<partyblock><br><table width="75%" border="1" cellspacing="1" cellpadding="4" align="center"><tr><td><br><div align="center"><b><font size="+1">Home EquityMortgage Trust Series 2006-1, HOME EQUITY MORTGAGE TRUST SERIES 2006-3, andHOME EQUITY MORTGAGE TRUST SERIES 2006-4, by U.S. BANK NATIONALASSOCIATION, solely in its capacity as Trustee, Plaintiffs,<br><br>against<br><br>DLJ Mortgage Capital, Inc. and SELECT PORTFOLIOSERVICING, INC., Defendants.<br><br><br><br>HOME EQUITY MORTGAGE TRUST SERIES 2006-5, by U.S. BANKNATIONAL ASSOCIATION, solely in its capacity as Trustee, Plaintiff,<br><br>against<br><br>DLJ MORTGAGE CAPITAL, INC. and SELECT PORTFOLIOSERVICING, INC., Defendants.</font></b></div><br><br></td></tr></table><br><br>156016/2012<br>Saliann Scarpulla, J.<p>In this residential mortgage backed securities ("RMBS") action for, <i>inter alia</i>, breachof contract, defendant DLJ Mortgage Capital, Inc. ("DLJ") moves, pursuant to CPLR 3212, forpartial summary judgment (Index No. 156016/2012, motion sequence number 33; Index No.653787/2012, motion sequence number 31).  Plaintiffs Home Equity Mortgage Trust Series2006-1, 2006-3, 2006-4 and 2006-5 ("Home Equity" or "plaintiffs") move, pursuant to CPLR3212, for partial summary judgment (Index No. 156016/2012, sequence number 32; Index No.653787/2012, sequence number 30).  These motions are consolidated for disposition.</p><p>This litigation relates to four trusts created in 2006 pursuant to four Pooling and ServicingAgreements ("PSAs") between DLJ, as the Seller, and U.S. Bank National Association, as theTrustee. On the closing dates, the Trusts, HEMT 2006-1 Trust, HEMT 2006-3 Trust, HEMT2006-4 Trust and HEMT 2006-5 Trust, contained 35,909 securitized residential mortgage loansthat were originated or acquired by DLJ. The mortgage loans were packaged into <font color="FF0000">[*2]</font>these Trusts, which issued debt securities that were sold toinvestors. The HEMT 2006-1 transaction closed on February 28, 2006, HEMT-3 closed on June30, 2006, HEMT-4 closed on August 30, 2006, and HEMT 2006-5 closed on October 21,2006.</p><p>DLJ is a wholly-owned subsidiary of Credit Suisse Holdings (USA) LLC ("Credit SuisseLLC").  DLJ, the entity through which Credit Suisse acquired and sold residential mortgageloans, acquired mortgage loans, and transferred them to Credit Suisse First Boston MortgageSecurities Corp. ("Credit Suisse"), the Depositor under the PSA, which then transferred themortgage loans into the Trusts through the execution of the PSAs.</p><p>Most of the mortgage loans were secured by second liens on the underlying mortgagedproperty, balloon loans, and reduced documentation loans. Income or assets, or both, were notverified at origination for reduced documentation loans in the Trusts.  The loans were originatedby many different originators, and underwritten pursuant to different guidelines.  BruceKaiserman, then managing director of Credit Suisse, testified at a deposition that Credit Suisseused the following attributes to determine the risk of the loans: "interest rate, the loan amount,the state, the property type, the occupancy type, the DTI, the LTV, the number of trade lines, thelength of those trade lines, the purpose of the loan.  If it was a refinance, whether there was cashout, the lien of the loan" (Rugani affirmation, exhibit 26 at 104).</p><p>As in all RMBS put-back actions, the PSAs govern the structure of the transaction and theparties' rights.   Each PSA contains representations and warranties, set forth under Section 2.03(f). In Section 2.03 (f), DLJ made several warranties as of the PSAs closing dates: "The Sellerhereby makes the representations and warranties set forth in Schedule IV as applicable hereto,and by this reference incorporated herein, to the Trustee, as of the Closing Date, or theSubsequent Transfer Date, as applicable, or if so specified therein, as of the Cut-off Date or suchother date as may be specified." Schedule IV of each PSA contains twenty-five representationsand warranties relating to the mortgage loans in the Trusts.  Under each PSA, the parties agreedto a process for the repurchase of loans that breached those representations and warranties. ("therepurchase protocol").</p><p>The controlling repurchase protocol is set forth in section 2.03 (g) of the PSAs, which states:"Upon discovery by any of the parties hereto of a breach of a representation or warranty madepursuant to Section 2.03 (f) that materially and adversely affects the interests of theCertificateholders in any Mortgage Loan, the party discovering such breach shall give promptnotice thereof to the other parties."</p><p>DLJ had one hundred and twenty days from either "its discovery or its receipt of writtennotice [of the breach] from any party" to the PSA, to either cure the breach, or if the breach is notcured, to "repurchase the affected Mortgage Loan or Mortgage Loans from the Trustee at theRepurchase Price . . .."</p><p>The Repurchase Price is defined under the PSAs as the "sum of (i) 100% of the unpaidprincipal balance of the Mortgage Loan on the date of such purchase, and (ii) accrued unpaidinterest thereon at the applicable Mortgage Rate . . .."<sup><a href="#1FN" name="1CASE"><b>[FN1]</b></a></sup>  </p><p>In a November 22, 2011 letter, the Trust notified DLJ of breaches of representations and<font color="FF0000">[*3]</font>warranties in the Trusts and demanded cure or repurchaseunder Section 2.03 (g) of the PSAs.  The letter informed DLJ of the samples of loans that hadbeen investigated, and the numbers of breaches discovered therein, and stated that aninvestigation of samples of loans revealed that DLJ "placed defective loans into the Trusts on amassive scale." The letter identified: (1) 288 defective loans, or 70.9%, from a sample of 406loans in the HEMT 2006-1 Trust; (2) 522 defective loans from a sample of 721 loans, or 72.4%,in the HEMT 2006-3 Trust; (3) 359 defective loans from a sample of 553 loans, or 65%, in theHEMT 2006-4 Trust; and (4) 284 defective loans from a sample of 395 loans, or 72%,  in theHEMT 2006-5 Trust." <sup><a href="#2FN" name="2CASE"><b>[FN2]</b></a></sup></p><p>The letter further notified DLJ that the Trust's investigation was ongoing, and an even higherrate of breaches was expected to be discovered by plaintiffs' investigators. Specifically, the letterprovided: "the sample represents just the tip of the iceberg. [We are] confident that additionalinvestigation, including a re-underwriting of the loan files themselves, will reveal substantialadditional evidence of breaches." The letter also indicated that "recent public investigations haverevealed that DLJ mortgage pervasively and systematically disregarded its own underwritingguidelines and, as a result, issued mortgages that did not meet stated criteria in the offeringdocuments; and (2) loan file reviews by insurers of transactions that included DLJMortgage-sponsored loans have demonstrated pervasive breaches of underwritingstandards."