misrepresentations and__Orriissions 79. Defendants promoted the RMBS Notes based in large part on Countrywide's

reputation for disciplined underwriting standards, its commitment to high quality mortgage

4 loans to prime borrowers, and its comprehensive credit policy. Defendants intentionally 5 induced the Note Purchasers to believe that the same commitment, expertise and practices, 6 and specifically the disciplined application of Countrywide's credit policy, would be 7 applied to the mortgage loans underlying the Notes. In so doing, Defendants made $ misrepresentations and omitted material facts in the offering documents and in relevant

9 communications to investors, as explained in detail herein: 10 11 12 l3 14 15 {a) Each of the Trust Defendants issued the Notes pursuant to the

Prospectuses and Supplements and was identified as the issuer on the Prospectuses and Supplements. Accordingly, the Trusts are responsible for the content of the Prospectuses and Supplements and the representations and material omissions therein. {b) Countrywide Securities and each of the Underwriter Defendants

offered and sold the Notes pursuant to the Prospectuses and the Supplements and were

lb responsible for the content of the Prospectuses and Supplements and the representations 17 and material omissions therein. Countrywide Securities and the Underwriter Defendants l 8 were responsible through their supervision of the due diligence firms to ensure that the 19 loans included in the securitizations complied with Countrywide's stated underwriting 20 guidelines. Given the financial incentives to get the securitizations to the market quickly, 21 the short turn-around time to conclude the due diligence process, and the large number of 22 loans to be reviewed, Countrywide Securities and the Underwriter Defendants knew or 23 should have known that adequate due diligence was not being performed. 24 2^ 2h 27 28
61 59213 1 8261 2,1 I^ ^ _2^_

FIRST AMENDED COMPLAINT

1

(c)

Each of the Individual Defendants signed multiple Registration

2 Statements that incorporated the Prospectuses and Supplements for the Note 3 offerings . Specifically, Defendant David Sambol signed CWHEQ ' s January 10, 2007,

4 March 2, 2007 and April 17, 2007 Registration Statements. Defendant Eric Sieracki
5 signed CWHEQ's July 21 , 2005, August 4, 2005, March 13, 2006, April 12 , 2006, April

6 17, 2007 and May 22 , 2007 Registration Statements. Defendant Ranjit Kripalani signed 7 CWHEQ's May 22, 2007 Registration Statement . Defendant Jennifer Sandefur signed

8 CWHEQ's May 22, 2007 Registration Statement . Defendant Stanford Kurland signed 9 CWABS' October 1 S, 2004 Registration Statement. 10 11 (d) CWHEQ oversaw the securitization process far the CWHEQ

Revolving Home Equity Loan Trust , Series 2005 -A, CWHEQ Revolving Home Equity

12 Loan Trust, Series 2005 -E, CWHEQ Revolving Home Equity Loan Trust, Series 2005-T, 13 CWHEQ Revolving Hame Equity Loan Trust , Series 2005 -M, CWHEQ Revolving Home

14 Equity Loan Trust, Series 2006 -E, CWHEQ Revolving Home Equity Loan Trust, Series 15 2006-G, CWHEQ Home Equity Loan Trust , Series 2006- 5$, CWHEQ Home Equity Loan

16 Trust, Series 2006- 59, CWHEQ Home Equity Loan Trust, Series 2006-510, CWHEQ 17 Revolving Home Equity Loan Trust, Series 2007-E, CWHEQ Home Equity Loan Trust, 18 19 Series 2007- 51, CWHEQ Home Equity Loan Trust , Series 2007 -52, and CWHEQ Home Equity Loan Trust, Series 2007-53 Notes . Each of these Nate offerings was sold pursuant

24 to the Prospectuses and Supplements. 21 (e) CWABS oversaw the securitization process for the CWABS

22 Revolving Home Equity Loan Trust , Series 2004-1 Notes and CWABS Revolving Home 23 Equity Loan Trust, Series 2004-P Notes . These Note offerings were also sold pursuant to

24 the Prospectuses and Supplements as described herein.

25

80 .

The June 4, 2009 SEC Complaint sets Earth haw the Countrywide

26 Defendants misled investors in at least six different material ways "by failing to disclose 27 substantial negative information regarding Countrywide ' s loan products." SEC Complaint 28 at 4 . For example , as the SEC Complaint asserts , "[alt]hough Countrywide proclaimed in
6159213!82612 ,1 ^) __ -21

1.^

FI3^ST AMENDED COMPLA^I^fT

its Forms 10-K for 2005, 200b, and 2007 that it managed credit risk through its Ioan 2 3 4 5 underwriting, the company's increasingly wide underwriting guidelines and exceptions process materially increased Countrywide's credit risk during that time." Id. at 12. The SEC Complaint further explains in great detail that: Countrywide used an automated underwriting system known as "CLUES" to actually underwrite loans ....CLUES applied a device known as the "underwriting scorecard," which assessed borrower credit quality by analyzing several variables, such as FICO scores, loan to value ratios, documentation type (e.g., full, reduced, stated} and debt-to-income ratios. These variables were weighted differently within the scorecard, depending upon their perceived strength in predicting credit performance. In underwriting a loan, Countrywide loan officers entered an applicant's information into CLUES, which would (I) approve the loan; {2) approve the loan with caveats; or (3} "refer" the loan to a loan officer for further consideration and/or manual underwriting. The CLUES program typically did not "reject" a loan if a requirement of Countrywide's guidelines had not been met or if CLUES calculated that the loan presented an excessive layering of risk. Instead, CLUES "referred" the loan, indicating that the loan application would have to be reviewed manually prior to approval. In these circumstances, to proceed with the loan, the loan officer would request an "exception" from the guidelines from more senior underwriters at Countrywide's structured lending desk {"SLD"). Countrywide's level of exceptions was higher than that of other mortgage lenders. The elevated number of exceptions resulted largely from Cauntrywide's use of exceptions as part of its matching strategy to introduce new guidelines and product changes.
Further, the actual underwriting of exceptions was severely compromised. According to Countrywide's official underwriting guidelines, exceptions were only proper where "compensating factors" were identi-tied which offset the risks caused by the loan being outside of guidelines. In practice, however, Countrywide used as "compensating factors" variables such as FICO and Ioan to value , which had already been assessed by CLUES in issuing a "refer" findin .Countrywide underwriting manuals were amended to
II ^. ^ _^^^

6
7 8

9

10
Il 12 13 l4 15 16 17

18
19

20
21 22 23 24 25

26
27 2$
6i5 9213 1 8 2 5i2 .E

FIRST AMENDED COMPLAINT'

2 3 4

explicitly prohibit this practice in mid-2007, but this serious deficiency was in place from early 2406 through early 2007, when a large volume of obviously deficient exception loans were originated by Countrywide. Id. at 12-13 {emphasis in original).

5 A. b $1. 7 Countrywide's "underwriting standards." lior example, the Prospectus stated: 9 10 However, the depositor will not include any Ioan in the trust fund for any series of securities if anything has come to the depositor's attention that would cause it to believe that the representations and warranties of a seller will not be accurate and complete in all material respects in respect of the loan as of the date of initial issuance of the related series^of securities. $2. Each Prospectus also Hated: Underwriting standards are applied by or on behalf of a lender to evaluate the borrower's credit standing and repayment ability, and the value and adequacy of the related Property as collateral. In general, a prospective borrower applying for a loan is required to f 11 out a detailed application designed to provide to the underwriting officer pertinent credit information, including the principal balance and payment history with respect to any senior mortgage, if any. The applicable prospectus supplement may specify whether that credit information will be verified by the seller or originator, but if it does not, the credit information supplied by the borrower will be verif ed by the related seller or originator. As part of the description of the borrower's f nancial condition, the borrower generally is required to provide a current list of assets and liabilities and a statement of income and expenses, as well as an authorization to apply for a credit report which summarizes the borrower's credit history with local merchants and lenders and any record of bankruptcy. $3. The Supplements represented that each mortgage Ioan was underwritten in Each Prospectus issued in connection with the Note offerings touted MisrePresen #a#ions Regarding Coun#rywide's Underwri#ing S#andards

12 13! 14^ 15 16 I7 I$ 19 20 21 22 23 24 25 26 27 2$
6159213182612, I

accordance with Countrywide's traditional underwriting process: The underwriting process is intended to assess the applicant`s credit standing and repayment ability, and the value and adequacy of the real property security as collateral for the proposed Ioan. Exceptions to the sponsor's underwriting

FIRST AMENDED CoMP^,AINT

1 2 3
4 84.

guidelines will be made when compensating factors are present. These factors include the borrower's employment stability, favorable credit history, equity in the related property, and the nature of the underlying frst mortgage loan.
Each Supplement also stated that debt-to-income ratios were consistently

5 6 7 g ^ 1^ 11 12 13 14
1$

applied to Countrywide borrowers: After attaining all applicable income, liability, asset, employment, credit, and property information, the sponsor generally uses adebt-to-income ratio to assist in determining whether the prospective borrower has sufficient monthly income available to support the payments on the home equity loan in addition to any senior mortgage loan payments (including any escrows far property taxes and hazard insurance premiums) and other monthly credit obligations. The "debt-toincame ratio" is the ratio of the borrower's total monthly credit obligations (assuming the mortgage loan interest rate is based on the applicable fully indexed interest rate) to the borrower's grass monthly income. Based on this, the maximum monthly debt-to-income ratio is 45%. Variations in the monthly debt-toincome ratios limits are permitted based on compensating factors. The sponsor currently offers home equity loan products that allow maximum combined loan-ta-value ratios up to
1 OO%.

16

85.

The above statements regarding application ofCountrywide's underwriting

17 guidelines and credit risk management process were false. Under the direction of Mozila 18 and Sambol, Countrywide had adopted a new "corporate culture" of writing as many

19 mortgage loans as possible-and at the highest interest rates and fees possible-regardless 20 of the creditworthiness or even obvious fraud of the borrower. Once Mozilo and Sambol 21 had determined that profit growth through securitizations required accelerating loan

22 origination, Countrywide motivated its loan officers and external brokers to drive up loan 23 24 volume regardless of material deviations from its stated underwriting guidelines. 86. Countrywide also adopted policies and practices that reduced the relevance

25 of its underwriting standards. On information and belief, Countrywide's senior 26 management approved compensation plans that offered incentives far new mortgage loan 27 originations, with higher incentives for originating riskier subprime mortgage loans. 28 According to the Attorney General of California, Countrywide's senior management
6I 592/3! 82612, ! J^ -

I]

FIRST AMENDED COMPLAIN`!'

