Case 1:14-cv-10067-KPF-SN Document 529-14 Filed 10/29/20 Page 1 of 92
`
`Exhibit 12
`
`to the Declaration of Jeremy M. Amar-Dolan in Support of
`Defendant Wells Fargo Bank, N.A.’s Motions to Exclude the Opinions of Plaintiffs’
`Proffered Experts (Mar. 13, 2020) in
`Nat’l Credit Union Admin. Bd., et al. v. Wells Fargo Bank, N.A.,
`Case No. 14-cv-10067-KPF-SN (S.D.N.Y.)
`
`

`

`Case 1:14-cv-10067-KPF-SN Document 529-14 Filed 10/29/20 Page 2 of 92
`Case 1:14-cv-10067-KPF-SN Document 529-14 Filed 10/29/20 Page 2 of 92
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`UNITED STATES DISTRICT COURT
`
`SOUTHERN DISTRICT OF NEW YORK
`
`NATIONAL CREDIT UNION
`
`ADMINISTRATION
`
`BOARD, as Liquidating Agent,
`
`and
`
`GRAEME W. BUSH, as Separate
`Trustee,
`
`Plaintiffs,
`
`v.
`
`WELLS FARGO BANK, N.A.,
`
`Defendant.
`
`vvvvvvvvvv
`
`No. 14-CV-1 0067-KPF-SN
`
`w
`PHILLIP R. BURNAMAN II
`
`HIGHLY CONFIDENTIAL
`
`June 20 2019
`
`HIGHLY CONFIDENTIAL
`(cid:44)(cid:45)(cid:43)(cid:44)(cid:48)(cid:61)(cid:4)(cid:39)(cid:51)(cid:50)(cid:42)(cid:45)(cid:40)(cid:41)(cid:50)(cid:56)(cid:45)(cid:37)(cid:48)
`
`

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`Case 1:14-cv-10067-KPF-SN Document 529-14 Filed 10/29/20 Page 3 of 92
`Case 1:14-cv-10067-KPF-SN Document 529-14 Filed 10/29/20 Page 3 of 92
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`TABLE OF CONTENTS
`
`I.
`
`ASSIGNMENT AND COMPENSATION ............................................................................ 1
`
`II. QUALIFICATIONS ......................................................................................................... 2
`
`III. SUMMARY OF OPINIONS .............................................................................................. 6
`
`IV. BACKGROUND ON THE RESIDENTIAL MORTGAGE LOAN SECURITIZATION PROCEssl 0
`
`V BACKGROUND ON THE PLAINTIFFS AND THE TRUSTS AT ISSUE ........................... 14
`
`A.
`
`B.
`
`Plaintiffs NCUA and Graeme Bush .................................................................... 14
`
`The RMBS at Issue ............................................................................................. 15
`
`VI. BACKGROUND 0N RMBS INVESTORS ...................................................................... 16
`
`A.
`
`B.
`
`RMBS Investors Are Sophisticated And Professional ........................................ 16
`
`RMBS Investors Were Able To, And Did, Perform. Their Own Due Diligence Before
`Making An Inveslment ....................................................................................... 17
`
`C.
`
`After Closing, RMBS Investors Routinely Monitored Their Investments..........22
`
`VII. RMBS INVESTORS UNDERSTOOD THAT THE TRUSTEE HAD NARROW DUTIES THAT
`
`WERE EXPRESSLY DEFINED IN THE PSA. ................................................................26
`
`A.
`
`B.
`
`C.
`
`RMBS Investors Did Not Expect Trustees To Monitor Loan Performance .......29
`
`The Compensation Paid To RMBS Trustees Reflected Investor Expectations That The
`Trustee Was Not Required To Perform Substantial Work .................................31
`
`RMBS Investors Understood That Servicers Alone Managed Day-TO-Day Oversight of
`Collateral ............................................................................................................. 33
`
`VIII. TRUSTEES TAKING UNILATERAL ACTION T0 INVESTIGATE SUSPECTED
`R&W BREACHES WOULD HAVE BEEN A RADICAL DEPARTURE FROM
`
`GENERALLY ACCEPTED INDUSTRY CUSTOM AND PRACTICE AND
`
`INCONSISTENT WITH RIVIBS INVESTOR EXPECTATIONS ....................... 35
`
`A.
`
`B.