</p><p>On December 7, 2011, U.S. Bank, N.A., as Trustee, sent a letter demanding the repurchaseof 288 loans from the HEMT 2006-1 Trust, 522 loans from the HEMT 2006-3 Trust, 359 loansfrom the HEMT 2006-4 Trust, and 284 loans from the HEMT 2006-5 Trust. On April 27, 2012,the Trustee sent a letter to DLJ demanding the repurchase of 510 loans from the HEMT 2006-1Trust.  On August 22, 2012, the Trustee sent a letter to DLJ demanding the repurchase of 244loans from the HEMT 2006-3 Trust, and 42 loans from the 2006-4 Trust. On December 14, 2012,the Trustee sent a letter demanding the repurchase of 20 from the HEMT 2006-5 Trust. OnFebruary 27, 2013, the Trustee sent a letter demanding the repurchase of 235 loans from theHEMT 2006-5 Trust.  On November 19, 2013, the Trustee sent a letter demanding the repurchaseof 2,563 loans in the HEMT 2006-4 Trust. On May 28, 2014, the Trustee sent a letter to DLJdemanding the repurchase of 4,056 loans in the 2006-5 Trust.</p><p>Plaintiffs allege that DLJ has not repurchased any loans in response to plaintiffs' demandletters.   </p><p>On February 22, 2012, DLJ, Credit Suisse (USA), Inc., Credit Suisse Securities (USA) LLC,and the Trustee signed a tolling agreement, tolling the statute of limitations for all claims theTrusts had concerning the HEMT 2006-1, 2006-3 and 2006-4 transactions.  This tollingagreement was signed on February 28, 2012, seven days before the sixth anniversary of the dateon which the earliest of the PSA's, HEMT 2006-1, was executed.  The tolling agreementprovided that its termination date would be the earlier of: "(1) 45 calendar days after any one ormore parties sends all other parties written notice of termination; or (2) the date that is exactlytwelve months from the Effective Date."  DLJ terminated the tolling agreement on July 12, 2012,and the Trusts commenced this lawsuit concerning those three trusts on August 31, 2012.</p><p>In its complaint under index number 156016/2012, Home Equity alleged five causes ofaction against DLJ, three of which�breach of contract: repurchase damages, breach ofcontract: failure to reimburse enforcement expenses, and unjust enrichment�survivedDLJ's motion to dismiss.  The same three claims, pertaining to the HEMT 2006-5 Trust, survivedDLJ's motion to dismiss Home Equity's complaint under index number 653787/2012.</p><p><b><i>Notice of Breaching Loans</i></b></p><p>Home Equity asks me to rule as a matter of law on the "meaning of the RepurchaseProtocol's procedural requirement that DLJ discover or be notified of breaches." Specifically,Home Equity asks me to hold, as a matter of law, that DLJ received notice of all defective loansincluded in all four trusts on November 22, 2011, the date of the initial demand letter, under apervasive breach theory.  </p><p>Home Equity argues that notice under the repurchase protocol need not be loan-by-loan,because individualized notice or actual knowledge of breaches is not required to make DLJ awareof a breach affecting any mortgage loan. Rather, Home Equity argues, its notification of apervasive number of breaches in an RMBS loan pool, its loan-by-loan analysis of breaches inspecific sampled loans, and its demand that DLJ repurchase all breaching loans, put DLJ ontimely notice of all non-conforming loans.</p><p>In opposition, DLJ argues that the repurchase protocol limits recovery to those specific loansfor which DLJ received notice or discovered breaches.  According to DLJ, under the plainlanguage in Section 2.03 (g), the repurchase obligation is loan-by-loan, as it is contingent upon"the affected Mortgage Loan," and "its discovery or its written notice of a breach" that has amaterial and adverse effect.  DLJ argues, "thus, to obtain repurchase of a specific loan at thecontractually defined loan-specific price, the PSAs unambiguously require that DLJ be notifiedof a breach, or discover a breach, for that loan."</p><p>On its motion, DLJ argues that plaintiffs provided timely notices of possible breaches for1,351 loans in their pre-suit demand letters. DLJ argues that of the loans selected by plaintiffs'experts, Karl N. Snow PhD ("Snow") and Richard W. Payne III ("Payne"), for sampling, only 34were included in the timely notices. DLJ argues, therefore, that plaintiffs may seek damages foronly 34 of these loans, as the remainder were not included in the pre-suit notices.</p><p>In <a href="../2015/2015_07458.htm" target="_blank"><i>Nomura Home Equity Loan, Inc.,Series 2006-FM2 v. Nomura Credit &amp; Capital, Inc.</i>, (133 AD3d 96</a> [1st Dept. 2015]<i>affd</i> 30 NY3d 572 [2017]), the First Department addressed, on a motion to dismiss,substantially similar contract language to that in the PSAs here.  The Court held that, based uponplaintiffs' pre-suit breach notices, the lower court "correctly refused to dismiss claims relating toloans that plaintiffs failed to mention in their breach notices . . .." <i>Nomura</i>, at 108.  Thisfinding, that plaintiff need not identify every breaching loan for which it seeks recovery in apre-suit breach notice, is based upon both the contract language and the language in "plaintiffs'presuit letters [that] put defendant on notice that the certificate holders whom plaintiffs (astrustees) represented were investigating the mortgage loans and might uncover additionaldefective loans for which claims would be made." <i>Id.</i> at 108.   The Court concluded thatwhere there was such language, and where there were timely claims asserted upon the allegedspecific breaching loans set forth in a breach notice, "a complaint amended to add the claims atissue would have related back to the original complaints." <i>Id.</i> at 108. </p><p>In <i>Nomura</i>, the First Department did not dispense with the requirement of loan byloan notice. Rather, the court concluded that consistent with the structure of the repurchaseprotocol, breach notices need not all be sent pre-suit, but must reference specific loans. The courtfound <font color="FF0000">[*4]</font>that where a party provided timely loan by loan pre-suitnotice of the nonconforming loans, together with notice that further investigation was beingconducted into additional potentially defective loans, that party could later, after commencementof the action, provide loan by loan notice of additional breaches revealed, because they wouldrelate back. </p><p>Similarly, in <i>Mastr Adjustable Rate Mortgages Trust 2006-OA2 v. UBS Real EstateSecurities Inc.</i>, 2016 WL 1449751 [S.D.NY 2016]), the Court addressed the question ofwhether to preclude the report of plaintiff's expert wherein the identified loan breaches had notbeen specifically identified in the pre-suit breach notices. Relying on <i>Nomura</i>, UnitedStates District Judge P. Kevin Castel permitted the plaintiff to establish liability on loans thatwere not noticed in pre-suit demands. In support of his ruling, Judge Castel stated: "UBS cannotclaim prejudice arising from the consideration of the newly noticed breaches. All the underlyingloans were the subject of ongoing discovery, either as breaches alleged to have beenindependently discovered by UBS or as breaches identified in the pre-suit beached notices. Fromthe date that discovery re-opened, UBs was on notice that all loans were potentially in play,subject to evidence that UBS had actually discovered a breach." <i>Id.