1

imposed intense pressure on underwriters to approve mortgage loans, in some instances

2 requiring underwriters to process 60 to 70 mortgage loan applications in a single day and 3 to justify any rejections. This created an incentive not to review loans thoroughly but

4 instead simply to rubber-stamp them approved. Senior management expanded the 5 6 authority of undertivriters and other employees to grant exceptions to mortgage loans that failed to meet Countrywide's underwriting standards, which made it easier to accept a

7 risky mortgage loan and move on. 8 9 87. On information and belief, Mozilo and Samboi authorized the establishment

of the exception-based Structured Loan Desk in Plano, Texas, which was created

10 specifically to grant exceptions from Countrywide's stated underwriting guidelines. 11 12 13 According to the California Attorney General's complaint against Countrywide and Mozilo, based on information provided by a former Countrywide employee, during 2006, the Structured Loan Desk processed 15,000 to 20,000 mortgage loan applications a month,

14 which represented approximately 7.5% to 10% of all mortgage loans actually originated. IS 16 17 l8 88. Cauntrywide's deteriorating underwriting practices facilitated. and

encouraged loan applications that reflected blatant borrower fraud, inadequate documentation , missing verif cations ( far example, of borrower assets and income), title defects, excessive debt to income ratios , inadequate FICO scores, and other material

19 violations of Countrywide's underwriting guidelines . Countrywide' s failures to adhere to 20 its own stated underwriting guidelines made the Underwriter Defendants' related 21 representations regarding the mortgage loans , and thus the represented safe risk prof le attendant to the Notes, materially false and misleading. 89. In fact, loan review by MB1A has revealed that approximately 91% ofthe

2z
23
24 25

defaulted or delinquent loans in the Countrywide securitizations show material discrepancies from the underwriting guidelines that Countrytivide represented it would

26 I, follow. The high level of material discrepancies demonstrates Countrywide's deliberate or
27 ^^, reckless disregard of the very underwriting guidelines it touted while it was selling the

28 ^I Notes at issue in this case. The tight correlation beriveen material discrepancies and
6 1 5 9213 1 825 1 2,1

FIRST AMENDED COMPLAINT

1

defaults/delinquencies further makes plain that Countrywide's misconduct was both a

2 ^ substantial and direct cause of the non-performance of the mortgage loans underlying the 3 ! Notes. 4 5 6 7 8 9 90.
B. Failure to Disclose the Extent to Which Countrywide Was Processing Fraudulent Applications

The Registration Statements, Prospectuses and Supplements falsely

represented that Countrywide verified employment and current salary far every loan applicant before approving a mortgage loan. The various Prospectuses and Supplements issued in connection with the Note offerings represented that even for loan applications

10 under its Super-Streamlined Documentation Program, Countrywide obtained telephonic 11 12 13
verification of employment, which, according to the Prospectuses, "is obtained from an independent source {typically the borrower's employer) [and] which verification reports, among other things, the length of employment with that organization and the borrower's

14 curs°ent salary." (Emphasis added.} 15 9I. That representation was false. 1n fact, Countrywide often did not obtain

16 ^ independent verification of income for borrowers who applied under the Super 17 Streamlined Documentation Program, which constituted a significant percentage of the

1$ ^ total number of mortgage loans. 19 92. Countrywide adopted reduced documentation application programs that

2a
21

excused qualified harrowers From the general requirement of submitting documentation to confirm income and assets. Countrywide itself has publicly admitted that it knew that any failure to maintain rigorous standards was likely to result in delinquencies. In a July 2007 call with analysts, John McMurray, Countrywide's Chief Risk Officer discussed

22
23

24 delinquency trends, and acknowledged that reduced documentation programs will lead to

2s
27

higher delinquencies absent adequate controls: "[D]ocumentation matters. The less

26 documentation, the higher the serious delinquency, all else equal."
93. But Countrywide failed to use adequate controls. Although it claimed the

2$ ^ "low-dac" applications were designed for self-employed professionals and business
6[5 92/3 1 826 1 2 .1 II ^ ^ _ _2^1-

it

rIRST AMENDED COMPLAINT

owners with high credit scores, it made its reduced documentation applications widely 2 available without careful oversight, a material risk that the Prospectuses and Supplements 3 4 5 b failed to disclose to the Nate Purchasers or the market at: large. 94. Countrywide also approved mortgage loans in which the borrower's stated

income was unreasonable on its face and could not have been accurately reported. Countrywide was required pursuant to its own credit policy and the standards in the industry to exercise meaningful oversight. It is standard practice among mortgage lenders

8 generally to try to verify employment income that appears suspicious_ A borrower who 9 inflates his income is less likely to be able to repay his Ioan, which Ieads to a higher 14 incidence of delinquencies and defaults in the mortgage loans, to the direct detriment of 11
the Note Purchasers. Despite the prevalence of a substantial number of loan applications

12 that contained highly suspicious reported employment income, Countrywide failed to take 13 14 15 16 95.
sufficient, if any, corrective action.

C.

Misrepresentations That Countrywide Obtained Independent Appraisals The Supplements offered in connection with the Note offerings represented

I7 ^ that one or mare appraisals were obtained for nearly every mortgage loan. The 18 19 20 21 22 23 24 25 2b 27 28
6159213182b12 .t ^^

Supplements also provided:
Full appraisals are generally performed on all home equity loans. These appraisals are determined on the basis of a sponsor-approved, independent third-party, Fee-based appraisal completed on forms approved by Fannie Mae or Freddie Mac. For certain home equity loans that had at origination a credit limit between $100, 000 and $250,000, determined by the FICO score of the borrower, adrive-by evaluation is generally completed by astate-licensed, independent third-party, professional appraiser on forms approved by either Fannie Mae or Freddie Mac. The drive-by evaluation is an exterior examination of the premises by the appraiser to determine that the property is in good condition. The appraisal is based on various factors, including the market value of comparable homes and the cost of replacing the improvements, and generally must have been made not earlier than 1 SO days before the date of origination of the mortgage loan. For certain
-'7-

w^..

'[AST AMENDED COMPLAINT

I 2 3 4 5 b ^ 8 9 96.

home equity loans with credit limits between $100,000 and $250,000, determined by the FICO score of the borrower, Countrywide inay have the related mortgaged property appraised electronically. The minimum and maximum loan amounts far home equity loans are generally $7,504 {or, if smaller, the state-allowed maximum} and $1,000,000, respectively. Borrowers may draw under the ho^x^e equity loans in minimum amounts of $250 and maximum amounts up to the remaining available credit, in each case after giving effect to all prior draws and payments on the credit line. The minimum amount for draws does not apply to borrowers that are Access Card holders. The representations in the Prospectuses and Supplements that the mortgage

-

i0 loans were appraised by independent third-parties were also untrue. Countrywide 11 regularly engaged appraisers that were affiliated with Countrywide, including, on

12 information and belief, appraisers that were owned ar controlled by Gountrywide, either 13 directly ar indirectly through interrnediate subsidiaries andlor subject to influence by

14 Countrywide. These misrepresentations caused harm to the Note Purchasers because it 15 created a conflict of interest for Countrywide. As originator aril securitizer ofthe loans,

I b Countrywide had an incentive to inflate the value of properties because doing so would I7 18 result in a lower loan to value ratio ("LTV"}. A lower LTV ratio would allow a loan to be approved as compliant with Countrywide's underwriting guidelines when it otherwise

19 would not be. But loans based an inflated appraisals are more likely to default and less 20 likely to produce sufficient assets to repay the second lien holder in foreclosure, both of 21 22 23 24 97. which directly harm Note Purchasers. D. Misrepresentations and Omissions Regarding How Countrywide Home Loans Was Servicing Its Loans The Sale and Servicing Agree>r>;ents for the HELOC securitizations provide

25 that "[t]he Master Servicer shall service and administer the mortgage loans in a manner 2fi consistent with the Terms of this Agreement and with general industry practice." The 27 Pooling and Servicing Agreements far the CES securitizations also provide that "[the 28 Master Servicer shall service and administer the Mortgage Loans in accordance with
61592!31826 i 2. l

FIRST AMENDED COMPLAINT

1 ^ customary and usual standards of practice of prudent mortgage loan lenders in the 2'i respective states in which the Mortgaged Properties are located."

31

98.

As the Master Servicer on these securitizations, Countrywide Home Loans

4 and Countrywide Home Loans Servicing, L.P.'s (the "Master Servicer"} servicing of its 5 6 7 mortgage loans lagged behind the standards of the industry. The Master Servicer failed to allocate sufficient resources to service and administer the loans, such as personnel to address customer inquiries and to conduct follow-up efforts with delinquent borrowers.

8 The Master Servicer also provided inadequate resources for work-out plans. These failures

9 were exacerbated by the company's breal^-neck origination of loans in disregard of its own
10 underwriting guidelines, which led to an extraordinary increase in delinquencies, defaults, 11 12 13 14 1S 16 17 18 foreclosures, bankruptcies, Iitigation, and other proceedings. The Prospectuses and Supplements misrepresented these practices or failed to disclose them in the Notes' offering documents. 99. On information and belief, the Master Servicer has also failed to service its

mortgage loans consistently with industry standards, including, for example, by refusing to accept partial payments from borrowers. The Master Servicer also prematurely charged off loans to the direct detriment of the Note Purchasers by charging off loans where the borrower was able to and in fact, made payments after the date of the charge-off. The

19 Prospectuses and Prospectus Supplements misrepresented these practices or failed to 20 disclose them. 21 22 23 V. Additional Misrepresentations Made by„the„ Tndiy_idaal Defendants 104. Defendants Mozilo and Sambol were among Countrywide's senior

management at the time the HELOC and CES mortgages were underwritten, and the

24 securitizations were created and sold to the Note Purchasers. They were closely involved 25 in every aspect of Countrywide's core operations, including its policies and procedures

26 with regard to underwriting loans. Mozilo and Sambol's positions within Countrywide 27 Z8
6159213!82612.[ II

allowed them to control Countrywide's practices with, regard to loan origination. Countrywide's loan origination practices directly affected the quality of the mortgage

FIRST AMENDED COMPLAINT

1

loans that were pooled together in the securitizations and sold to the Note Purchasers.

2 ^ Mozilo and Sambol also had the ability to control the content of Countrywide's public 3 statements, such as its representations to investors during investor forums. In some cases,

4 as cited herein, Mozilo and Sambol spoke on behalf of Countrywide by virtue of their 5 6 7
senior positions.

IOi.

In a January 2004 call with analysts, Mozilo, on behalf of Countrywide

Financial , announced that Countrywide, already the industry Ieader with nearly a 15% loan

8 origination i^narket share , planned to double its market share within four years: "Our goal 9 is market dominance , and we are talking 30% origination market share by 2008." Mozilo 10 11 12 13 14 15 pledged, however, that Countrywide would target the safest borrowers in this market in order to maintain its commitment to quality . "Going for 30/ mortgage share here is totally unrelated to quality of loans we go after ....There will be no compromise in that as we grow market share. Nor is there a necessity to do that." (Emphasis added.} 102. During a March 15, 2005 conference call with analysts, Mozilo, on behalf of

Countrywide Financial, responded to a question about Countrywide's strategy for

lb increasing market share, and again assured Countrywide' s constituents: 17 18 19 20 (Emphasis added.) 21 103. 22 would not, loosen its underwriting standards . For example, in an April 2005 conference 23 call with analysts , Eric Sieracki , on behalf of Countrywide Financial and CWHEQ, 24 responding to a question asking whether Countrywide had changed its underwriting 25 protocols, said : "1 think they ^FICO scares, combined loan-to-value and debt-to -income 26 ratios] will remain ... consistent with the first quarter and most of what we did in 2004. 27 We don't see any change in our protocol relative to the volume ^af^' loans that we're 28
6 1 59213 1 826 3 2. I

Your question is 30 percent , is that realistic, the 30 percent goal that we set for ourselves 2008 ? ... Ys it achievable? Absolutely ... But I will say this to you, that under no circumstances will Countrywide ever sacrifice sound lending and margins for the sake of getting to that 30 percent market share.