`
`RMBS Investors’ Expectation that Trustees Would Not Act Unilaterally Is Derived, In
`Part, From The Potentially Divergent Interests Based On Their Position In The
`Waterfall ............................................................................................................. 39
`
`RMBS Investors Understood That Unilateral Action By The Trustee Could Expose The
`Trust To Significant Costs With Uncertain Results ............................................42
`
`1. RMBS Investors Understood That Investigating And Pursuing Repurchase Claims
`Based On Alleged R&W Breaches Was Expensive And Time Consuming ...... 44
`
`2. RMBS Investors Understood The Rigorous Standard For Proving Repurchase Claims
`............................................................................................................................. 46
`
`3. RMBS Investors Understood That Repurchase Claims Were Uncertain ...........51
`
`C.
`
`RMBS Investors Understood How To Direct The Trustee And Were Able To Do It
`
`Successfully ........................................................................................................ 52
`
`HIGHLY CONFIDENTIAL
`(cid:44)(cid:45)(cid:43)(cid:44)(cid:48)(cid:61)(cid:4)(cid:39)(cid:51)(cid:50)(cid:42)(cid:45)(cid:40)(cid:41)(cid:50)(cid:56)(cid:45)(cid:37)(cid:48)
`
`

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`Case 1:14-cv-10067-KPF-SN Document 529-14 Filed 10/29/20 Page 4 of 92
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`IX. RMBS INVESTORS DID NOT EXPECT TRUSTEES TO PURSUE MASS PUTBACK CLAIMS
`
`BASED ON DOCUMENT ExCEPTIONs ........................................................................ 57
`
`A.
`
`B.
`
`C.
`
`D.
`
`RMBS Investors Did Not View Most Document Exceptions As Material ......... 58
`
`RMBS Investors Did Not Expect Trustees To Evaluate A Document’s Authenticity Or
`Enforceability ......................................................................................................62
`
`RMBS Investors Did Not Expect Trustees To Exercise A Document Put Option63
`
`RMBS Investors Did Not Expect Trustees TO Use Document Exceptions As A Pretense
`To Seek The Repurchase Of Delinquent Loans ..................................................65
`
`x. WELLS FARGO’S ACTIONS FOLLOWING THE OCCURRENCE OF AN EOD WERE
`
`CONSISTENT WITH INDUSTRY CUSTOM AND INVESTOR EXPECTATIONS ............... 66
`
`A.
`
`RMBS Investors Understood That The Occurrence Of An EOD Did Not Transform The
`
`Trustee Into A Collateral Manager .....................................................................68
`
`B.
`
`RMBS Investors Would Not Have Expected Wells Fargo To Perform A Detailed
`Analysis Of Every Loan In Trusts For Which An EOD Was Declared ............. 69
`
`C. Wells Fargo’s EOD Notice Procedure Was Consistent With Investor Expectations
`............................................................................................................................. 71
`
`XI. Mr. Blum’s Opinions Regarding Alleged Conflicts Of Interest Are Inconsistent With
`The Understanding Of RMBS Investors................................................................'74
`
`A.
`
`B.
`
`RMBS Investors Were Well Aware Of The Many Hats Worn By Financial Institutions
`In The RMBS Markets And Did Not View Such Roles As Conflicting ............'74
`
`RMBS Investors Did Not View The Appointment Of Separate Trustees As A
`Concession That Disabling Conflicts Of Interest Existed ..................................77
`
`ii
`
`HIGHLY CONFIDENTIAL
`(cid:44)(cid:45)(cid:43)(cid:44)(cid:48)(cid:61)(cid:4)(cid:39)(cid:51)(cid:50)(cid:42)(cid:45)(cid:40)(cid:41)(cid:50)(cid:56)(cid:45)(cid:37)(cid:48)
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`

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`Case 1:14-cv-10067-KPF-SN Document 529-14 Filed 10/29/20 Page 5 of 92
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`I.
`
`1.