</i> at *6.</p><p>Here, the repurchase demand letters notified DLJ of specific loan breaches and providednotice of plaintiffs' ongoing investigation of possible breaches of additional loans. Thus, inaccordance with the language of the repurchase protocol, and consistent with the FirstDepartment's decision in <i>Nomura</i>, the Trust timely notified DLJ of several specificloan-by-loan breaches, and additionally notified DLJ, based upon those findings, of thelikelihood of additional breaches.  </p><p>Home Equity's November 22, 2011 and December 7, 2011 demand letters, timely notifyingDLJ of specific breaches in the mortgage loans, satisfy the prongs of the repurchase protocol andset the stage for plaintiffs to establish liability as to any loans noticed as alleged breaches of thePSAs, whether pre-suit or post-commencement of this action. Accordingly, plaintiffs mayproceed to trial on any loan breach that was either included in the timely pre-suit breach notices,or noticed during discovery, for example, as identified in the expert reports of Karl Snow, PhD,or Richard W. Payne III. </p><p>Pursuant to the applicable contractual language here, the repurchase protocol couldalternatively be triggered by DLJ's independent discovery of a material breach. <a href="../2016/2016_08968.htm" target="_blank"><i>See U.S. Bank N.A. v. Greenpoint Mtge.Funding, Inc.,</i> 147 AD3d 79</a>, 85 (1st Dept, 2016). In <i>Nomura</i>, the FirstDepartment also held that, in accordance with the applicable contractual language, a plaintiffneed not provide loan-by-loan notice where the plaintiff could establish discovery on the part ofthe defendant. The Court in <i>Nomura</i> relied upon plaintiffs' allegations that "defendantalready knew, based on its own due diligence, that certain loans in the trusts at issue breached itsrepresentations and warranties." <i>Id.</i> at 108. On these motions, sufficient evidence hasbeen presented to raise an issue of fact as to whether DLJ discovered a breach pursuant toSection 2.03 (g) of the PSAs.<sup><a href="#3FN" name="3CASE"><b>[FN3]</b></a></sup>Plaintiffs have the opportunity at trial to establish that, based upon DLJ's own due diligence orquality control, it discovered the loan breaches, triggering the mechanism under the repurchaseprotocol.</p><p><i><b>Interpretation of the Warranties</b></i></p><p>In Section 2.03 (f) of the PSAs, DLJ warranted the twenty-five statements in Schedule IV ofthe PSAs. In their motion, Home Equity asks me to interpret as a matter of law <sup><a href="#4FN" name="4CASE"><b>[FN4]</b></a></sup>three of these warranties: the fourth (the Mortgage Loan Schedule Warranty); the fifth (theUnderwriting Guidelines Warranty); and the twenty-fourth (the CLTV Warranty). </p><p><i>The Mortgage Loan Schedule Warranty</i></p><p>The mortgage loan schedule ("MLS") warranty, states: "The information set forth in the[MLS], attached to the Agreement as Schedule I, is complete, true and correct in all materialrespects as of the Cut-off Date." In the definitions section of the PSA, the MLS is defined as:"The Mortgage Loan Schedule which will list the Mortgage Loans transferred to the Trustee aspart of the Trust Fund and from time to time subject to this Agreement, attached hereto asSchedule I, setting forth the following information with respect to each Mortgaged Loan."</p><p>This paragraph is followed by a list of twenty-six items, including information such as: themortgage loan identifying number, a code indicating the type of Mortgaged Property andoccupancy status, the Combined Loan-to-value Ratio at origination, the original principal amountof the Mortgage Loan, and the purpose of the Mortgage Loan.</p><p>Home Equity argues that the words "complete, true and correct" are an "absolute guaranteeof the truth and accuracy of the information listed on the MLS." In Home Equity's view, forexample, if the original principal amount was a few dollars off that stated in the loan file for theloan, that in and of itself would establish a breach of the MLS warranty.</p><p>In opposition, DLJ argues that the MLS warranty should be read as a transcription warranty,meaning that the "information on the MLS accurately reflected the information in the loan file asactually defined and used in underwriting that particular loan." According to DLJ, this languagecould not warranty the truth of every piece of data in thousands of loans, and that Home Equity'sinterpretation of this warranty does not make sense "where the meaning of 'true' in the context offields where data is based on unverified information provided by the borrower is at leastunclear."<sup><a href="#5FN" name="5CASE"><b>[FN5]</b></a></sup></p><p>Recently, in <i>MBIA Insurance Corp. v. Credit Suisse Securities (USA) LLC</i>,<i>(USA) LLC</i>, the First Department held that, with respect to an "MLS Rep." as well as a"No Monetary Default Rep.," contained in a PSA, "'the better course is to hold a trial to inquireinto and develop the facts to clarify the relevant legal principles and their application to [the]representations and warranties'." <i>MBIA Insurance Corp. v. Credit Suisse Securities (USA)LLC</i>, <i>(USA) LLC</i>, 165 AD3d 108, 115 (1st Dept 2018), <a href="../2017/2017_03919.htm" target="_blank"><i>quoting Ambac Assur. Corp. v.Countrywide Home Loans Inc.</i>, 151 AD3d 83</a>, 89 (1st Dept 2017). <i>MBIA InsuranceCorp.</i> is controlling here. Therefore, I deny Home Equity's motion for partial summaryjudgment on the interpretation of the MLS warranty. </p><p><i>The Underwriting Standards Warranty</i></p><p>Under the PSAs, DLJ warranted that "[t]he Mortgage Loan complies with all the terms,conditions, and requirements of the originator's underwriting standards in effect at the time of theorigination of such Mortgage Loan." Home Equity argues that the Court should find that thiswarranty is an "absolute guarantee the loan complied with <i>all</i> underwriting standards,"including the underwriter's obligation to consider the reasonableness of the stated income, as wellas the reliability of the property appraisals.  </p><p>Home Equity further argues that it may establish a breach of this warranty as a matter of lawwhenever the steps and procedures for each are not followed. According to Home Equity, it isirrelevant that the originators were not under any obligation to verify borrower information suchas income, because the guidelines created a specific duty to investigate where the informationprovided by the borrower was suspect under the circumstances.  In such a case, Home Equitycontends, DLJ is liable as a matter of law regardless of whether the information was incorrectdue to misrepresentation or fraud.