Other Countrywide senior officers echoed that Countrywide had not, and

PII^ST AMENDED COMPLAI]VT

originating." (Emphasis added .) Sieracki added that, as to the Countrywide -originated 2^ HELOCs: "The credit quality of our home equities should be emphasized here as well. 3 4 5 We are 730 FICO on these home equities, and Chat 's extraordinary throughout the industry." (Emphasis added.) 104. In an investor forurri hosted by Countrywide in September 2006, for

6 example , Mozilo, on behalf of Countrywide Financial , explained that Countrywide not 7 only led the industry in developing efficiencies, but also in responsible lending: Not only did we drive eff ciency in the marketplace, but as an industry leader we served as a role model to others in terms of responsible lending. We take seriously the role of a responsible lender far all of our constituencies.... To help protect our bond holder customers, we engage in prudent underwriting guidelines. {Emphasis added.} 12 i 05. l3 Countrywide Home Loans, and CWHEQ, added that: l4 15 i6 17 18 I9
We're extremely competitive in terms of our desire to win, and we have a particular Focus on offense, which at the same time is supplemented by a strong defense as well, meaning that we have an intense and ongoing focus on share growth while at the same time maintaining a very strong internal control environment and what we believe is best- of--class governance .... ^O]ur culture is also characterized by a very high degree of ethics and integrity in everything that we do.

9 10 ll

At the same forum, Sambol , on behalf of Countrywide Financial,

20
21 22 23

(Emphasis added.) 106. As explained above, representations that Cauntrywide' s lending practices

were conservative or responsible, that its corporate culture was ethical and characterized by integrity, and that as its market share increased , Countrywide was not compromising its

24 underwriting standards, were patently false. 25 26 27 28
61592131826f2,1 11

107.

In addition to making these public statements, Sambol and Sieracki signed

registration statements that incorporated some or all of the Prospectuses and Supplements

FIST AMENDED COMPLAINT

1' described above. As explained above, each of these contained material misrepresentations 2 I and omissions. 3 4 S b 7 8
VI. Defendants ' Knawled^e of the Material Misrepresentations and Omissions A. The Countrywide Defendants

10$.

Each of the Countrywide Defendants possessed information regarding the

mortgage loans and Counttywide' s origination practices that was not available to the Note Purchasers, because the underlying loan information and information about Countrywide's actual (as compared to represented} origination practices were not publicly available to

9 public investors. Full disclosure of the true information about the mortgage loans 10 11 12 13 14 15 16 17 underlying the Notes would have shown that the Countrywide Defendants' representations about the mortgage loans and the securities were untrue and intentionally misleading. 109. As set forth in the June 4, 2009 SEC Complaint, the Countrywide

Defendants had actual knowledge that their representations were false and misleading. For example, Countrywide Financial's credit risk management department "warned Countrywide's seniar officers that several aggressive features of Countrywide's guidelines (e.g., high loan to value programs, AR.M loans, interest only loans, reduced documentation loans, and loans with layered risk factors} significantly increased Countrywide's credit

18 risk." SEC Complaint at 9. Although "Countrywide's increasingly wide underwriting 19 guidelines materially increased. the company's credit risk from 2004 through 2007, ...this 20 21 increased risk was nat disclosed to investors." Id. (explaining that "[inn 2007, as housing prices declined, Countrywide began to suffer extensive credit problems as the inherent

22 credit risks manifested themselves"}. 23 24 25 26 27 Countrywide Financial 110. Countrywide Financial's underwriting practices also provide strong

circumstantial evidence of scienter. Countrywide adopted a new corporate culture under the direction of Moziio and Sa^nbol aftivriting as many mortgage loans as possible-----and at the highest interest rates and fees possible-regardless of the creditworthiness of the

2$ !, borrower. Once Mozilo and Samboi had determined that profit growth through
61 5 9213 1 8 26 12 .1 ^I _'^2_

FIRST AMENDED COMPLAINT

1 ^^ securitization required substantially increased levels of loan origination , Countrywide 2 ^^ motivated, and pressured, its loan officers and external brokers to drive up loan volume 3 regardless of material deviations from stated underwriting guidelines. Countrywide and

4 ^ the individuals who managed it knew of these increasingly risky practices. 5 6 111. Countrywide Financial knew that the statements they were making to

investors in offering documents contained material misrepresentations and omissions with

7 I,^ regard to Countrywide' s underwriting practices, because those statements were at odds 8 with its practice of issuing highly risky mortgage loans to non-creditworthy borrowers, 9 often without requiring adequate documentation to verify the borrowers' income or 10 collateral . The IVew York Times has disclosed multiple internal Countrywide documents 11 showing that the company endorsed the issuance of risky mortgage loans, such as

12 adjustable-rate mortgages, to borrowers without regard to their creditworthiness. The New 13 York Times reported that "it wasn't until March 16[, 2008] that Countrywide eliminated so-

14, calledpiggyback loans from its product list, loans that permitted borrowers to buy a house 15' without putting dawn any of their own money. And Countrywide waited until Feb. 23 [, 16' 2008] to stop peddling another risky product, loans that were worth more than 95 percent 171, of a home's appraised value and required no documentation of a borrower's income." 18'^. 191 Countrywide Home Loans 112. The prof t derived from the misrepresentations, in the form of increased

20^ ^ revenue via the origination, servicing, and sale of the mortgage loans through the 21 22 23 securitizations, is further evidence of Countrywide Home Loans' scienter. In fact, as part of Countrywide's aggressive campaign to increase market share without regard to compliance with ids stated underwriting guidelines, Countrywide included loans in the

24 securitizations that were far riskier than what it represented to MBIA and the Note 25 Purchasers. Mare specifically, although Countrywide represented to MBIA that the loans underl}ring the securitizations were prime second lien mortgages, the true risk prof le of the loans was far different in that the loans were made to borrowers who could not afford to

26
27

28 repay the loans, or who committed fraud in loan applications, or who otherwise did not
61592/3182612 . f ^I ^ ^'^ ^ _

FIRST AMENDED COMPLAINT

^^ satisfy the basic risk criteria for prudent and responsible lending that Countrywide claimed 2 to use. Moreover, the riskier the loan, the greater profits it generated for Countrywide 3 Home Loans, because the interest rates on those risky mortgages were higher than rates on

4 I! traditional loans. 3 6 7

Cou^ztrywide Securities 113. Countrywide Securities knew or should have known that it was selling Notes

pursuant to Prospectuses and Supplements that contained material misrepresentations and

8 omissions. Countrywide Securities was motivated to securitiee the mortgage loans and to 9 convince the Note Purchasers and other investors to purchase its securities because the 10 securitizations transferred virtually all of the risk of losses on the loans to the Note 11 lz 13
Purchasers and other investors.

114.

Countrywide Securities was responsible for conducting and overseeing due

diligence on samples of the loans included in each of the securitizations. Countrywide

14 Securities knew or should have known that the pressure to get the offerings available for I5. sale quickly and the sheer number of loans that needed to be reviewed across many deals lb' for many issuers, made it inevitable that the required due diligence would not be done 171', andlor would not be done properly. 18'^ 19 115. Given the financial incentives for Countrywide Securities to close each deal

quickly and to move on to the next deal, Countrywide Securities turned a blind eye to the

20. non-compliant loans that it knew or should have known were included in the 21 22 23
securitizations

116.

Countrywide Securities knew the quality of the underlying mortgage loans

was not as represented in the offering documents and failed adequately to disclose the

24 underlying loans ' true risk prof le. The result was the sale of RMBS Notes that included an 25 26 27 28
6 1 59213 1 9 26[2.1 IIit

alarmingly high number of non-compliant loans, contrary to Defendants' representations. CWHEQ 117. CWHEQ was an entity formed by Countrywide specifically to act as the

depositor in thirteen of the fifteen securitizations . As the depositor, CWHEQ conveyed the
_^^_

FIRST AMENDED COMPLAINT

1 2 3

pools of mortgage loans to the Countrywide_created-Trusts after they were conveyed to CWHEQ by Countrywide Home Loans. CWHEQ, as a Countrywide entity created specifically to effectuate the scheme to transfer Cauntrywide's risk an its mortgage loans to

4 investors, knew that the Notes were going to be sold based on material misstatements and 5 6 7 8 omissions. CWABS 118. CWABS was an entity formed by Countrywide specifically to act as the

depositor in two of the fifteen securitizations. As the depositor, CWABS conveyed the

9 peals of mortgage loans to the Countrywide--created-Trusts after they were conveyed to 14 CWABS by Countrywide Home Loans. CWABS, as a Countrywide entity created 11 specifically to effectuate the scheme to transfer Countrywide's risk on its mortgage loans to

12 investors, knew that the Notes were going to be sold based an material misstatements and 13 14 15 16 17 18 omissions. 119: The U.S. District Court for the Central District of California concluded in a

200$ order in In re Countrywide, 588 F. Supp. 2d 1132, 1156 (C.D. Cal. 2008), that the note purchasers in that action had presented a "cogent and compelling inference of scienter" as to each defendant, based an similar allegations and facts as set forth in this Complaint. The federal court stated that Countrywide's public representations about its

19 loan origination, servicing, and other tapirs "go to scienter because they ...directly 20 contradict the [complaint's] allegations about Countrywide's care operations[, such as the 21 allegation that Countrywide abandoned its underwriting standards]. Yf the [complaint's]

22 allegations are accurate, these statements [by Countrywide] are so objectively out of line 23 with Cauntry^^+ide's practices that they contribute to a strong inference of scienter." Id. at

24 1185. 25 26 B. 120. The Underwriter Defendants The Underwriter Defendants knew or should have known that they sold

27 Notes pursuant to Prospectuses and Supplements that contained material misstatements 28 and omissions.
6ts9zr^iaz6iz.i FIRST AMENDED COMPt,AINT

1 2 3

121.

The Underwriter Defendants wore responsible for conducting and overseeing

due diligence an samples of the loans included in each of the securitizatians. The Underwriter Defendants knew or should have known that the pressure to get the offerings

4 available for Salo quickly and the sheer number of loans that needed to be reviewed across 5 many deals for many issuers, made it inevitable that the required due diligence would not

6 be done and/or would not be done properly. 7 8 122. Moreover, given the financial incentives for the Underwriter Defendants to

close each deal quickly and move on to the next deal, the Underwriter Defendants allowed

9 non-compliant loans to be included in the securitizations. 1Q 11 12 13 123. The Underwriter Defendants knew the quality of the underlying mortgage

loans was not as represented in the offering documents. The Underwriter Defendants failed adequately to disclose the true risk profile of the underlying loans . The result was the sale of Notes based on securitizations that each included an alarmingly high number of

14 non-compliant loans. 15 16 17 18 C. 124. The Trust Defendants The Trust Defendants also knew that the representations in the Prospectuses

and Supplements were not true and the omissions therein were materially misleading. The Trust Defendants issued the Notes pursuant to Prospectuses and Supplements. The Trust

19 Defendants were each organized by Countrywide. Each Trust Defendant either is charged 20 with the Countrywide Defendants' knowledge of the above-referenced misstatements and 2I material omissions, or recklessly disregarded the truth. Further, the Trust Defendants were

22 reckless in issuing the Notes pursuant to the Prospectuses and Supplements without any 23 reasonable ground to believe that the misrepresentations in the Prospectuses and 24
25

Supplements were true.
D. The Individual Defendants

26

125.