`
`ASSIGNMENT AND COMPENSATION
`
`I have been retained by Jones Day, counsel for Wells Fargo Bank, N.A. (“Wells Fargo”
`
`or the "’I‘rustee”), to provide expert testimony in the action captioned National Credit
`(cid:50)(cid:69)(cid:88)(cid:77)(cid:83)(cid:82)(cid:69)(cid:80)(cid:4)(cid:39)(cid:86)(cid:73)(cid:72)(cid:77)(cid:88)(cid:4)
`
`Union Administration Board. v. Wells Fargo Bank, N.A., Case No. l4-cv-10067-KPF-SN
`(cid:57)(cid:82)(cid:77)(cid:83)(cid:82)(cid:4)(cid:37)(cid:72)(cid:81)(cid:77)(cid:82)(cid:77)(cid:87)(cid:88)(cid:86)(cid:69)(cid:88)(cid:77)(cid:83)(cid:82)(cid:4)(cid:38)(cid:83)(cid:69)(cid:86)(cid:72)(cid:18)(cid:4)(cid:90)(cid:18)(cid:4)(cid:59)(cid:73)(cid:80)(cid:80)(cid:87)(cid:4)(cid:42)(cid:69)(cid:86)(cid:75)(cid:83)(cid:4)(cid:38)(cid:69)(cid:82)(cid:79)(cid:16)(cid:4)(cid:50)(cid:18)(cid:37)(cid:18)
`
`(S.D.N.Y.) (the “Action”), regarding generally accepted customs and practices in the
`
`residential mortgage backed securities (“RMBS”) industry, including the expectations of
`
`RMBS investors as they relate to, among other things, the role of trustees in such
`
`transactions and RMBS investors” perception of certain so-called representation and
`
`warranty (“R&W”) breaches and document exceptions.1 As part of my assignment, I was
`
`asked to review and respond to the opinions regarding RMBS investor expectations and
`
`interests expressed by Leonard Blurn in the report he served on behalf of plaintiffs
`
`National Credit Union Administration Board and (“NCUA”) and Graeme Bush (together,
`
`“Plaintiffs”) on January 13, 2019 in this Action (the “Blurn Report”).
`
`I also was asked to
`
`provide my views on certain of the assumptions used in the calculations provided by
`
`Plaintiffs’ damages expert Christopher Milner in the Corrected Report Plaintiffs served
`
`on January 25, 2019 in this Action (the “Milner Report”).2
`
`2.
`
`In preparing this Report and rendering the opinions set forth herein, I relied on the
`
`material expressly referenced in fltis Report and identified in Appendix B, along with my
`
`thirty-plus years of experience in the mortgage finance industry as an investor in RMBS
`
`and residential mortgage loans, hanker, advisor, and guarantoriinsurer of RMBS. My
`
`statements in fltis Report about what RMBS investors understood and expected, what
`
`their interests are, how they conducted their affairs, and how they viewed various
`
`relevant issues are based on that thirty-plus years of experience.
`
`Unless otherwise noted, when I use the acronym RMBS in this report I am refen'ing to private
`1
`label RMBS rather than agency RMBS. Private label RMBS are sponsored by private entities and not guaranteed by
`any government sponsored enterprise (“GSE”). These RMBS are generally backed by mortgage loans that do not
`conform to the Fannie MaefFreddie Mac guidelines. These “non-confonning” loans include loans that exceed the
`GSE size requirements (known as jumbo loans), loans that lack full documentation (Alt-A), and loans to borrowers
`with low FICO scores (subprime), among others. Agency RMBS, on the other hand. are issued by one of the GSEs
`(Fannie Mae, Freddie Mac and Ginnie Mae) and are backed by loans that conform to GSE guidelines.
`
`I reserve the right to address other aspects of the Milner Report in an additional report that may be
`2
`served on August I, 2019, consistent with the deadline ordered by the Court. All references herein to the Milner
`Report are to Mr. Milner's Corrected Report, dated January 25, 2019.
`
`HIGHLY CONFIDENTIAL
`(cid:44)(cid:45)(cid:43)(cid:44)(cid:48)(cid:61)(cid:4)(cid:39)(cid:51)(cid:50)(cid:42)(cid:45)(cid:40)(cid:41)(cid:50)(cid:56)(cid:45)(cid:37)(cid:48)
`
`

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`Case 1:14-cv-10067-KPF-SN Document 529-14 Filed 10/29/20 Page 6 of 92
`Case 1:14-cv-10067-KPF-SN Document 529-14 Filed 10/29/20 Page 6 of 92
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`I was assisted by Ankura Consulting, LLC. (“Ankara”) who worked under my
`
`supervision and direction. I reserve the right to consider additional information that may
`
`become available to me after the date of this Report, and to amend, change, or augment
`
`the findings and opinions set forth herein.
`
`I am being compensated at a rate of $1,000 per hour for my work on this matter. My
`
`compensation is not contingent upon the nature of my opinions or the outcome of this
`
`matter. Ankura d0es not have any financial interest in the outcome of this Action.
`
`QUALIFICATIONS
`
`I am Chief Risk Officer and Chief Operating Officer of Dendera Capital, LP
`
`(“Dendera” , a private investment fund with offices in New York and Connecticut. At
`
`Dendera, I am responsible for risk management of a portfolio of distressed and event-
`
`driven debt and equity investments, as well as the daily operation of the firm.