</p><p>Home Equity argues that I should hold, as a matter of law, that it may prove a breach of theunderwriting standards warranty by showing "either that an underwriting <i>process</i> was notfollowed, e.g., that an underwriter did not verify the reasonableness of a borrower's statedincome, as required by the guidelines, or that a <i>substantive </i>requirement of theunderwriting criteria was not met, for example where a Loan made under a program with amaximum DTI <sup><a href="#6FN" name="6CASE"><b>[FN6]</b></a></sup>ratio of 50% in fact had a DTI ratio of 60%."</p><p>DLJ agrees with Home Equity that, while the underwriters were not generally obligated to"verify" borrower information under the applicable guidelines, the only valid interpretation of theunderwriter standards warranty is that DLJ "warrants that the loan was underwritten to theunderwriting guidelines in effect at the time of origination—i.e., that the underwriterproperly followed the procedures set forth in the applicable guidelines."</p><p>The parties also agree that pursuant to the underwriter standards warranty, DLJ did notguaranty that the originators verified the borrowers' information, or guaranty against fraud orborrower misrepresentation, except insofar as the originator did not follow the guidelines.</p><p>The issue of contention between the parties as to the underwriter standards warranty relatesto Home Equity's use of post-origination information "of which the original underwriter mayhave been unaware" to prove a breach of the underwriter standards warranty. Home Equity seeksa ruling on this partial summary judgment motion that it may use post-closing information,including post-closing income "verification," to establish that the numbers provided to theunderwriters at the time the mortgage loan was approved were "overstated." Home Equity seeksto use this information to establish that borrowers' DTIs and CLTVs <sup><a href="#7FN" name="7CASE"><b>[FN7]</b></a></sup>exceeded guideline <font color="FF0000">[*5]</font>requirements.<sup><a href="#8FN" name="8CASE"><b>[FN8]</b></a></sup></p><p>DLJ argues that permitting Home Equity to use post-origination information to prove abreach would transform the meaning of the underwriting standards warranty into a "no fraud"warranty. DLJ contends that "information that either post-dated the origination of the loan or wasnot required to be considered under the guidelines is not relevant in determining whether therewas a breach of the Rep," and that plaintiffs may not use post-origination information to establisha breach.</p><p>The Court finds that plaintiffs' arguments regarding the originator's alleged use of inflatedincomes to calculate DTI's are only relevant insofar as they establish the originator's failure tocomply with the underwriting guidelines. In other words, on this allegation, I find that HomeEquity may use proof of inflated incomes at trial only to establish that the underwritingguidelines were not adhered to at the origination stage.</p><p>All decisions concerning the type and use of post-origination information at trial are reservedfor a pre-trial motion in limine, as these considerations rely upon an assessment of facts andexpert testimony, which is simply not appropriate on a motion for summary judgment.</p><p><i>The Maximum CLTV Warranty</i></p><p>The Maximum CLTV Warranty provides that "No Mortgage Loan had a combinedloan-to-value ratio at the time of origination of more than 100%." Under the PSAs, the term"Combined Loan-to-Value Ratio" means: "With respect to any Mortgage Loan and as of any dateof determination, the fraction (expressed as a percentage) the numerator of which is the sum of(i) original principal balance of the related Mortgage Loan at such date of determination and (ii)the unpaid principal balance of the related First Mortgage Loan as of either the date oforigination of that Mortgage Loan or the date of origination of the related First Mortgage Loanand the denominator of which is the most recent Appraised Value of the related MortgagedProperty." The term "appraised value" is defined under the PSA as "[t]he amount set forth in anappraisal of the related Mortgage Loan as the value of the Mortgaged Property."</p><p>Home Equity alleges here, as is alleged in many RMBS put-back actions, that the appraisalsunderlying the subject mortgage loans were systematically inflated, and, as a result, <font color="FF0000">[*6]</font>the CLTV ratios were artificially kept under the warrantied value of100%.</p><p>Home Equity ostensibly asks me to simply hold as a matter of law that the maximum CLTVwarranty requires that no loan had a CLTV ratio over 100%, and any loan with an actual CLTVover 100% is a breach of this warranty. <sup><a href="#9FN" name="9CASE"><b>[FN9]</b></a></sup> </p><p>While couched in terms of a summary judgment motion, Home Equity really seeks pretrialapproval to establish a breach of the maximum CLTV warranty "by showing an appraisalunderlying a Loan's CLTV ratio was misstated to the point that the actual, recalculated CLTVratio is over 100%."  Home Equity adds that this is a breach "regardless of whether the appraisersubjectively believed his or her appraisal to be false." Here again, Home Equity seek to usepost-origination documentation to establish these breaches.</p><p>The parties and I agree that, pursuant to the language of the maximum CLTV warranty,where a mortgage loan contains a CLTV that is greater than 100%, DLJ breached the warranty. Where the originator did not follow the underwriting guidelines, with respect to determining theCLTV, this is a clearly a breach.</p><p>In its opposition and in support of its own motion for summary judgment, DLJ correctlyargues that Home Equity is not asking me to rule on the meaning of this warranty but insteadseeks permission to establish through Automated Value Models ("AVMs") that the appraisedvalues were over-inflated and through their use in the calculations of the CLTV ratios, DLJbreached this warranty.<sup><a href="#10FN" name="10CASE"><b>[FN10]</b></a></sup></p><p>DLJ contends that Home Equity may not use statistical AVMs <sup><a href="#11FN" name="11CASE"><b>[FN11]</b></a></sup>to establish breaches of the CLTV warranty or the underwriting standards warranty.  DLJ furthercontends that, because the use of AVMs is not permitted under the PSAs, and because HomeEquity only challenges the CLTV ratios using AVMs, Home Equity's breach of the CLTVwarranty claim fails as a matter of law.</p><p>Specifically, DLJ cites the PSA language defining CLTVs as "fractions (expressed as apercentage), the numerator of which is the [loan balance at origination] and the denominator ofwhich is the most recent Appraised Value of the related Mortgage Property." Based upon thisdefinition, DLJ argues that the PSAs do not permit the substitution of AVMs for actualappraisals in calculating the CLTV ratios.</p><p>DLJ also argues that Home Equity could have, but did not, use appraisers to re-calculate thevalue of each property, and that appraisals are considered in the mortgage industry to be the mostreliable method to value properties.