On information and belief, Countrywide's senior management was aware

27 that Countrywide loan officers participated in submitting fraudulent applications through 28 the reduced documentation application programs. According to Mark Zachary, a former
6154213182fi12 . 1 II _ _3^_

FIRST AMENDED COMPLAINT

'^^ Countrywide executive who has filed suit against Countrywide far wrongful termination, ^ in and around 2006, Countrywide loan officers engaged in a practice known within Countrywide as "flipping" an application . Loan officers who learned that a loan ^ application submitted under the Full Documentation Program was unlikely to be approved would " flip" the application far consideration under a reduced documentation application program. According to Zachary, loan officers would coach applicants on the level of J employment income needed to qualify For a mortgage loan, and then would accept a revised loan application containing an inflated reported income. The loan officer would submit the revised loan application under a reduced documentation program far 10 consideration by the subprime mortgage loan operations unit in Plano , Texas. According 11 to Zachary, he complained to Countrywide ' s regional management about this practice, but

12 his complaints were ignored. 13 1d 15 16 17 18 126. The SEC Complaint details numerous emails sent and received by Mozilo,

Sambol and Sieracki , which demonstrate conclusively that all three of these senior executives knew that the mortgage loans being underwritten by Countrywide were far riskier than what was being publicly disclosed . In several emails by Mozilo, for example, he refers to Countrywide' s aggressive products as "taxis ," " dangerous," or "poison." SEC Complaint at 20, 21. Different internal committees at Countrywide , such as the Risk

19 Management and the Credit Risk Committee, warned Countrywide's senior executives that 20 the aggressive features of Countrywide 's actual underwriting guidelines {e.g., high LTV 21 22 programs, ARM loans , interest only loans , reduced documentation loans, and loans with layered risk factors} significantly increased Countrywide' s credit risk. Nonetheless,

23 Manila, Sambol and Sieracki proceeded to file Cauntrywide's Forms 10-K for 2005, 2006 24 25 26 and 2007 , each of which they knew falsely represented that Countrywide " manageCd] credit risk through credit policy , underwriting, quality control and surveillance activities ." Id. at 3 . The 2005 and 2006 Forms 10-K also falsely stated that Countrywide

27 ^ ensured its continuing access to the mortgage backed securities market by "consistently 2$ producing quality mortgages." Id.
6159?13182617, I _^ 7_

FI IZST AM^NDID COMPLAINT

1

127.

There is additional strong circumstantial evidence of Mozilo and Sambol's

2 scienter. Both benefited from the fraud in the form of increased revenue for the 3 corporation they led, which personally benef ted them in the form of increased

4 compensation and increased value of their Countrywide investments, among other ways. 5 6 7 $ 12$. Mozilo and Sambol were closely involved in the daily management of all

aspects of Countrywide's core operations. During a conference call with analysts in 2005, Mozilo stated that "1 do participate every day in originations myself, and it keeps me apprised of what's happening." Mozilo and Sambol were also involved with management

9 committees and the Board of Directors, which kept them apprised of developments in IO I1 12
i3 14

Countrywide's business practices and the mortgage industry. Mozilo and Sambol were also responsible far making or overseeing many of the public statements issued by Countrywide that contained material misrepresentations.
129. The federal court in In re Countrywide also recognized that Mozilo and

Sambol's actions give rise to a strong inference of scienter. The court concluded that

15 lb

"[s]ome of [Mozilo's] public statements appear to demonstrate that he knew others of his statements were false when made." 588 1~. Supp. 2d at 1192. The court highlighted many

17 examples in which Mozilo offered upbeat analyses of Cauntrywide's business practices 18 despite his apparent knowledge that Countrywide was abandoning its loan-origination 19 standards. The court concluded that "[a]ccepting the [Complaint's] extensive allegations 20 regarding Mozilo's understanding of Countrywide's day-to-day operations---his self 21 proclaimed `hands on' approach, his long career with Countrywide, and the detailed loan

22 and exception statistics [that Mozilo presented publicly]-the [Complaint] supports the 23 inference that Mozilo intended his statements to mislead the market ...." Id. at 1193. 24 25 2b 130. As to Sambol, in light of his senior management position as President and

Chief Operating Officer, the court held that ``[t]aken together, Sambol's job positions, duties, and access to corporate reports and information systems give rise to a strong

27 inference of scienter." Cd. at 1192. The same reasoning applies in this case: Mozilo and 28
6i592l3182612 . E ^^ p -^SZ .`___

FIRST AMENDED COMPLAINT

1

Sambol had the motive and opportunity to commit fraud against the Note Purchasers, as

2 described herein , by virtue of their senior management positions in Countrywide. 3 131 _ There is also circumstantial evidence of Eric Sieracki `s scienter. Eric

4 ^ Sieracki was at all relevant times Executive Vice President, CFO, Treasurer and member 5 6 of the Board of Directors of CWHEQ, and signed CWHEQ's July 21, 2005, August 4, 2005, March 13, 2006, April 12, 2006, April 17, 2007 and May 22, 2007 Registration

7 ^ Statements . Based on his management position , Sieracki knew or should have known that ^ the Registration Statements he signed contained material misrepresentations and 9 10

omissions.
132. There is also circumstantial evidence of Jennifer Sandefur's scienter.

li ^ Sandefur was at all relevant times a member of the Board of Directors of CWHEQ. 12 13 Sandefur signed CWHEQ's May 22, 2007 Registration SCatement . Based on her management position , Sandefur knew ar should have known that the Registration

14 ^ Statement she signed contained material misrepresentations and omissions. 15 133. There is also circumstantial evidence of Stanford Kurland's scienter.

16 ^ Kurland was at all relevant times CEO , President and Chairman of the Board of CWABS. 17 Kurland signed CWABS' October 18, 2004 Registration Statement . Based on his 18 management position, Kurland knew or should have known that the Registration Statement

19 he signed contained material misrepresentations and omissions. 20 21 22 23 24 25 26 VII. The Note Purchasers' Reliance on the Fraudulent Statements 134. The Note Purchasers justifiably relied on each Defendant' s false

representations and omissions of material fact regarding Countrywide ' s underwriting standards and the characteristics of its loans when they purchased the Notes. But for the fraudulent representations and omissions in the Prospectuses, Supplements , Registration Statements, and public statements, the Note Purchasers «lould not have purchased or otherwise: acquired the Notes , because those representations and omissions were necessary

27 to assure the Note Purchasers that the Notes were sensible investments. 28
6 1 5 9213 1 82fi12 ,1 _^n IE

ffI

Z~.

FIRST AMENDED COMPLAINT

1

135.

The false statements and misrepresentations and omissions of material fact

2 ^^ caused the Notes to be far riskier-and their rate of payment defaults far higher than 3 ^^ described. The mortgage loans underlying the Notes experienced defaults and 4 ^^ delinquencies at a much higher rate due to Countrywide 's abandonment of its loan5 ^ origination guidelines . The missed payments suffered by the Note Purchasers have been 6 much greater than they would have been if the mortgage loans.had been as represented

7 ^ (i.e., high quality investments}. 8 9
VIII. The Countrywide Mort^a^e Loans' Excessive Defaults and. Missed Pay^en^s

135.

A material increase in delinquencies, defaults, and subsequent charge-offs of

10 '^,^ the loans underlying the securitizations first became apparent in the late fall of 2007. 11 l2 13 1 ^1 15 Because of the number of loan delinquencies and defaults, and subsequent charge-offs, the total cash flow from the mortgage payments in several of the securitizations was insufficient for the Trusts to meet their payment obligations to holders of the RMBS Notes. In November 2007, the charge-offs resulting from the deficiencies and defaults caused the Trusts to submit claims on MBIA's Nate Guaranty Insurance Policies, demanding that

16 MBIA cover the shortage of funds. Many of delinquent loans defaulted and were 17 18 subsequently charged off, increasing MBIA's exposure to even greater claims. 137. As default events occurred , MBIA diligently complied with its obligations

19 ^ under the Insurance Agreements and the Note Guaranty Insurance Policies. In November 20 2007, for example, MBIA paid claims of $2.49 million on the CWHEQ 2006-E transaction 2i and $11.3 million on the CWHEQ 2006-G transaction. As of September 2008 , MBIA had

22 paid over $459 million on the Policies issued by MBIA that covered Countrywide's 23 securitizations . As of May 20, 2049, MBIA had paid aver $1 . S billion on the Policies

24 ^ issued by MBIA that covered the securitizations. 25 26 >IX. Consectucnces of Countrywitlc's _C__arrupt Practic_es_ 138. As a result of the facts coming to light in the wake of the above-cited

27 ',^ defaults, Countrywide's market capitalization had declined by more than 90% in just one 28
61542/3i826i2.1

-4f?FiRSTAMENDED COMPLAINT

f

1 2 3

year, losing $25 biilian in value . Bank of America acquired Countrywide for just 27% of Countrywide ' s stated $ i 5.3 billion book value. 139. The scope and breadth of Countrywide ' s fraudulent schemes and other

4 unlawful conduct have prompted a substantial number of public and private inquiries, 5 6 investigations and actions . The actions are based , in part, upon misconduct by Countrywide and its personnel that was inconsistent with Countrywide 's representations to

7 investors. 8 140. On information and belief, the Department of Justice and the SEC are

9 investigating potential securities fraud by Countrywide and its personnel in the 14 securitizations of mortgage loans and offerings ofmortgage-backed securities in the 11 secondary ]market, allegations that false and misleading disclosures were made to influence

12 the stock trading price , and allegations of insider trading by Mozilo and Samboi. As I3 i4 15 16 i7 18 recently as June 4, 2409 , the SEC announced that it has f led civil fraud charges against Mozila for insider trading, and against Sambol and Sieracki for failing to disclose the firm' s relaxed lending standards in its 2006 Annual Report. 141. A number of States and municipalities have announced investigations of

Countrytivide ' s lending practices, and several Nava commenced actions against Countrywide . Bank of America recently paid to restructure certain of Countrywide's

19 home loans , including settling apredatory - lending lawsuit brought by state attorneys 20 general by agreeing to modify up Co 390 , 040 Countrywide loans, an agreement valued at 21 22 23 up to $8 .4 billion. 142 . in addition, a number of private actions have been commenced against

Countrywide, including shareholder actions challenging the accuracy and completeness of

24 Countrywide' s statements in and around the period between 2004 and 2047 , particularly 25 allegations that Countrywide failed to disclose the expansion of its origination of subprime 26 and other higher-risk mortgage loans, and consumer actions challenging Countrywide's 27 lending practices. 28
61592!3182612.! _^^.,

FIRST AMENDED COMPLAINT

I

i

11 X.
2 3 4 5 6

ht The Note Purchasers ' Substantial Damages and MBIA's Ri^ s as Subrogee 143. Defendants' misconduct has caused substantial harm. Because the mortgage

loans failed to live up to the representations made by Countrywide and the Individual Defendants, the loans were more prone to default than they would have been if Countrywide had adhered to its stated underwriting guidelines. 144. MBIA agreed to provide a financial Note Guaranty Insurance Policy to each

7 Trust guaranteeing to the Note Purchasers the payments due under the Notes. The S agreement to provide the Note Guaranty Insurance Policy and policy logistics and

9 remedies for the CWHEQ Revolving Home Equity Loan Trust, Series 2005-E were 10 11 12 l3 14 15 memorialized in the August 30, 2005 Insurance Agreement between MBIA (as Insurer), Countrywide Home Loans {as the. Master Servicer and as Sponsor), CWHEQ (as Depositor}, a Trust (as Issuer}, and JPMorgan Chase Bank, N.A. (as Indenture Trustee). Similar insurance agreements were entered into for each Note offering.z I45. The Insurance Agreement provided that the Note Guaranty Policy

"guarantees certain payments due from the Issuer on the Securities ." Insurance Agreement

16 at 1. i7 18 146. CWHEQ Revolving Home Equity Loan Trust, Series 2005-E and the

Indenture Trustee entered into an Indenture on or about August 30, 2005, which set forth

19 the Note Purchasers' rights and the Trustee's obligations. In the event that defaults in the 2a mortgage loan pool result in a shortfall of funds for the Trust to make required payments 21 22 23 24 25 z Just as each securitization was created, marketed and sold in a substantially similar 26 manner, each securitization had agreements virtually identical to those entered into for the 27 CWHEQ 2005-E securitization. 28
61592/3183512.1 II ^-

on the securities, the Trustee is to submit a claim on the Policy, and MBIA is to fund the shortfall. Indenture Agreement § 8.05(a). 147. The Note Guaranty Insurance Policy provided that:

^'IRST AMENDED COMPLAINT

/.