`
`I have
`
`provided expert testimony concerning RMBS and the mortgage finance industry in
`
`several matters. The matters in which I have provided expert testimony at trial or
`
`deposition within the past four years are listed in my curriculum vitae, attached hereto as
`(cid:71)(cid:89)(cid:86)(cid:86)(cid:77)(cid:71)(cid:89)(cid:80)(cid:89)(cid:81)(cid:4)(cid:90)(cid:77)(cid:88)(cid:69)(cid:73)
`
`Appendix A.3 I have extensive experience with all aspects of RMBS, as well as
`
`commercial mortgage-backed securities (“CMBS”), mortgage finance, homebuilding,
`
`commercial banking, financial guaranty insurance, securities trading, portfolio
`
`management, and risk management
`
`I have worked in the mortgage finance industry for over thirty—five years.
`
`I began my
`
`career in finance in 1983 at EF Hutton & Company, where I designed and analyzed
`
`residential mortgage cash flow models and assisted on mortgage securitizations as an
`
`(cid:77)(cid:18)(cid:73)(cid:18)
`investment banker—analyzing collateral (i.e., mortgage loans), negotiating transactions
`
`with counterparties and rating agencies, working with counsel on transaction
`
`documentation, and providing the sales force with information for their clients.
`
`In 1986, I joined what was then a start-up financial guarantor, Financial Security
`
`Assurance, now known as Assured Guaranty Ltd., where I developed business
`
`3
`
`I have not authored any publications in the last ten years.
`
`2
`
`HIGHLY CONFIDENTIAL
`(cid:44)(cid:45)(cid:43)(cid:44)(cid:48)(cid:61)(cid:4)(cid:39)(cid:51)(cid:50)(cid:42)(cid:45)(cid:40)(cid:41)(cid:50)(cid:56)(cid:45)(cid:37)(cid:48)
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`Case 1:14-cv-10067-KPF-SN Document 529-14 Filed 10/29/20 Page 7 of 92
`Case 1:14-cv-10067-KPF-SN Document 529-14 Filed 10/29/20 Page 7 of 92
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`opportunities for the application of financial guaranty insurance to residential and
`
`commercial mortgage finance. In this role, I analyzed RlvaS transactions as a guarantor
`
`and negotiated transaction terms, including contract and fee arrangements with servicers
`
`and trustees for mortgage securitizations.
`
`In 1990, I joined Citigroup Securities (“Citigroup”), where I was responsible for the
`
`acquisition of residential, commercial, and consumer loan portfolios from the Resolution
`
`Trust Corporation (“RTC”). My team at Citigroup performed all the tasks related to the
`
`acquisition of whole loan portfolios, including extensive loan-level due diligence,
`
`underwriting reviews, and the valuation of mortgage portfolios with an aggregate original
`
`principal balance in excess of $4 billion. Under my supervision, my team negotiated
`
`mortgage loan purchase and sale agreements and arranged for the servicing of those
`
`assets—issues that were integral to the acquisition, disposition, and maintenance of loan
`
`assets. The disposition process included loan sales via whole loan pools and
`
`securitizations, loan modifications, and loan workouts, some of which my group either
`
`oversaw or managed directly. While at Citigroup, I was directly involved in the loan
`
`sales, securitization, and workout processes for loans acquired from the RTC.
`
`In 1994, Ijoined ING Bank N.V. (“ING”) as a portfolio manager, with responsibility for
`
`managing a portfolio of $5 00 million of RMBS, CMBS, and distressed real estate debt.
`
`As a “buy-side” portfolio manager at ING, I reviewed mortgage securitization
`
`transactions for their suitability as investments, including conducting or overseeing due
`
`diligence reviews of loan originators and servicers.
`
`I worked to form ING’s Special
`
`Servicing unit and participated in the development of that unit's policies and procedures.
`
`10.
`
`Over time, my responsibilities at ING increased, and by 2004, I was responsible for all of
`
`ING’s proprietary trading businesses worldwide, encompassing over $14 billion of assets
`
`under management and 75 professionals in six offices around the world. A significant
`
`portion of my portfolio was comprised of RMBS and other asset-backed securities.