</p><p>Home Equity replies that it is not "substituting" the AVM values for the appraised values,but it is "using the AVM values, and expert opinion based on those AVM values, as evidenceshowing the appraised values were false."<sup><a href="#12FN" name="12CASE"><b>[FN12]</b></a></sup>Home Equity also disputes DLJ's assertion that AVM values are not reliable. Home Equity pointsout that: (1) Credit Suisse's underwriting guidelines state that AVMs are an acceptable method ofvaluing a property, (2) DLJ uses AVMs to confirm the appraised value of properties in itsacquisition due diligence for bulk loans, and (3) DLJ uses AVM values to "update CLTV valuesthat it listed on the Mortgage Loan Schedule for seasoned Loans."  </p><p>Finally, Home Equity argues that it would render the warranties meaningless to require abreach to be proven using a new appraisal, as it would be an unreasonable burden for HomeEquity to conduct new appraisals for all the underlying mortgaged properties in the Trusts.</p><p>To the extent that DLJ relies upon the definition of the CLTV ratio, which includes the useof appraisals, to argue that AVMs are not permitted as proof to show a breach of a warranty, andfurther argues that Home Equity's breach of the CLTV ratio claim then fails as a matter of lawbecause Home Equity proffers AVMs as part of its proof, I deny dismissal of Home Equity'sclaim on that ground. There is no indication that the PSAs definition of the CLTV ratio, whichcontemplated that the originators would use appraisals to calculate CLTVs, barred the Trusts' useof AVMs to determine whether the CLTV ratio was artificially deflated by the originators tocomply with the CLTV ratio warranty.</p><p>However, whether Home Equity may prove breach of the CLTV ratio warranties and <font color="FF0000">[*7]</font>underwriter standards warranties through use of AVMs and experttestimony, or any other type of evidence for that matter, is not appropriately resolved on thesesummary judgment motions. As the parties well know, the role of the court on a motion forsummary judgment, "is not to try the facts, but rather to determine whether evidence sufficient torequire a trial of any issue of fact exists.  '[I]t is the earmark of summary judgment that the courtis confined to determining whether an issue of fact exists as a matter of law'." <i>State of NewYork v. Metz</i>, 241 AD2d 192, 198 (1st Dept 1998) (internal citations omitted).  Like many ofthe other issues the parties have asked me to resolve, the issue of whether this proof is ofsufficient quality and reliability should be resolved in motions in limine brought before trial.</p><p><i>Interpretation of the Term "Material and Adverse"</i></p><p>Under Section 2.03 (g) of the PSA, only those warranty breaches that materially andadversely affect Home Equity's interest in the loans are subject to repurchase.  Home Equity hasno remedy for a warranty breach if the element of material and adverse is not met.</p><p>Home Equity argues that this Court should find, as a matter of law, that to prove that abreach caused a "material and adverse" effect, the plaintiff need not establish the loan was indefault but must only prove that a warranty's breach by DLJ "significantly increased a loan's riskof loss." In opposition, DLJ argues that the meaning of "material and adverse" is ambiguous, and,therefore, a fact question exists, and the issue cannot be decided on summary judgment. Further,DLJ argues that the term "material and adverse effect" cannot be interpreted to mean "increase aLoan's risk of loss," under the language of the PSA.  DLJ argues: "By using the present tense"affect," and not the subjunctive 'may affect,' the PSA requires proof of a present injury that ismaterial and adverse (e.g., an actual loss), not an undefined and speculative risk of future lossthat has not materialized."</p><p>The absolute meaning of the term material and adverse has not been determined. <a href="../2017/2017_50389.htm" target="_blank"><i>MBIA Ins. Corp. v. Credit Suisse Sec.(USA) LLC</i>, 55 Misc 3d 1204</a> (A), *5 (2017)("There appears to be a split over whetherthe meaning of the words "material and adverse" is a question for the trier of fact or an issue oflaw that the court may decide on summary judgment") <i>affd</i> 165 AD3d 108 (1st Dept2018); see also <i>MBIA Ins. Corp. v Countrywide Home Loans, Inc.</i>, 105 AD3d at 413,(1st Dept 2013).  </p><p>However, and at a minimum, many courts have concluded that a plaintiff need not prove adefault to establish a "material and adverse" breach. <a href="../2013/2013_02175.htm" target="_blank"><i>See MBIA Ins. Corp. v. Countrywide Home Loans, Inc., </i>105 AD3d412</a> (1st Dept 2013); <i>Wells Fargo Bank, N.A. v. JPMorgan Chase Bank, N.A.</i>, 2014WL 1259630, at *4 ("A growing consensus among New York courts holds that MAE repurchaseconditions are triggered when the plaintiff's risk of loss increases and not just when that riskactualizes") <i>affd</i> 643 Fed Appx 44 [2d Cir 2016]; <i>MASTR Adjustable RateMortgages Trust 2006-OA2 v. UBS Real Estate Sec. Inc.</i>, 2015 WL 764665, *15 (S.D.NY2015).</p><p>In <i>Assured Guaranty Municipal Corp. v. Flagstar Bank, FSB</i>, (892 F.Supp.2d at 602[S.D.NY 2012]), the Court decided the meaning of "material and adverse" on summaryjudgment.  The court ruled: "the further requirement that breaches of these representations andwarranties be 'material and adverse' mean that 'plaintiff must only show that [Flagstar's] breaches[of the representations and warranties] materially increased its risk of loss'." <i>Flagstar</i>, 920F.Supp.2d at 509; <i>see also</i> <a href="../2017/2017_50389.htm" target="_blank"><i>MBIA Ins. Corp. v. Credit Suisse, </i>55 Misc 3d 1204</a>(A), *5 (Sup.Ct. NY Co., 2017).</p><p>Nowhere in the PSAs, let alone in Section 2.03 (f) or (g), does it say that the loan must be indefault for it to be repurchased.  Because the PSAs do not require a default for there to be a <font color="FF0000">[*8]</font>breach of a warranty made in the PSAs, Home Equity's motion isgranted to the extent that I interpret "material and adverse," consistent with the PSAs and therelevant New York State cases, as requiring only a showing that the alleged breach of a warrantymaterially increased the risk of loss.</p><p><b><i>The Use of Statistical Sampling</i></b></p><p>Home Equity argues that under the PSA it is permitted to use statistical sampling to proveDLJ's liability and damages with respect to liquidated loans, or, in other words, loans that left theTrusts with a loss, and that DLJ cannot repurchase. Those mortgage loans can no longer bereturned to Home Equity or substituted. Specifically, Home Equity argues that loan-by-loan proofof these damages is not required under the PSA.  Home Equity seeks monetary damages for the22,013 liquidated loans in the Trusts as of March 2016, which include losses totaling$1,008,500,000. DLJ argues in opposition that sampling is not permissible under the language ofthe PSA, which requires loan-by-loan proof of both the breach and the loan-specified price.  </p><p>Home Equity argues first and foremost that Justice Schweitzer has already ruled, in aNovember 18, 2013 Interim Order, that plaintiffs would be permitted to use statistical samplingto prove both liability and damages. Home Equity contends that the November 18, 2013 InterimOrder is law of the case and that, therefore, I must permit statistical sampling at trial. </p><p>In opposition, DLJ argues that Justice Schweitzer's November 18, 2013 Interim Order "didnot rule on whether Plaintiffs could prove each element of their claim through sampling" and isnot law of the case. DLJ further argues that the November 18, 2013 Interim Order is not the lawof the case because the parties did not brief, the "Repurchase Protocol or corresponding noticerequirements," and that Justice Schweitzer limited plaintiffs' claim to those loans "for whichnotice has been given."</p><p>The doctrine of law of the case "precludes parties or their privies from relitigating an issuethat has already been decided." <a href="../2014/2014_04853.htm" target="_blank"><i>Chanicev. Federal Express Corp.</i>, 118 AD3d 634</a>, 635 (1st Dept 2014).  It generally serves to"preclude successive motions by the same party upon the same proof." <a href="../2012/2012_05259.htm" target="_blank"><i>Ruiz v. Anderson</i>, 96 AD3d 691</a>,692 (1st Dept 2012).  The doctrine "contemplates that the parties had a full and fair opportunityto litigate when the initial determination was made." <i>Id.</i></p><p>In the November 18, 2013 Interim Order Justice Schweitzer plainly stated that "plaintiffs' useof statistical sampling to prove liability and damages would streamline the trial, promote judicialeconomy, and conserve the resources of the parties and the court." Justice Schweitzer thereforepermits plaintiffs "to use a statistical sampling to prove liability and damages on all of theirclaims" and, finally, directs the parties to "meet and confer as to the sample to be used."</p><p>Justice Schweitzer's November 18, 2013 Interim Order is law of the case.   JusticeSchweitzer ruled on the issue of plaintiffs' use of sampling at trial to establish liability anddamages, which is squarely before me on these motions for partial summary judgment. TheNovember 13, 2013 Interim Order has not been appealed and, despite DLJ's argument to thecontrary, the parties had a full opportunity to litigate the issue before Justice Schweitzer and didso. </p><p>For example, in their November 15, 2013 letter brief to Justice Schweitzer on the issue ofsampling, DLJ argued that sampling is "incompatible" with the repurchase protocol as it is setforth in the PSA. I note that DLJ's two and one- half page letter sent to Justice Schweitzer isapproximately the same length as the argument against sampling appearing in the oppositionmemorandum on this motion. DLJ sets forth the same argument before me as before Justice<font color="FF0000">[*9]</font>Schweitzer<i>, i.e.,</i> that the language of the PSAs'repurchase protocol prohibits the use of sampling to make out Home Equity's burden of proof.</p><p>Because Justice Schweitzer's November 18, 2013 Interim Order is law of the case, I ambound to follow it. I note that the parties have engaged in more than four years of discovery, bothfact and expert, under Justice Schweitzer's mandate that plaintiffs' may use sampling at trial.Issues concerning the sufficiency of the sample itself will be addressed pre-trial in motions <i>inlimine</i>.  </p><p><b><i>Plaintiffs' Litigation Expenses</i></b></p><p>Home Equity argues that an RMBS plaintiff may recover attorneys' fees under a contract thatprovides that defendant shall "promptly reimburse . . . the Trustee for any actual out-of-pocketexpenses reasonably incurred by . . . the Trustee in respect of enforcing the remedies for suchbreach." The PSAs Repurchase Protocol, Section 2.03 (g) of the 2006-3 PSAs and Section 2.03(f) in the 2006-4 and 2006-5 PSAs, contain such a provision: "[DLJ] shall promptly reimbursethe Trustee for any actual out-of-pocket expenses reasonably incurred by the Trustee in respect ofenforcing the remedies for such breach."</p><p>In opposition, DLJ argues that this provision limits any reimbursement of litigation expensesto "actual-out-of-pocket expenses," and does not include shifting payment of attorneys' fees.Further, because the Trustee is not incurring actual out of pocket expenses, as the Trustee's legalexpenses are being indemnified by certificate holders, summary judgment as to attorneys' fees isnot appropriate.</p><p>In <a href="../2016/2016_04795.htm" target="_blank"><i>U.S. Bank Natl. Assn. v. DLJMtge. Capital Inc.</i>, 140 AD3d 518</a> (1st Dept 2016), the First Department held that thefollowing contract language, which is same as contained in the PSAs at issue here, includedreimbursement of attorneys' fees:  "Seller shall promptly reimburse the Trustee for any actualout-of-pocket expenses reasonably incurred by the Trustee in respect of enforcing the remediesfor such breach." <i>Id.</i> at 519. The Court stated: "[t]he unmistakable intent of the parties tothe PSAs is that enforcement expenses to be reimbursed include attorneys' fees incurred inbringing these actions." <i>Id.</i> at 519. </p><p>Thus, I hold that, if that Home Equity is successful in proving liability for breaches of thewarranties contained in the PSAs, it may seek attorneys' fees as a component of its damages. </p><p><b><i>DLJ's Affirmative Defenses</i></b></p><p>Home Equity argues that several affirmative defenses asserted by DLJ are not viable andasks that these affirmative defenses be dismissed as a matter of law.  I address the challengedaffirmative defenses below.</p><p><i>Loss Causation Affirmative Defense</i></p><p>DLJ's fourth affirmative defense states that plaintiffs' damages "resulted from causes otherthan any alleged act or omission by DLJ." As to this defense, Home Equity argues that becausethe First Department has ruled that a plaintiff in an RMBS put-back action need not establish adefault of the loan to prove that a breach of the warranty was material, DLJ "cannot avoidliability through an argument that causes other than DLJ's warranty breaches caused Plaintiffs'losses."</p><p>DLJ argues that at trial the evidence will demonstrate that any damages suffered by HomeEquity resulted from causes unrelated to any alleged breach of a representation or warranty, "suchas the global downturn in the housing markets." DLJ argues that, like any other plaintiff, HomeEquity must prove that the alleged breach of the warranty was the proximate cause of HomeEquity's damages. </p><p>"In contract as in tort cases, questions of proximate cause, including intervening cause,'should generally be resolved by the factfinder'." <i>NAF Holdings, LLC v. Li &amp; Fung(Trading) Limited</i>, 2016 WL 3098842, *6 (S.D.NY 2016), <a href="../2014/2014_01259.htm" target="_blank"><i>quoting Voss v. Netherlands Ins. Co.</i>,22 NY3d 728</a>, 737 (2014).  