2 3 4 S 6 7 8 9 IO 11 12 13 14 15 15 17 18 19 2a 21 22 23 24 25 26 27 28
61592131$2612.1

MBIA Insurance Corporation (the "insurer"}, in consideration of the payment of the premium and subject to the terms of this Note Guaranty Insurance Policy (this "Policy"), hereby unconditionally and irrevocably guarantees to any Owner that an amount equal to each full and complete Credit Enhancement Draw Amount will be received from the Insurer by JPMorgan Chase Bank, N.A.... as indenture trustee for the Owners .. . on behalf of the Owners For distribution by the Indenture Trustee to each Owner of each Owner's proportionate share of the Credit Enhancement Draw Amount, except as otherwise . provided ...with respect to Preference Amounts. The Insurer's obligations hereunder with respect to a particular Credit Enhancement Draw Amount shall be discharged to the extent funds equal to the applicable Credit Enhancement Draw Amount are received by the Indenture Trustee, whether or not such funds are properly applied by the Indenture Trustee. Nate Guaranty Insurance Policy at 1.3 148. Under the Insurance Agreements and operational law, MBIA has full rights

as subrogee with respect to any payments it has made. Note Guaranty Insurance Policy at 2 {"Subject to the terms of the Agreement, the Insurer shall be subrogated to the rights of each Owner to receive payments under the Obligations to the extent of any payment by the Insurer hereunder."). 149. The "subrogation clause" of the Insurance Agreement provides that: To the extent of any payments under the Policy, the Insurer shall be fully subrogated to any remedies against the Depositor, the Issuer, the Sponsor or the Master Servicer or in respect of the Mortgage Loans available to the Indenture Trustee under the Indenture. The Indenture Trustee acknowledges such subrogation and, further, agrees to execute such instruments prepared by the Insurer and to take such reasonable actions as, in the sale judgment of the Insurer, are necessary to evidence

Pursuant to the Insurance Agreement, "The Master Servicer, the Sponsor, the Depositor, the Issuer and the Indenture Trustee" agreed that MBIA would "have ali rights of a third-party beneficiary in respect of the rights provided to [it] under the Sale and Servicing Agreement, the Indenture and each other Transaction Document to which i# is not a signing party." Insurance Agree>.ncnt § 4.04(e).

FIRST AMENDED COMPLAINT

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 lb 17 18 19 20 21

such subrogation and to perfect the rights of the Insurer to receive any moneys paid or payable under the Indenture. Insurance Agreement § 4.08. 150. As a result of Defendants ' conduct, the Trustee has submitted claims on

behalf of the Note Purchasers in excess of $1.5 billion based on the Trusts' inability to make required payments on the Notes. MBIA has been forced to pay those shortfalls. 1 ^ 1. The delinquencies and defaults the mortgage loans have suffered have

greatly reduced the cashflows available to pay Note Purchasers going forward, making further missed principal and interest payments inevitable.
Xi. Bank of America Is Liable as aSuccessor-in-Interest

152.

On July 1, 2008, Bank of America acquired Countrywide Financial through

an all-stock transaction involving a Bank of America subsidiary that was created for the sole purpose of facilitating the acquisition of Countrywide Financial. 153. Countrywide Financial and its subsidiaries, which include each of the

Countrywide Defendants, are now wholly-owned subsidiaries of Bank of America. Bank of America is Iiable for the wrongdoing of the Countrywide Defendants because it is the successor-in-interest to each of the Countrywide Defendants. 15^-. Substantially all of Countrywide Financial's and Countrywide Home Loans'

assets were transferred to Bank of America on November 7, 2008. Countrywide Financial ceased filing its own financial statements in November 2008, and its assets and liabilities have been included in Bank of America's recent financial statements. Bank of America

22 has paid to restructure certain of Countrywide Financiai's home loans on its behalf, 23 24 25 2G 27 28
6 [ 592I3182b 12.1

including settling apredatory-lending lawsuit brought by state attorneys general by agreeing to modify up to 390,000 Countrywide loans, an agreement valued at up to $8.4 billion.

FIRST AMENDED COMPLAINT

1

155.

Bank of America has described the transaction through which it acquired

2 } Country^vide Financial as a merger, and has made clear that it intends to integrate 3 4 5 Countrywide into Bank of America fully by the end of 2009. i 56. For example, in a Juiy 2008 Bank of America press release, Barbara Desoer,

identified as the head of the "combined mortgage, home equity and insurance businesses"

6 of Bank of America and Countrywide, said: "Now we begin to combine the two companies
7 and prepare to introduce our new name and way of operating." The press release stated

8I that the bank "anticipates substantial cost savings from combining the two companies. 91, Cost reductions wi!! come from a range of sources, including the elimination of positions 101 announced last week, and the reduction of overlapping technology, vendor and marketing llll expenses. In addition, the company is expected to benefit by leveraging its broad product 12' set to deepen relationships with existing Countrywide customers." 13' 157. In its 2008 Annual Report, Bank of America conf rmed that "[o]n July 1,

14' 200$, we acquired Countrywide," and stated that the merger "significantly improved our 15 ', mortgage originating and servicing capabilities, making us a leading mortgage originator 1611 and servicer." In the Q&A section of the same report, the question was posed: "How do 171 the recent acquisitions of Countrywide and Merrill Lynch fit into your strategy?" Bank of 181 America responded that by acquiring Countrywide it became the "No. 1 provider of both 191 mortgage originations and servicing" and "as a combined company," it would be 20, recognized as a "responsible lender who is committed to helping our customers become 211 successful homeowners." (Emphasis added.) 22 ', 158. Similarly, in a July 1, 2008 Countrywide press release, Defendant Mozilo

23' stated that "the combination of Countrywide and Bank of America will create one of the 24 most powerful mortgage franchises in the world." (Emphasis added.) 25 159. At least some of the Countrywide Defendants have retained their pre-merger

26 corporate names following the merger with Bank of America. However, on April 27, 27 2009, Bank of America announced in a press release that "[t]he Countrywide brand has

28' been retired." Bank of America announced if will operate its borne loan and mortgage
6159213182612, ] { __ _.,. _4 ^^

1

^'IItST AMENDED COMPLAINT

1

business through a new division named Bank of America Home Loans, which "represents

2 the combined operations of Bank of America's mortgage and home equity business and 3 Countrywide Home Loans." The press release made clear that Bank of America plans to 4 complete its integration of Countrywide Financial into Bank of America "later this year." 5 160. In the interim, according to the Bank of America website, "Countrywide

6 customers ...have access to Bank of America's 6,100 banking centers." The old 7 Countrywide website redirects customers to the mortgage and home loans section of Bank 8 of America's website. According to press reports, Bank of America Home Loans will 9 operate out of Cauntrywide's offices in Calabasas, California with substantially the same 10 employees as the former Countrywide entities. 11 161. Desoer was also interviewed for the May 2009 issue of Housing Wire

12 magazine. The article reported that 13 14 15 16 162. 1'7' we're in the middle of doing the development work to prepare us to be able to do the 18 conversion of the part of the portfolio going to the legacy Countrywide platforms." Desoer 19 explained that the conversion would happen in the "late fall" of 2009, and that the 20 integration of the Countrywide and Bank of America platforms was a critical goal. 21 163. 22 steps to expressly and impliedly assume Country^vide's liabilities. Substantially all of 23 Countrywide's assets were transferred to Bank of America on November 7, 2008, "in connection with Cauntrywide's integration with Bank of America's other businesses and 25 operations," along with certain of Countrywide's debt securities and related guarantees. 26 Countrywide Financial ceased filing its own f nancial statements in November 2008, and 27 28
6159213182612.1

While the move to shutter the Countrywide name is essentially complete, the operational effort to integrate across two completely distinct lending and service systems is just getting under way. One of the assets BofA acquired with Countrywide was a vast technology platform for originating and servicing loans, and Desoer says that the bank will be migrating some aspects of BafA's mortgage operations over to Countryw^de's platforms. Desoer was quoted as follows: "We're done with defining the target, and

Following its merger with Countrywide Financial, Bank of America took

2^-

FIRST AMENDED COMPLAnVT

1

instead its assets and liabilities have been included in Bank of America's recent financial

2 statements.
3 164. Moreover, in an interview published on February 22, 2408 in the legal

4 publication Corporate Counsel, a Bank of America spokesperson admitted that the

^ 6 7 8
9

canpany had assumed Countrywide's liabilities: Handling all this litigation won't be cheap, even for Bank of America, the soon-to-be largest mortgage lender in the country. Nevertheless, the banking giant says that Countrywide's legal expenses were not overlooked during negotiations. "We bought the company and all of its assets and liabilities, "spokesman Scott Silvestri says. "We are
aware of the claims and potential claims against the company and have factored these into the purchase. "

10 11

(Emphasis added). In purchasing Countrywide for 27% of its book value, Bank of America was fully aware of

12 the pending claims and potential claims against Countrywide and factored them into the 13 14 15 transaction. 165. Similarly, Bank of America's former Chairman and Chief Executive Officer

Kenneth D. Lewis was recently quoted in a January 23, 2009 New York Times article

16 reporting on the acquisition of Countrywide, in which he acknowledged that Bank of 17 America knew of Countrywide's legs! liabilities and impliedly accepted them as part of the 18 19 20. 21 22 {Emphasis added). 23 24 166. Because Bank of America has merged with Countrywide Financial, and cost of the acquisition: "We did extensive due diligence. We had 60 people inside the company for almost a month. It was the most extensive due diligence we have ever done. So we feel comfortable with the valuation," Mr. Lewis said. "We looked at every aspect of the deal, from their assets to potential lawsuits and we think we have a price that is a good price."

25 acquired substantially all of the assets of all the Countrywide Defendants, it is the 26 successor in liability to Countrywide. Bank of America is jointly and severally liable for 27 the wrongful conduct alleged herein of the Countrywide Defendants. 28
6159213 f 826] 2.1

FIRST AMENDED COMPLAINT

1 2 3 4 5 167.

FIRST CAUSE OF ACTION {Against Bank of America, Countrywide Securities , the Trust Defendants , and the Underwriter Defendants for Vialatior^s of California Corporations Code § 25401 and § 25501) MB1A incorporates by reference and realleges each and every allegation as

6 set forth above in paragraphs 1 through 166 as if fully set forth herein. 7 8 9 i68. Under California Corporations Cade Section 25401, "[i]t is unlawful far any

person to offer or sell a security in this state ... by means of any written or oral communication, which includes an untrue statement of a material fact or omits to state a ^ material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading." 169. The California Corporations Cods makes any person who violates Section

10
11 12 13 14

25401 liable to those who purchase or sell a security. 170, Countrywide Securities, the Trust Defendants, and the Underwriter

1S ^ Defendants qualify as sellers of the Notes because they issued and/or sold the Notes to the

16 ^ public.
17 18 19 171. Tn offering and selling the Notes, Countrywide Securities, each of the Trust

Defendants and the Underwriter Defendants provided materially falls and misleading information to the Note Purchasers and omitted material facts regarding the 2004-1, 2004P, 2005-A, 2005-E, 2005-1, 2005-M, 2006-E, 2006-G, 2006-58, 2006-59, 2006-510, 2007S 1, 2007-52, 2007--53, and 2007-E transactions in the Prospectuses, Supplements, and Registration Statements. 172. The misstatements , misrepresentations and omissions referred to herein are

2a
21

22
23 24 25 26 27 28i
6I592^182612 . ]

of material facts within the meaning of Section 25401 because they concern matters a reasonable investor would consider in deciding to invest. 173. The Note Purchasers suffered damages as a result of Countrywide

Securities', the Trust Defendants', and the Underwriter Defendants' violations.