`
`Among my particular responsibilities was supervision of a proprietary RMBS portfolio
`
`with a value of more than $4 billion (including highly-rated (AAA) securities and GSE
`
`mortgage securities), over $1 billion of CMBS, and direct credit (collateral) management
`
`HIGHLY CONFIDENTIAL
`(cid:44)(cid:45)(cid:43)(cid:44)(cid:48)(cid:61)(cid:4)(cid:39)(cid:51)(cid:50)(cid:42)(cid:45)(cid:40)(cid:41)(cid:50)(cid:56)(cid:45)(cid:37)(cid:48)
`
`

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`Case 1:14-cv-10067-KPF-SN Document 529-14 Filed 10/29/20 Page 8 of 92
`Case 1:14-cv-10067-KPF-SN Document 529-14 Filed 10/29/20 Page 8 of 92
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`of over $7 billion of collateralized loan obligations (“CLOs”). In addition, while at ING
`
`we sponsored six (6) collateralized debt obligations (“CDOs”) and served as the collateral
`
`manager for three of those transactions." I also was co-chair ofthe ING Barings
`
`underwriting committee.S
`
`11.
`
`I resigned from ING in 2004 and co-founded NewStar Financial Inc. (“NewStar”), a
`
`finance company that focused on consumer finance, commercial loan underwriting, and
`
`commercial real estate. At NewStar, I was head of the Asset-Backed Securities and
`
`Structured Products Group. In this capacity, I reviewed and invested in MS
`
`transactions and other mortgage-backed and asset-backed securities. NewStar was a
`
`sponsor!issuer of CLOs and CDOs during my tenure.
`
`I also served on the credit
`
`underwriting committee for NewStar’s CRE lending business. NewStar divested the
`
`majority of its structured finance portfolio in July of 2007, and I left the company in
`
`December of that year.
`
`12.
`
`In 2008, I focused on advisory work for California Coastal Communities Inc., a publicly
`
`traded home builder based in Irvine, California, where I had served as a Director for ten
`
`years and was Chairman of the Board and the Audit Committee as well as the designated
`
`Audit Committee SEC financial expert.
`
`I also provided consulting services for a large,
`
`private Midwestern life insurance company with a $5 billion investment portfolio that
`
`included numerous structured finance investments, including significant holdings of
`
`RIVIBS.
`
`13.
`
`By 2009, I had formed a partnership, Murray & Bumaman LLC, to provide financial
`
`advisory and litigation support services in my areas of expertise.
`
`14.
`
`In late 2012, I joined The GreensLedge Group LLC (“GreensLedge”), where I testified as
`
`an expert witness in several litigation matters, including in connection with a settlement
`
`The three managed transactions carried the “Ajax” label. The prior lhree transactions were not
`‘
`branded and were “unmanaged” (meaning the pool of assets was static or unchanging).
`
`I also undertook special projects at the direction of the [NG Group Board, including the
`5
`investigation of NCFE, a well-known ABS lJ'ansaction that failed amid fraud by lhe sponsor and allegations of
`negligence by the trustee of those transactions.
`
`HIGHLY CONFIDENTIAL
`(cid:44)(cid:45)(cid:43)(cid:44)(cid:48)(cid:61)(cid:4)(cid:39)(cid:51)(cid:50)(cid:42)(cid:45)(cid:40)(cid:41)(cid:50)(cid:56)(cid:45)(cid:37)(cid:48)
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`Case 1:14-cv-10067-KPF-SN Document 529-14 Filed 10/29/20 Page 9 of 92
`Case 1:14-cv-10067-KPF-SN Document 529-14 Filed 10/29/20 Page 9 of 92
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`between Bank of America/Countrywide and a group of RMBS investors regarding
`
`Countrywide-sponsored RMBS)S In January of 2016, I left GreensLedge to reunite with
`
`two former colleagues from ING at Dendera, while continuing with select litigation
`
`support and advisory assignments.
`
`15.
`
`I currently serve as a member of the Board of Directors of Shelter Growth Capital
`
`Opportunities Fund Ltd. (“Shelter Growth”), a $2 billion private investment fund focused
`
`on residential and commercial mortgage investments, including securities and mortgage
`
`whole loans. Shelter Growth is a sponsor of private label RMBS transactions,
`
`completing their first transaction in 2015. I also currently serve on the Investment
`
`Advisory Board of Edgewood Capital Advisors, LLC, a real estate opportunity fund with
`
`over $200 million of assets under management, primarily in commercial real estate.
`
`16.
`
`I am currently a member of the Structured Finance Industry Group (“SFIG”) and
`
`participated in that industry association’s RMBS 3.0 project? I currently participate in
`
`SFIG’s Private Label RlvaS task force. I am a former member of the Mortgage Bankers
`
`Association, the American Bankruptcy Institute, the Turnaround Management
`
`Association, the American Securitization Forum (“ASF”), and the Urban Land Institute.