I adhere to this well-settled legal principle and deny HomeEquity's motion to strike this affirmative defense. Questions of fact concerning proximate causeare appropriately determined at trial, not on a summary judgment motion.</p><p><i>Economic Loss Affirmative Defense</i></p><p>DLJ has asserted in its sixth affirmative defense: "Plaintiffs' claims are barred, in whole or inpart, by the economic loss rule and similar doctrines that preclude recovery in tort to parties withan express contractual agreement." With respect to this affirmative defense, DLJ claims that"Plaintiffs have asserted unjust enrichment claims not predicated on the contracts. These claimsare barred by the parties' express agreements."</p><p>Home Equity argues that DLJ's sixth affirmative defense fails as a matter of law becauseHome Equity's unjust enrichment claim arises from a duty that is separate and apart from itscontracts with DLJ, thus the economic loss doctrine is not applicable.  </p><p>In the complaint, Home Equity alleges that: "DLJ was enriched at the expense of the Trustsand their Certificateholders to the extent DLJ received settlement funds in respect of MortgageLoans owned by or transferred to the Trusts and failed to pay those monies to the Trusts. . . .."The unjust enrichment cause of action arises out of alleged secret settlements between DLJ andthe originators of mortgage loans that were owned by the Trusts, for which the Trusts allegedlynever received any payment from DLJ.  </p><p>In its motion to dismiss, DLJ sought to dismiss plaintiffs' unjust enrichment claim, arguingthat it was duplicative of plaintiffs' breach of contract claims. Justice Schweitzer denied DLJ'smotion to dismiss the unjust enrichment claim, stating that "if the PSAs strictly require DLJ totransmit its settlement recoveries to the Trusts, the Trust's contract claims will control, if, as DLJargues, the PSAs do not cover the same R &amp; Ws through which DLJ secretly settled withoriginators, the Trusts' unjust enrichment claim is not precluded for covering the same 'subjectmatter' as the contract claims." </p><p>Where no independent legal duty has been alleged, separate and apart from the contractualrelationship between the parties, and the claim is simply duplicative of the breach of contractclaim, then the economic loss doctrine will bar this redundant claim. Here, there are questions ofmaterial fact concerning whether this claim is duplicative of plaintiffs' breach of contract claim.The Court, therefore will not dismiss this affirmative defense. </p><p><i>Standing Affirmative Defense</i></p><p>Plaintiffs seek to dismiss DLJ's eighth affirmative defense, which argues that plaintiffs lackstanding to sue to enforce the transaction documents.  Plaintiffs argue that this issue has alreadybeen determined in this action. DLJ concedes that this issue has previously determined by JusticeSchweitzer in connection with DLJ's motion to dismiss, and that standing has been established.Accordingly, I dismiss the eighth affirmative defense.</p><p><i>Remedy at Law Affirmative Defense</i></p><p>Home Equity seeks dismissal of DLJ's ninth affirmative defense, in which DLJ alleges thatHome Equity has "an adequate remedy at law, barring any equitable relief." As discussed above,Home Equity may seek all damages available at law or in equity arising from the breach of therepurchase obligation, and where specific performance is impossible.</p><p><i>Equitable Affirmative Defenses</i></p><p>Home Equity seeks to dismiss DLJ's second affirmative defense, which states that the claimsare barred by "the doctrines of waiver, laches, acquiescence and/or estoppel." Home Equityargues that that, "consistent with their contractual obligations, the Trustee notified DLJ ofWarranty breaches promptly after it was notified of them, and there is no evidence that it waivedany rights or made any false statements." Home Equity further argues that "because the Trustee'had no contractual obligation to invoke the investor-driven remedies in the PSA's—orotherwise 'object' to [DLJ's] . . . breach other than by bringing suit within the applicable statute oflimitations,' and because the contracts did not give it the ability to waive compliance with theWarranties and Repurchase Protocol, there is no basis to invoke waiver, laches, acquiescence, orestoppel here."</p><p>In opposition, DLJ argues only that Home Equity must offer affirmative evidence of itsentitlement to summary judgment dismissing an affirmative defense, and that DLJ has the rightto raise these equitable affirmative defenses considering "the prejudice DLJ has suffered basedon the Trustee's spoliation of discoverable evidence."   DLJ then refers to six pages of a witness'sdeposition testimony that relates to manually saving documents that were put on a litigation hold.DLJ does not specifically argue in support of the substance of any of these equitabledefenses.</p><p>Based upon the party submissions, there are no facts supporting the imposition of any of theequitable affirmative defenses asserted by DLJ in the second affirmative defense. I thereforedismiss this affirmative defense. <i>See Courtney-Clarke v. Rizzoli Intl. Publs., Inc.</i>, 251AD2d 13 (1st Dept 1998).</p><p><i>Unclean Hands</i></p><p>In DLJ's third affirmative defense, DLJ alleges that Home Equities' claims are barred by the"doctrine of unclean hands."   The doctrine of unclean hands is only applicable "'when theconduct relie[d] on is directly related to the subject matter in litigation and the party seeking toinvoke the doctrine was injured by such conduct'." <a href="../2009/2009_03432.htm" target="_blank"><i>Sutter v. Lane</i>, 61 AD3d 1310</a>, 1313 (3d Dept 2009).  DLJ's onlyalleged basis for this defense is "plaintiffs' inequitable conduct, including the prejudice DLJ hassuffered based on the Trustee's spoliation of discoverable evidence."</p><p>The conduct relied upon by DLJ to support this affirmative defense, alleged spoliation ofevidence, does not directly relate to the subject matter of this action.  For this reason, I dismissthe third affirmative defense.</p><p><b><i>Calculation of Damages</i></b></p><p>DLJ argues that the calculation of the repurchase price for any breaching loan, "does notinclude interest after that loan was liquidated." DLJ claims, without any support, that once a loanis liquidated and charged off from a trust, it can no longer accrue any interest.  </p><p>In opposition, Home Equity argues that under <i>Nomura</i>, 133 AD3d 96, it is entitled tothe repurchase price, including interest, for defective liquidated loans, because those loans aresubject to the Repurchase Protocol.  I agree.</p><p>The PSAs define the repurchase price as "an amount equal to the sum of (i) 100% of theunpaid principal balance of the Mortgage Loan on the date of such purchase; [and] (ii) accruedand unpaid interest thereon at the applicable Mortgage Rate from the date through which interestwas last paid by the Mortgagor to the Due Date in the month in which the Repurchase Price is tobe distributed to Certificateholders."