_Y^ O A

J

S^

]^IRST AMENDED COMPLAINT

1

174.

The Note Purchasers did not know , or in the exercise of due diligence could

2 ^ not have known, of the untruths and omissions. 3 4 S fi I75. Bank of America, as successor-in-interest to Countrywide Securities, is

liable Far the wrongdoing and damages caused by Countrywide Securities. 176. Under the Indenture Agreements, Indentures and Note Guaranty Insurance

Policies, as well as the laws of the State of California, MBIA may bring these claims as the

7 ^ Note Purchasers' subragee. 8 177. By reason of the foregoing, Countrywide Securities, the Trust Defendants

9 ^ and the Underwriter Defendants violated California Corporations Code Section 25401, and 10 II are liable under California Corporations Code Section 25501 to MBiA as subrogee to the 11 12 13 14 IS 178. extent of any and all payments made by MBIA. SECOND CAUSE OF ACTION
{Against Bank of America , CWHEQ, CWABS, the Individual Defendants , and Does 51-^00 for Viola#ions of California Corporations Cade § 25504)

MBIA incorporates by reference and realleges each and every allegation as

IG II set forth above in paragraphs 1 through 177 as if fully set forth herein. 17 18 i79. CWHEQ, CWABS, the Individual Defendants and Daes 51-I00 are liable

for the above-stated violations of Corporations Cade Section 25401 because they were

19 controlling persons of one or more of Countrywide Securities, the Trust Defendants and/or

Za
21

the Underwriter Defendants under Corporations Code Section 25504. I $0. CWHEQ was at all relevant times the depositor in thirteen of the relevant

22 securitizatians , collecting and securitizing mortgage loans and overseeing the 23 24 25 securitization process for the Notes. CWHEQ established and controlled thirteen of the fifteen Trust Defendants. 181. CWABS was at all relevant times the depositor in two of the relevant

26 securitizations , collecting and securitizing mortgage loans and overseeing the 27 securitization process for the Notes. CWABS established and controlled two of the f fteen

281 Trust Defendants.
61 59213 1 826 12 , I II ._.. ^ _4_

FIRST AMENDED COMPLAINT'

J

I

1

182.

Defendant Angelo Mozilo rwas Chairman of Countrywide Financial's Board

2 of Directors starting in March 1999 and CEO starting in February 1998 until he resigned 3 on July 1, 2008. As Chairman of Countrywide Financial, Defendant Mozilo exercised

4 day--to-day control over Countrywide Financial's wholly-owned subsidiary, Countrywide 5 6 7 Securities. 183. Defendant David Sambol was Countrywide Financiai's President and COO

from September 2006 through mid-2008. As President and COO of Countrywide

8 Financial, Defendant Sambol exercised day-to-day control aver Countrywide Financial's 9 wholly-awned subsidiary. 10 11 184. Defendant Eric Sieracki was at all relevant times Executive Vice President,

CFO, Treasurer and member of the Board of Directors of CWHEQ, and therefore was a

12 control person of CWHEQ, which in turn controlled thirteen of the fifteen Trust 13 14 15 Defendants. 185. Defendant Ranjit Kripalani was at ail relevant times a member of the Board

of Directors of CWHEQ, and therefore was a control person of CWHEQ, which in turn

16 controlled thirteen of the f fteen Trust Defendants. 17 186. Defendant Jennifer Sandefur was at all relevant times a member of the Board

18 of Directors of CWHEQ, and therefore was a control person of CWHEQ, which in turn 19 controlled thirteen of the fifteen Trust Defendants. 20 21 187. Defendant Stanford Kurland was at all relevant times CEO, President and

Chairman ofthe Board of CWABS and therefore was a control person of CWABS, which

22 in turn controlled Defendant CWABS Revolving Home Equity Loan Trust, Series 2004-I 23 24 25 26 and Defendant CWABS Revolving Home Equity Loan Trust, Series 2004-P. 1$S. Bank of America, as successor-in-interest to CWABS and CWHEQ, is liable

for the wrongdoing and damages caused by C WAB S and CWHEQ. 189. Does 51-100 are officers, directors, agents, affiliated persons, and/or

27 employees of Countrywide Securities, the Trust Defendants and/or the Underwriter 28
61592!3182612.]

--50FIRST AMENDED COMPLAINT

1

Defendants, and each of them controlled one or more of Countrywide Securities, the Trust

2 Defendants and/or the Underwvriter Defendants. 3 190. The Note Purchasers suffered damages as a result of the violations of Section

4 25401 by primary violators of which the above Defendants were control persons. 5 191. The Note Purchasers did not know, or in the exercise of due diligence could

6 not have known, of the untruths and omissions. 7 8 192. Under the Indenture Agreements, Indentures and Note Guaranty Insurance

Policies, as well as the laws of the State oFCalifornia, MBIA may bring these claims as the

9 Nate Purchasers' subrogee. 10 il 12 i3 14 15
16 17 18

193.

By reason of the foregoing, Countrywide Securities, the Trust Defendants,

and the Underwriter Defendants are primarily liable under Section 25501 of the Corporations Code, and CWHEQ, CWABS, the Individual Defendants and Does 51-100 are jointly and severally liable as control persons under Section 25504 of the Corporations Code to MBIA as subrogee of the Note Purchasers. THIRD CAUSE OI' ACTION
(Against Bank of America, Countrywide Home Loans , Countrywide Securities, CWHEQ, CWASS, the Trust Defendants, the Underwriter Defendants, and Does )l50 for Violations of California Corporations Code § 25504.1)

19

194.

MBIA incorporates by reference and realleges each and every allegation as

20 set forth above in paragraphs 1 through 193 as if fully set forth herein. 21 22 195. Countrywide Home Loans, Countrywide Securities, CWHEQ, CWABS, the

Trust Defendants, the Underwriter Defendants and Does 1-50 are liable for materially

23 assisting Countrywide Securities', the Trust Defendants', and the Underwriter Defendants' 24 violations of California Corporations Code Section 25401. 25 26 27 Countrywide Hame Leans 196. Defendant Countrywide Home Loans was, at all times herein mentioned, a

wholly-awned subsidiary of Countrywide Financial, and originated and serviced

28 residential home mortgage loans.
6159213182512.1

FIRST AMENDED COMPLAINT

1 2 3 4 5 6 7 8 9

197.

At the time of the acts alleged herein, Countrywide Home Loans materially

assisted the Trust Defendants', Countrywide Securities' and the Underwriter Defendants' violations of California Corporations Code Section 25401 in that for each of the securitizations at issue, Countrywide Home Loans originated, or acquired through eternal mortgage brokers or correspondent banks, the underlying secondary residential mortgages, and also acted as servicer for the mortgage loans in each securitization.
198. Countrywide Home Loans acted with intent to deceive or defraud.

Corr^rtry3vide Securities

199.

Countrywide Securities, along with the Underwriter Defendants, underwrote

la.
11.

the offerings of Countrywide mortgage-backed securities alleged herein. 200. At the time of the acts alleged herein, Countrywide Securities materially

12'^ assisted the Trust Defendants' and the Underwriter Defendants' violations of California 13 14 15 Corporations Code Section 25401 in that it acted as underwriter for all the securitizations at issue, and assisted in pricing and selling Notes to investors, structuring and marketing the transactions , and making SEC filings. 201.
202.

16
17 18

Countrywide Securities acted with intent to deceive or defraud_
Countrywide Securities was charged with overseeing third-party party due

diligence firms.ostensibly to confirm that the underlying mortgage loans in the

19 securitizations complied with Countrywide's stated underwriting guidelines. Countrywide

20 Securities knew or should have known, however, that because of the pressure to get the
21 offerings available for sale quickly, the sheer number of loans that needed to be reviewed across many deals for many issuers, and the short time frames within which to complete the due diligence, the required due diligence could not be done and was not being done

z2
23

24 properly.
25 26

203.

In addition, given the financial incentives for Countrywide Securities to

bring the securitizatians to the market regardless of the quality of the loans included within

27 ^ them, Countrywide Securities allowed non - compliant loaazs to be included in the 28 I securitizations. 6isgzr^ESZSiz.i
FIRS`r AMENDED COMPLAINT

1

204.

Countrywide Securities knew the quality of the underlying mortgage loans

2 was not as represented in the offering documents and Countrywide Securities knowingly 3 4 5 failed adequately to disclose the true risk profile of the underlying loans. CWHEQ 205. Defendant CWHEQ was, at all times herein mentioned, alimited-purpose

6 subsidiary of Countrywide Financial, and the depositor in thirteen of the f fteen relevant 7 8 9 14 11 12 13 14 15 securitizations. 206. At the ti^r^e of the acts alleged herein, CWHEQ materially assisted

Countrywide Securities', the Trust Defendants' and the Underwriter Defendants' violations of California Corporations Code Section 25401 in that it transferred the mortgage loans to the CWHEQ Trusts, which in turn issued the Notes. 207. CWHEQ acted with intent to deceive or defraud.

CWABS 208. Defendant CWABS was, at all times herein mentioned, alimited-purpose

subsidiary of Countrywide Financial, and the depositor in two of the relevant

16 securitizations. 17 18 209. At the time of the acts alleged herein, CWABS materially assisted above-

mentioned violations of California Corporations Code Section 25441 in that it transferred

19 the mortgage loans to the CWABS Trusts, which in turn issued the Notes. 20 21 22 23 24 210. CWABS acted with intent to deceive or defraud.

The Trust Defendants 21 i . The Trust Defendants were, at all times herein mentioned, trusts formed by

Countrywide for the limited purpose of issuing Notes to investors. 212. At the time of the acts alleged herein, the Trust Defendants materially

25 assisted Countrywide Securities' and the Underwriter Defendants' violations of California 26 27 28
61592f3182612. ]

Corporations Code Section 25401 in that they issued the Notes to investors. 213. The Trust Defendants acted with intent to deceive or defraud.

^^

FiRST AMENDED COMPLACNT

1 2 3 4 5 6 7 8 9 10 11 12 13 14 IS 16

The Underwriter Defendants 214. The Underwriter Defendants underwrote the offerings of Countrywide

mortgage-backed securities alleged herein. 215. At the time of the acts alleged herein, the Underwriter Defendants materially

assisted Countrywide Securities' and the Trust Defendants' violations of California Corporations Code Section 254Q 1 in that they acted as underwriters for the securitizations at issue, and assisted in pricing and selling Notes to investors, structuring and marketing the transactions, and making SEC filings. 2 i 6. On information and belief, the Underwriter Defendants acted with intent to

deceive or defraud. 217. The Underwriter Defendants were charged with overseeing third^party party

due diligence firms ostensibly to confirm that the underlying mortgage loans in the securitizations complied with Countrywide's stated underwriting guidelines. The Underwriter Defendants knew or should have known, however, that because of the pressure to get the offerings available far sale quickly, the sheer number of loans that needed to be reviewed across many deals for many issuers, and the short time frames

17 within which to complete the due diligence, the required due diligence could not be done 18 19 and was not being done properly. 218. In addition, given the financial incentives for the Underwriter Defendants to

2Q bring the securitizations to the market regardless of the quality of the loans included within 21 them, the Underwriter Defendants allowed non-compliant loans to be included in the

22 'securitizations. The Underwriter Defendants were paid for their work only if the offering 23 was completed and the Notes were offered for sale. The Underwriter Defendants were

24 paid higher fees if riskier loans were included in the securitizations. Moreover, the 25 26 27 Underwriter Defendants knew that Countrywide would not continue to use them to underwrite securitizations if they were unable to offer the Notes for sale quickly and with little alteration to the included loans.