`
`I was a founding governor of the Commercial Real Estate Finance Council (formerly
`
`“CMSA”) and served as the chairman of the Investors Committee of the CMSA.
`
`I have
`
`spoken to numerous industry groups on issues related to mortgage finance, securitization,
`
`and financial guaranty insurance, including the Commercial Real Estate Finance Council,
`
`ASP, and the Mortgage Bankers Association, as well as to rating like agencies Moody‘s
`
`Investors Service (“Moody’s”), Standard & Poor’s (“S&P”), and Fitch Ratings, Inc.
`
`(“Fitch”).
`
`5
`The settlement agreement is available at In re The Bank ofNew York Mellon, Index NO.
`(cid:45)(cid:82)(cid:4)(cid:86)(cid:73)(cid:4)(cid:56)(cid:76)(cid:73)(cid:4)(cid:38)(cid:69)(cid:82)(cid:79)(cid:4)(cid:83)(cid:74)(cid:4)(cid:50)(cid:73)(cid:91)(cid:4)(cid:61)(cid:83)(cid:86)(cid:79)(cid:4)(cid:49)(cid:73)(cid:80)(cid:80)(cid:83)(cid:82)
`6513'861'201 l, Dkt. No. 3 (N.Y. Sup. Ct. filed June 29, 2011).
`
`Structured Finance Industry Group, “RMBS 3.0 & other PLS Market Initiatives,” available at
`I
`http:i’i’www.sfindustryorg/advoeacyi’categoriesiCéis (“Project RMBS 3.0 is an initiative of the Structured Finance
`Industry Group (SFIG), established with the primary goal of re-invigorating the private label residential mortgage-
`backed securities (RNIBS) market. Established by SFIG members, the project seeks to reduce substantive
`differences within current market practices through an open discussion among a broad cross-section of market
`participants. Where possible, participants seek to identify either a single or range of potential best practices.”).
`
`5
`
`HIGHLY CONFIDENTIAL
`(cid:44)(cid:45)(cid:43)(cid:44)(cid:48)(cid:61)(cid:4)(cid:39)(cid:51)(cid:50)(cid:42)(cid:45)(cid:40)(cid:41)(cid:50)(cid:56)(cid:45)(cid:37)(cid:48)
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`

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`Case 1:14-cv-10067-KPF-SN Document 529-14 Filed 10/29/20 Page 10 of 92
`Case 1:14-cv-10067-KPF-SN Document 529-14 Filed 10/29/20 Page 10 of 92
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`17.
`
`I graduated from Harvard College in 1931 with an AB in Economics. In 1985, I earned
`
`an MBA from NYU’s Stern School of Business Administration with a concentration in
`
`Finance.
`
`[[I.
`
`SUMMARY OF OPINIONS
`
`18.
`
`Below is a summary of my responses and rebuttals to Mr. Blum’s opinions in this matter,
`
`which, unless otherwise indicated, relate to generally accepted customs and practices in
`
`the RMBS industry, including RMBS investors” expectations with respect to the role of
`
`RMBS trustees in RIVIBS transactions and their perception of certain so—called R&W
`
`breaches and document exceptions.
`
`in
`
`I read the Expert Report of Christopher Hillcoat, dated June 20, 2019. In my
`
`opinion it correctly articulates the RMBS industry’s generally accepted customs
`
`and practices, particularly as they relate to RMBS trustees’ roles and
`
`responsibilities. His articulation of the role of the RIVIBS trustee is consistent
`
`with the perception of trustees held by prudent RMBS’s investors, as well as
`
`prudent RMBS investors’ expectations about the role of RMBS trustees like
`
`Wells Fargo.
`
`0
`
`Mr. Blum’s description of RMBS industry customs and practices in general, and
`
`RMBS investors’ perceptions of, and expectations regarding, RMBS trustees in
`
`particular, is incorrect. RMBS investors managed the individual investments in
`
`their portfolios in accordance with generally accepted industry customs and
`
`practices, which included the expectation that RMBS trustees had limited duties
`
`that were typically administrative in nature and, in all events, strictly defined and
`
`limited by the terms of the agreements governing the transactions (typically
`
`Pooling and Serving Agreements (“PSAs”) or Trust Agreements (“TAs”)).
`
`-
`
`The generally accepted customs and practices in the RMBS industry universally
`
`reflected the limited role of RMBS trustees. Consistent with those generally
`
`accepted customs and practices, RMBS trustees received a very small fee as
`
`compensation for their work on any given trust.
`
`HIGHLY CONFIDENTIAL
`(cid:44)(cid:45)(cid:43)(cid:44)(cid:48)(cid:61)(cid:4)(cid:39)(cid:51)(cid:50)(cid:42)(cid:45)(cid:40)(cid:41)(cid:50)(cid:56)(cid:45)(cid:37)(cid:48)
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`

`

`Case 1:14-cv-10067-KPF-SN Document 529-14 Filed 10/29/20 Page 11 of 92
`Case 1:14-cv-10067-KPF-SN Document 529-14 Filed 10/29/20 Page 11 of 92
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`-
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`Contrary to Mr. Blum’s opinions based on his flawed understanding of RMBS
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`industry customs and practices,3 RMBS investors did not expect trustees to act
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`unilaterally, exercise independent judgment, or otherwise expend trust resources
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`without guidance from the requisite percentage of investors pursuant to the
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`direction and indemnity (“D851”) process set forth in the relevant governing
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`agreements. Indeed, it was standard industry custom and practice for RIVIBS
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`trustees to refrain from acting unilaterally and for trustees to take actions (like
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`those Mr. Blum opines Wells Fargo should have taken here), only in response to
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`directions from RMBS investors, and then only when the directing investors
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`agreed to provide the trustee with a contractually-prescribed reasonable
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`indemnity.
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`-
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`Mr. Blum is demonstrably wrong when he opines that “investors could not, as a
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`practical matter, enforce their rights directly.” It was customary and standard
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`practice for RlviBS investors to take matters into their own hands, typically by
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`acting in accordance with the 0&1 process. This included seeking loan files from
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`trustees, analyzing loan files for evidence of R&W breaches, and issuing
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`directions to trustees to pursue repurchases through litigation or otherwise.
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`Indeed, as the number of “put-back” or repurchase lawsuits brought in the wake
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`of the financial crisis demonstrates, it became common practice for RIVIBS
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`investors to avail themselves of the 0&1 process hecause they did not expcet
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`RMBS trustees to c0nduct investigations or initiate litigation unilaterally.
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`I
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`It would have been inconsistent with generally accepted industry custom and
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`practices for Wells Fargo, as RlviBS trustee, to take the unilateral actions Mr.
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`Blum says investors expected it to take in the face of what he describes as “red
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`flags” (and which, in my opinion, were not considered evidence of R&W
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`3
`See, e-g-, Blum Report at 6 (“When Wells Fargo discovered red flags, it did not reasonably follow
`(cid:55)(cid:73)(cid:73)(cid:16)(cid:4)(cid:73)(cid:18)(cid:75)(cid:18)(cid:16)(cid:4)
`up.”); Id. at 123 (“It is my opinion that a reasonable trustee confronted with the overwhelming evidence of problems
`(cid:45)(cid:72)(cid:18)
`with the FFIS Trust should have investigated the loans with ‘red flags’ and sought repurchase"); Id. at 147 (“given
`(cid:45)(cid:72)(cid:18)
`the overwhelming amount of evidence, a reasonably diligent trustee would have taken additional actions to identify
`the extent of the breaching loans in the FF]? Trust and mitigate the risks associated with those loans up to, including
`review of additional loans with adverse characteristics or “red flags” once it became aware of the pervasive
`problems with the FFl‘lr loan pool.").
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`HIGHLY CONFIDENTIAL
`(cid:44)(cid:45)(cid:43)(cid:44)(cid:48)(cid:61)(cid:4)(cid:39)(cid:51)(cid:50)(cid:42)(cid:45)(cid:40)(cid:41)(cid:50)(cid:56)(cid:45)(cid:37)(cid:48)
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`

`

`Case 1:14-cv-10067-KPF-SN Document 529-14 Filed 10/29/20 Page 12 of 92
`Case 1:14-cv-10067-KPF-SN Document 529-14 Filed 10/29/20 Page 12 of 92
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`breaches by the RMBS industry, particularly during the financial crisis). Indeed,
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`contrary to Mr. Bltun’s assertions, RMBS investors did not expect RMBS trustees
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`to unilaterally pursue courses of action that could expose a given trust to
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`significant costs and fees, and thereby decrease cash flows to certificateholders.