2s
6359213182612. [

I=IRST AMENDED COMPLAINT

1

219.

The Underwriter Defendants knew the quality of the underlying mortgage

2 loans was not as represented in the offering documents and the Underwriter Defendants 3 4 5 knowingly Failed adequately to disclose the true risk profile of the underlying loans. Bank of Amerrca 220. Bank of America, as successor-in-interest to Countrywide Home Loans,

6 Countrywide Securities, CWHEQ, and CWABS, is liable for the wrongdoing and damages 7 caused by Countrywide Home Loans, Countrywide Securities, CWHEQ, and CWABS. 8 9 Does 1-SO 221. Each of Does 1-50 was, at all times herein mentioned, a corporation, a

10 partnership, a ii^nited liability company, a joint venture, an association, a joint stock II 12 I3 company, a trust, andlor an unincorporated organization. 222. At the time of the acts alleged herein, each of Does 1-50 materially assisted

Countrywide Securities', the Trust Defendants', and the Underwriter Defendants' violation

i4 of California Corporations Code Section 25401. i5 1b 17 223. 224. Each of Does 1-50 acted with intent to deceive ar defraud. Under the Indenture Agreements, Indentures and Note Guaranty Insurance

Policies, as well as the laws of the State of California, MBIA may bring these claims as the

I8 Note Purchasers' subrogee. 19 20 21 225. By reason of the foregoing, Defendants .Countrywide Financial, Countrywide

Home Loans, Countrywide Securities, CWHEQ, CWABS, each of the Trust Defendants, and each of Does 1-50 materially assisted the violations of California Corporations Code

22 Section 25401, and are jointly and severally liable to MBIA as subrogee under California 23
24 25 26 27 28
b1592/3182612,i

Corporations Code Section 25504.1.

-55Ir IRST AMENDED COMPLAINT

1 2 3 4 5 b 7 226.

FOURTH CAUSE OF ACTION (Against Bank of America, the Countrywide Defendants, the Trust Defendants, Angelo Mozilo, David Sambol , Eric S.ieracki , Ranjit Kripalani , Jennifer Sandefur, Stanford Kurland and Does 1-100 for Common-Law Fraud) MBIA incorporates by reference and realleges each and every allegation as

set forth above in paragraphs 1 through 225 as if fully set forth herein. Countrywide Defendants 227. As set forth in detail above, each of the Countrywide Defendants made

9 ^ fraudulent and false statements of material fact and intentionally omitted material facts in 14 11 connection with the offer and sale of the Notes. 228. Each of the Countrywide Defendants knew that the above-listed

12 ^ representations and omissions were false and/or misleading when made. 13 229. Each of the Countrywide Defendants deliberately made misleading and false

14 I statements with the intent to defraud the Note Purchasers. 15 16 17 18 19 20 21 22 23 24 25 26 27 28
61592l318?6f2.1

230.

The Note Purchasers j ustifiably relied on the Countrywide Defendants' false

representations and misleading omissions.

231.

Had the Nate Purchasers known the true facts regarding the Countrywide

Defendants' underwriting practices and quality of the loans making up the securitizations, the Note Purchasers would not have purchased the Notes. 232. As a result of the Countrywide Defendants' false and misleading statements

and omissions, as alleged herein, the Note Purchasers have suffered damages in an amount not yet fully ascertained. Tlie Trust Defendants 233. As set Earth in detail above, the Trust Defendants made fraudulent and false

statements of material fact and intentionally omitted material facts in connection with the offer and sale of the Notes. 234. Each of the Trust Defendants knew that the above-listed representations and

omissions were false and/or misleading when made.
-5 hFIRSTAMENDED COMPLAINT

1

235.

Each of the Trust Defendants deliberately made the above-listed misleading

2 and false statements with the intent to defraud the Note Purchasers. 3 236. The Nate Purchasers justifiably relied on the Trust Defendants'

4 representations and false statements. 5 237. Had the Nate Purchasers known the true facts regarding the Trust

6 Defendants' underwriting practices and quality of the loans making up the securitizations, 7 the Note Purchasers would not have purchased the Notes. $ 9 23$. As a result of the Trust Defendants' false and misleading statements and

omissions, as alleged herein, the Note Purchasers have suffered damages in an amount not

10 yet fully ascertained.
11 Ba^zk of America

12 i3 14 15 16 17 1S

239.

Bank of America, as successor-in-interest to the Countrywide Defendants, is

liable for the wrongdoing and damages caused by the Countrywide Defendants. Angelo Mozilo 240. Angelo Mozilo made fraudulent and false statements of material fact and

omitted material facts in connection with the offer and sale of the Notes as set forth above. 241. Mozilo knew that the above-listed statements were false when made. He

knew facts or had access to information suggesting that his public statements, and

19 Countrywide's statements, were untrue and/or materially misleading, but he failed to 20 disclose that information. 21 242. Mozilo intended to defraud the Note Purchasers. Mozilo benefitted from the

22 fraud in the form of increased revenue for the corporation he led, and increased 23 24 compensation and increased value of his Countrywide investments. 243. The Note Purchasers justifiably relied on Mozilo's representations and false

25 statements. 2b 244. Had the Note Purchasers known the true facts regarding Mozilo's false and

27 misleading statements, the Note Purchasers would not have purchased the Notes. 2$
61592/3 i 82612. !

^^

PIRST AMENDED COMPLAINT

1

245.

As a result of Mozilo's false and misleading statements and omissions, as

2 alleged herein, the Note Purchasers have suffered damages in an amount not yet fully 3
4

ascertained.
David Sayn6ol

S

246.

David Sambol made fraudulent and false statements of material fact and

6 omitted material facts in connection with the offer and sale of the Notes as set forth above. 7 8 9 10 11 12 13 14 1S i6 17 18 19 247. Sambol knew that the above-listed statements were false when made. He

knew facts or had access to information suggesting that his public statements, and Countrywide's statezx^ents, were untrue andlor materially misleading, but he failed to disclose that information. 248. Sambol intended to defraud the Note Purchasers. Sambol benefitted from

the fraud in the form of increased revenue for the corporation he led, and increased compensation and increased value of his Countrywide investments. 249. statements. 250. Had the Note Purchasers known the true facts regarding Sambol's false and The Note Purchasers justifiably relied on Sambol's representations and false

misleading statements, the Note Purchasers would not have purchased the Notes. 251. As a result of Sambol's false and misleading statements and omissions, as

alleged herein, the Note Purchasers have suffered damages in an amount not yet fully

20 ascertained. 21 22 23 24 2S 26 2^ 28
6 1 5 9213 1 826 1 2 . l II

Eric Sieracki 252. Eric Sieracki made fraudulent and false statements of material fact and

omitted material facts in connection with the offer and sale of the Notes as set forth above. 253. Sieracki knew that the above-listed statements were false when made. He

knew facts or had access to information suggesting that his public statements, and Countrywide's statements, were untrue and/or materially misleading, but he failed to disclose that information. 254. Sieracki intended to defraud the Note Purchasers.
_ _.,,_. _5^_

FIRST AMENDED COMPLAINT

^

.

/

I

255.

The Note Purchasers justifiably relied on Sieracki 's representations and false

2 statements. 3 4 5 6 7
8

256.

Had the Note Purchasers known the true facts regarding Sieracki 's false and

misleading statements, the Note Purchasers would not have purchased the Notes. 257. As a result of Sieracki' s false and misleading statements and omissions, as

alleged herein, the Note Purchasers have suffered damages in an amount not yet fully ascertained.
Ranjif Kripalani

9 10 11

25$.

Ranjit Kripalani made fraudulent and false statements of materia ! fact and

omitted material facts in connection with the offer and sale of the Notes as set forth above. 259. Kripalani knew that the above-listed statements were false when made. He

12 knew facts or had access to information suggesting that Countrywide 's statements were 13 14 15 16 17 1$ 19 untrue and/or materially misleading, but he failed to disclose that information. 260. 261. Kripalani intended to defraud the Nate Purchasers. The Note Purchasers justifiably relied on Kripaiani 's representations and

false statements. 262. Had the Note Furchasers known the true facts regarding Kripaiani's false and

misleading statements , the Note Purchasers would not have purchased the Notes. 263. As a result of Kripalani's false and misleading statements and omissions, as

ZQ alleged herein , the Nate Purchasers have suffered damages in an amount not yet fully 21 22 23 ascertained. Jennifer Sandefur 264. rennifer Sandefur made fraudulent and false statements of material fact and

24 omitted material facts in connection with the offer and sale of the Notes as set forth above. 25 265 . Sandefur knew that the above- listed statements were false when made. She

26 knew facts or had access to information suggesting that Countrywide ' s statements were 27 28
G1592l3182fi12,1 -

untrue and/or materially misleading, but she failed to disclose that information. 266. Sandefur intended to defraud the Note Purchasers.
^^Q-

}:IRSTAMENDED COMPLAINT

3

J

1

267.

The Note Purchasers justifiably relied on Sandefur 's representations and false

2 statements. 3 268 . Had the Note Purchasers known the true facts regarding Sandefur' s false and

4 misleading statements, the Nate Purchasers would not have purchased the Notes. 5 269. As a result of Sandefur' s false and misleading statements and omissions, as

6 alleged herein, the Note Purchasers have suffered damages in an amount not yet fully 7 ascertained. $ 9 10 11 Stanford Kurland 270 . Stanford Kurland made fraudulent and false statements of material fact and

omitted material facts in connection with the offer and sale of the Notes as set forth above. 271. Kurland knew that the abave - listed statements were false when made. He

12 knew facts or had access to information suggesting that Countrywide's statements were 13 14 15 16 I7 18 l9 untrue and/or materially misleading, but he failed to disclose that information. 272. 273. statements. 274. Had the Note Purchasers known the true facts regarding Kurland's false and Kurland intended to defraud the Nate Purchasers. The Note Purchasers justifiably relied an Kurland 's representations and false

misleading statements , the Note Purchasers would not have purchased the Notes. 275 . As a result of Kurland 's false and misleading statements and omissions, as

20 alleged herein , the Note Purchasers have suffered damages in an amount not yet fully 21 22 23 ascertained. Does I--I04 276. Each of Does I-100 made fraudulent and false statements of material fact

24 and omitted material facts in connection with the offer and sale of the Notes. 25 26 made. 27 2$
6159213182612.1
-- -fj{1-

277.

Each of Does 1-100 knew that the above - listed statements were false when

27$.

Each of Does 1-100 intended to defraud the Note Purchasers.

I;IRST AMENDED COMPLAINT

1 2 3 4

279.

The Note Purchasers justifiably relied on Does 1-100's representations and

False statements. 280. Had the Note Purchasers known the true facts regarding the false and

misleading statements of Does 1-i00, the Note Purchasers would not have purchased the

5 Notes. 6 2$ 1. As a result of Does 1-100's false and misleading statements and omissions,

7 as alleged herein, the Note Purchasers have suffered damages in an amount not yet fully $ 9 10 11 12 13 14 ascertained. 282. Under the Indenture Agreements, Indentures and Note Guaranty Insurance

Policies, as well as the laws of the State of California, MBIA may bring these claims as the Note Purchasers' subrogee. 283. By reason of the foregoing, the Countrywide Defendants, the Trust

Defendants, Angelo Mazilo, David Sambol, Eric Sieracki, Ranjit Kripalani, 3ennifer Sandefur, Stanford Kurland and Does 1-100 are liable to MBIA as subrogee far cammon-

15 law fraud. 16 17 18 19 20 21 22 23 284. FIFTH CAUSE OF ACTION (Against Bank of America, the Countrywide Defendants, the Trust Defendants, the Underwriter Defendants , the Individual Defendants and Does 1-100 for Negligent Misrepresentation) MBIA incorporates by reference and realleges each and every allegation as

set forth above in paragraphs 1 through 282 as if fully set forth herein. 285. The Countrywide Defendants', the Trust Defendants', the Underwriter

Defendants', the Individual Defendants' and Does 1-100's material misrepresentations and

24 omissions set forth above were made without any reasonable ground for believing that the 25 representations were true. 26 27
28
6159213^8^6f2.i

286.