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`For example, RIVIBS investors understood that pursuing repurchase claims based
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`on alleged RELW breaches in the governing agreements would be time consuming
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`and expensive, and that mortgage loan sellers could reject repurchase demands (if,
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`for example, they disagreed with the RELW breach allegation, found missing
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`documents or concluded that the alleged R&W breaches did not materially and
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`adversely affect the value of the loan or the interests of certificateholders therein).
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`0
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`Mr. Blum’s opinion that Wells Fargo should have taken unilateral actions also
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`ignores the fact that RMBS investors could, and often did, have divergent
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`preferences as to what actions a servicer or trustee should take (depending on the
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`investors’ position in the transaction’s cash flow waterfall). In my experience,
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`RIVIBS investors understood that trustees could not favor particular classes of
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`investors’ interests over others. Yet, that is likely what would have happened in
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`each instance in which Mr. Blum opines Wells Fargo should have taken action
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`unilaterally without a direction or indemnity from the requisite percentage of
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`certificateholders.
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`o
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`Contrary to Mr. Blum’s assertions, it would have been a radical departure from
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`generally accepted industry custom and practice for Wells Fargo to have pursued
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`mass repurchase claims based on the absence of (or defects in) one or more
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`documents from the collateral loan files the trustee (or custodian) received in
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`connection with the closing of the transaction (frequently referred to as
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`“document exceptions”). RMBS investors did not expect trustees to do so and, in
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`my opinion, would not ordinarily have wanted trustees to do so, particularly since
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`it would have meant potentially removing performing loans from the trust and
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`foregoing the interest being earned from that performing collateral. Waiting for a
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`loan impacted by a document exception to default before initiating a repurchase
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`would have been a radical departure from generally accepted custom and practice,
`
`8
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`HIGHLY CONFIDENTIAL
`(cid:44)(cid:45)(cid:43)(cid:44)(cid:48)(cid:61)(cid:4)(cid:39)(cid:51)(cid:50)(cid:42)(cid:45)(cid:40)(cid:41)(cid:50)(cid:56)(cid:45)(cid:37)(cid:48)
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`

`

`Case 1:14-cv-10067-KPF-SN Document 529-14 Filed 10/29/20 Page 13 of 92
`Case 1:14-cv-10067-KPF-SN Document 529-14 Filed 10/29/20 Page 13 of 92
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`and certainly not something a RMBS investor would have expected a RMBS
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`trustee to do. Moreover, virtually all missing and defective document issues
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`would have been viewed within the RIVIBS industry as relatively insignificant and
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`of little concern because almost every such document issue could be easily cured
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`by the servicer, the originator or others. In fact, it is my opinion that RMBS
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`investors would not have wanted Wells Fargo to pursue mass repurchases based
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`on document exceptions if, for no other reason, than it would likely have been a
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`futile exercise that would have wasted the trust’s money given the cure rights held
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`by the parties responsible for repurchases, along with the materiality thresholds
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`imposed on repurchase claims by the terms of the governing agreements.
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`0
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`Mr. Blum’s opinions with respect to alleged conflicts of interest facing RMBS
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`trustees are not consistent with my knowledge of, and experience in, the RMBS
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`industry, particularly during the relevant time period. Industry custom and
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`practice evolved in such a way that the putative conflicts that seem to trouble Mr.
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`Blum were considered insignificant or unimportant. I know of no one who
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`advocated for including prohibitions or mechanisms in governing agreements to
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`address these perceived conflicts of interest in the agreements governing RMBS
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`transactions before or during the relevant time period. That is ostensibly because
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`the sophisticated parties who purchased RIVIBS, the financial institutions that
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`underwrote them, the rating agencies that rated them, and the lawyers who
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`structured the transactions did not think such prohibitions were necessary.
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`Furthermore, all market participants understood that Wells Fargo and other
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`RMBS trustees also had other roles in the RMBS markets (including serving as
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`originators of mortgage loans, as well as sponsors, servicers, or underwriters for
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`other RMBS transactions). It was no secret. Yet sophisticated investors still
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`bought securities issued by trusts for which Wells Fargo served as trustee.
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`-
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`It is my opinion that Wells Fargo’s decision to seek the appointment of a separate
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`trustee to investigate and prosecute repurchase actions for certain RMBS trusts
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`was a prudent and adequate response to investor repurchase demand letters since
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`it had the effect of removing any suggestion that Wells Fargo could be conflicted
`
`9
`
`HIGHLY CONFIDENTIAL
`(cid:44)(cid:45)(cid:43)(cid:44)(cid:48)(cid:61)(cid:4)(cid:39)(cid:51)(cid:50)(cid:42)(cid:45)(cid:40)(ci