The Countrywide Defendants, the Trust Defendants, the Underwriter

Defendants, the Individual Defendants and Does 1-100 intended that the material
misrepresentations and omissions would induce the Note Purchasers to purchase the Notes. __.. .. -6 3 _
FIRST AMENDED COMPLAINT

1,

1

287.

The Note Purchasers justifiably relied on the material misrepresentations and

2 omissions of the Countrywide Defendants, the Trust Defendants, the Underwriter 3 4 5 b 7 8 9
10 I1

Defendants, the Individual Defendants and Does 1-100 and were induced to purchase the Notes. 288. Had the Note Purchasers known the true facts regarding Countrywide's

underwriting practices and the quality of the loans making up the securitizations, the Note Purchasers would not have purchased the Notes. 289. As a result of the Countrywide Defendants', the Trust Defendants', the

Underwriter Defendants', the Individual Defendants' and Does 1-I00's negligent
misrepresentations, the Note Purchasers have suffered damages in an amount not yet fully ascertained.

12 I3 14 IS 16 I7 18

290.

Bank of America, as successor-in-interest to the Countrywide Defendants, is

liable far the wrongdoing and damages caused by the Countrywide Defendants. 291. Under the Indenture Agreements, Indentures and Note Guaranty Insurance

Policies, as well as the laws of the State of California, MBIA may bring these claims as the Note Purchasers' subragee. 292. By reason of the foregoing, the Countrywide Defendants, the Trust

Defendants, the Underwriter Defendants, the Individual Defendants and Does 1-100 are

i9 liable to MBIA as subrogee for negligent misrepresentation. 20 21 22 293. SIXTH CAUSE OF ACTION (For Declaratory Relief Against All _Defendants) MBIA incorporates by reference and realleges each and every allegation as

23 set forth above in paragraphs 1 through 291 as if fully set forth herein. 24 25 26 294. An actual controversy has arisen and now exists between MBIA and

Defendants concerning their rights and duties under the Note Guaranty Insurance Policies. Specif tally, on information and belief, Defendants contend that MBIA does not have a

27 right as subragee of each Note Purchaser to recover payments due an the Notes from 28
6159213 E 826I 2, k

Defendants whenever MBIA has already made payments to the Note Purchasers.

I:IItST AMENDED COMPLAINT

I

1 2 3 4 5 b 7

295 .

Pursuant to California Code of Civil Procedure Section 1060 , MBIA desires

a judicial determination of its rights and duties under the Note Guaranty Insurance Policy and a judgment declaring that: a. b. MBIA is subrogated to the rights of each Note Purchaser; MBIA is entitled to recover from Defendants , without limitation, any

and all past and future payments made under its Policies 296. A judicial determination is necessary and appropriate at this time and under

S these circumstances far the parties to ascertain their rights and obligations to one another 9 10 11 12 i3 14 15 1^ 17 1^ 19 20 21
22

and to avoid the hardship caused on the parties and the Note Purchasers by a protracted dispute and further delay. PRAYER FOR RELIEF WHEREFORE MBIA prays far judgment on its behalf as follows: 1. On the first cause of action , for violations of California Corporations Code Section 25401 and § 25501, relief in the farm of damages based on reimbursement to the full extent of payments MBIA has made to the Note Purchasers; 2. On the second cause of action , far violations of California Corporations Code Section 25504 , relief in the form of damages in an amount as yet to be determined; 3. On the third cause of action, for violations of California Corporations Code Section 25504 . 1, relief in the form of damages in an amount as yet to be
determined;

23 24 25 26 27 28
6 i 59JJ31$2612.3

4.

On the fourth cause of action , For common-law fraud, damages in an amount as yet to be determined;

5.

On the fifth cause of action , for negligent misrepresentation , for damages in an amount as yet to be determined;

--- ---^..__.

-h3PIFLST AMENDED COMPLAINT

1 2 3 4 5 6 7 8

6.

On the sixth cause of action, for declaratory relief, relief in the farm of a declaration against all Defendants of the parties' rights and obligations with respect to the Nate Guaranty Insurance Policies, including, without limitation, MBIA's right to recover any and all past and future payments made under its policies; and

7.

Such other and further relief as the Court may deem just and proper.

9 DATED: November 3, 2009 10 11 i2 13 i4 15 16 17 18 19 20 21 22 23 24 25 26 27 28
61592/3 E 82612. ]

QUINN EMANUEL URQUHART OLIVER & HEDGES. LLP

By Harry A. Olivar, rr. Attorneys for Plaintiff MBIA Insurance Corporation

-64FIRST AMENDED C()MPI.AINT

1 2 3 4 DATED: November 3, 2009 S 6 7 8 9 la 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
6159213182612.1 ^^

JURY DEMAND L MBIA requests a trial by jury on all issues so triable.

QUINN EMANUEL URQUHART OLIVER & HEDGES. LLP

By
Harry A. Olivar, Jr. Attorneys for PIaintiff MBIA Insurance Corporation

^.

^^^_

FIRST AMENDED COMPLAINT

PROOF OF SERVICE 2 3 4 5 6 7 on the parties in this action as follows: 8 SEE ATTACHED SERVICE LIST 9 BY MAIL; I am "readily familiar" with the practices of Quinn Emanuel Urquhart Oliver & Hedges, LLP for collecting and processing correspondence for mailing with the United States Postal Service. Under that practice, it would be deposited with the United States Postal Service that same day in the ordinary course of business. I enclosed the foregoing in sealed envelope{s) addressed as shown above, and such envelope(s) were placed for collection and mailing with postage thereon fully prepaid at Los Angeles, California, on that same day following ordinary business practices. I declare under penalty of penury under the laws of the State of California that the foregoing is true and correct. Executed on November 3, 2009, at Los A I am employed in the County of Los Angeles, State of California. i am over the age of eighteen years and not a party to the within action; my business address is 865 South Figueroa Street, 10th Floor, Los Angeles, California 80017-2543. On November 3, 2009, I served true copies of the following document{s) described as: FIRST AMENDED COMPLAINT FOR: (Ij VIOLATIONS OF CALIFORNIA CORPORATIONS CODE §§ 25401 AND 25501; (2} VIOLATIONS OF CALIFORNIA CORPORATIONS CODE § 25504; (3} VIOLATIONS OF CALIFORNIA CORPORATIONS CODE § 25504.1; (4} COMMON^LAW FRAUD; (5) NEGLIGENT MISREPRESENTATION; AND (6} DECLARATORY RELIEF -- JURY TRIAL DEMANDED

la
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0394b.6159713171720.1

^^

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Case No. BC4I7S72 AROOF OF SERVICE

I

1 2 3 4 5 6 7 8 9 10 i1 12

SERVICE LIST MBIA INSURANCE CORPORATION v. BANK OF AMERICA CORPORATION, et al. Case Na. BC4i7572 A. Matthew Ashley mashley@irell. com IRELL & MANELLA LLP 1800 Avenue of the Stars, Suite 900 Los Angeles, CA 90067 COUNSEL FOR DEFENDANT ANGELO MOZILO

Tel: (310.) 203-7004
Fax: {310} 203-7199 Michael C. Tu mtu@orrick. corn ORRICK HERRINGTON & SUTCLIFFE LLP 777 South Figueroa, Street, Suite 3200 Los Angeles, CA 90017 TeI: (213) 629-2020 Fax: (213} 612-2499
Joshua Haanilton

-

COUNSEL FOR DEFENDANT DAVID SAMBOL

COUNSEL FOR DEFENDANTS RANJIT KRIPALANI and JENNIFER SANDEFUR

13 joshuahamrlton@paulhastings. com PAUL HASTINGS JANOFSKY & 14 WALKER LLP 515 South FIower Street, 25th Floor 15 Las Angeles, CA 90071 Tel.: (213) 683-6186 16 Fax: (213} 996-31$6 17 18 19 Lindsay R. Pennington Ipennington@glbsandunn. com GiBSON, DUNN & CRUTCHER LLP 333 South Grand Avenue

COUNSEL FOR DEFENDANTS GREENWICH CAPITAL MARKETS SOW ^O^ pS RBS SECURITIES , INC.}, HSBC SECURITIES (USA) INC., UBS SECURITIES LLC COUNSEL FOR DEFENDANT ERIC SIERACKI

Los Angeles, CA 90071 Tei.: (213) 229-7426 20 Fax: (213} 229-6426
21 Nicolas Morgan 22 23 24 25 26 27 28
43446.6 1 5 4213 1 7 E 720.1

nicalas. morgan@dlapiper. com

DLA PIPER LLP (US) 1999 Avenue of the Stars , Suite 400 Las Angeles, CA 90067 TeI.: (310} 595-3146 Fax: (310} 595-3446

_4_

Case No. BC4l7572 PROOF OF SERVICE

1 2 3 4 5 6 7

David C. CodeIl [email protected] CALDWELL LESLIE & PROCTOR, PC 1000 Wilshire Boulevard, Suite 600 Los Angeles, CA 90017 Tel.: (213) 629-9040 Fax: (213} 629-9022 Robert J. McGahan [email protected] GOODWIN PROCTOR LLP 601 S. Figueroa Street, 41st Floor Los Angeles, CA 90017 Tel: (213} 426-2500 Fax: (213) 623-1673 Bruce A. Erickson [email protected] PILLSBURY WINTHROP SHAW PITTMAN LLP 50 Prernont Street San Francisco, CA 94105-2228 Tel: (415) 983-1560 Fax: (415) 983-1200

COUNSEL FOR DEFENDANT STANFORD KURLAND

9 10 I1 12 13 14 15 16 17 I8 19 20 21 22 23 24 25 26 27 28
03446.6159713171720.1 II

COUNSEL FOR DEFENDANTS BANK OF AMERICA CORPORATION, COUNTRYWIDE FINANCIAL CORPORATION, COUNTRYWIDE HOME LOANS, COUNTRYWIDE SECURITIES CORPORATION, CWHEQ, INC. and CWABS, INC. COUNSEL FOR DEFENDANTS CWABS Revolving Home Equity Laan Trust, Series 2004-P; CWHEQ Revolving Horne Equity Loan Trust, Series 2005-A; CWHEQ Revolving Home Equity Loan Trust, Series 2005-E; CWHEQ Revolving Hame Equity Loan Trust, Series 2005-I; CWHEQ Revolving Home Equity Loan Trust, Series 2005-M; CWHEQ Revolving Home Equity Loan Trust, Series 2006-E; CWHEQ Revolving Home Equity Loan Trust, Series 2006-G; CWHEQ Home Equity Loan Trust, Series 2006-58; CWHEQ Home Equity Laan Trust, Series 2006-59; CWHEQ Horne Equity Lawn Trust, Series 2006-510; CWHEQ Revaluing Home Equity Loan Trust, Series 2007-E; CWHEQ Home Equity Loan Trust, Series 2007-51; CWHEQ Hame Equity Loan Trust, Series 2007-52; and CWHEQ Home Equity Loan

Trust, Series 2007-53

_5_

Case No. BC4L7572 PROOF OF SERVICE