</p><p>In <i>Nomura</i>, the First Department upheld the lower court's finding that the Trust isentitled <font color="FF0000">[*10]</font>to monetary damages for liquidated loans, wherecure or repurchase was impossible.  In the decision, the Court notes that the lower court "rejectedthe defendant's argument that liquidated loans are not subject to the repurchase protocol," whichincludes a definition of "purchase price" not unlike the one here.  </p><p>In so doing, the Court devised an extension of the repurchase protocol to liquidated loans, toavoid the instance where a sponsor might seek to fill a trust with "junk mortgages that would'expeditiously default' so they can be liquidated before a repurchase claim is made." Accordingly,as there is no language in the PSAs supporting an alternative calculation, the repurchase price forliquidated loans remains the same as for non-liquidated loans.</p><p>Therefore, the remedy for all loans, liquidated or not, is subject to the terms of the repurchaseprotocol.  According to that protocol, interest is calculated "from the date through which interestwas last paid by the Mortgagor to the Due Date in the month in which the Repurchase Price is tobe distributed to Certificateholders."  The amount of the unpaid principal and interest forliquidated loans will be determined according to the repurchase protocol. </p><p><b><i>The Date for Damages Calculation</i></b></p><p>DLJ argues that damages must be calculated beginning one hundred and twenty days afterDLJ received notice of a breach for each specific nonconforming loan.  DLJ takes issue withHome Equity's damages calculation, which uses a repurchase date of April 5, 2012 for all loans,"regardless of when DLJ received notice of breach." In opposition, Home Equity argues that therepurchase price should be calculated 120 days from the November 22, 2011 demand letter, whenDLJ should have repurchased all defective loans.</p><p>Under the PSAs, the repurchase price is defined as the unpaid principal balance of theMortgage Loan "on the date of such purchase." Thus, the price is calculated as of the date ofrepurchase, which would be triggered by either Home Equity's notice of a breach or DLJ'sdiscovery/knowledge of a breach.   The repurchase date for each loan therefore cannot bedetermined as a matter of law at this time. This issue will be determined based on the factspresented at trial.</p><p>DLJ's remaining arguments were addressed above in the context of Home Equity's partialsummary judgment motion.</p><p>In accordance with the foregoing, it is</p><p>ORDERED that plaintiffs Home Equity Mortgage Trust Series 2006-1, Home EquityMortgage Trust Series, 2006-3, Home Equity Trust Mortgage Trust Series 2006-4, and HomeEquity Mortgage Trust Series 2006-5 motions for partial summary judgment motion (motionsequence no. 30, under index number 653787/12, and 32, under index no. 156016/2012) aregranted on the grounds as stated above, and denied as to all other grounds; and it is further</p><p>ORDERED that defendant DLJ Mortgage Capital, Inc.'s motions for partial summaryjudgment (motion sequence no. 31, under index number 653787/12, and 33, under index no.156016/2012) are denied as set forth above.</p><p>ORDERED that counsel for the parties are directed to appear for a conference in Room 208,at 60 Centre Street, on February 20, 2019, at 2:15 p.m.</p><p>This constitutes the decision and order of the Court.</p><br><br>Dated: January 9, 2019<br><br>New York, NY  <br><br>E N T E R:<br><br>_________________________<br><br>Hon. SaliannScarpulla, J.S.C.<div align="center"><b>Footnotes</b></div><br><br><a name="1FN" href="#1CASE"><b>Footnote 1:</b></a>Plaintiffs are not pursuing claimswith respect to the loans that had been paid in full as of March 2014.<para level="1"><br><br><a name="2FN" href="#2CASE"><b>Footnote 2:</b></a>Plaintiffs' expert, Mr. RichardPayne III ("Payne"), reviewed 1,600 loans, 400 loans per Trust, which were selected by plaintiffs'expert Dr. Snow, as a sample out of the approximately 26,459 loans in the four Trusts that hadnot been paid in full as of March 2014.<br><br><a name="3FN" href="#3CASE"><b>Footnote 3:</b></a>For example, in the Rule 19-aStatement of Facts, plaintiffs cite to numerous DLJ emails and testimony to support theirargument.<br><br><a name="4FN" href="#4CASE"><b>Footnote 4:</b></a>"[T]he Court should resolve themeanings of the key Warranties at issue that DLJ made in the governing [PSAs]."<br><br><a name="5FN" href="#5CASE"><b>Footnote 5:</b></a>Thus, DLJ argues, "[t]he verynotion that there exists a single "true" income is insupportable.  Income and other similarmeasures are highly variable based on what sources are included or excluded and what timeperiods are reviewed."<para level="1"><br><br><a name="6FN" href="#6CASE"><b>Footnote 6:</b></a>DTI is shorthand for debt toincome ratio, a common indicator used by mortgage lenders to determine whether a potentialborrower will be able to repay the mortgage loan.<br><br><a name="7FN" href="#7CASE"><b>Footnote 7:</b></a>CLTV is shorthand for combinedloan to value ratio, which is a calculation of the ratio of all loans on a property to the fair marketvalue of the property.<br><br><a name="8FN" href="#8CASE"><b>Footnote 8:</b></a>Addressing the question ofreasonableness, plaintiffs' expert, Richard W. Payne III ("Payne"), opined in his report that "manyof the Mortgage Loans were not underwritten in accordance with the Originator's UnderwritingGuidelines." According to Payne, "[b]ecause of the undocumented nature of the salaryinformation in a stated income loan, the originator often required underwriters to assess thesalary to determine whether it was reasonable, given the information in the homeowner's loan." On this point, he continues "[u]nder DLJ, Credit Suisse, and America Home Mortgagesguidelines, for example, "[a] 'reasonableness test' is applied to the stated income to ensure that itis appropriate for the job description."  Thus, although income is not verified, the income must be"reasonable for the profession and experience level of the borrower," and assessed according to"geographic region" and "time in the profession." However, according to Payne, the assessmentof the reasonableness of a borrower's stated, unverified income would not eliminate the risk ofborrower misrepresentation, which is why stated income loans had a higher interest rate.<br><br><a name="9FN" href="#9CASE"><b>Footnote 9:</b></a>Plaintiffs' expert, Payne, opines,with respect to CLTV ratios under the PSAs, as follows: "If a borrower obtained a second-lienmortgage on the property, the CLTV ratio compared the combined balance of the first-andsecond-lien mortgages against the lesser of the property's appraised value or its purchase price. All else being equal, a higher CLTV and/or LTV ratio was indicative of a higher risk ofdelinquency and default and a lesser amount available as a secondary source of repayment on theloan. Many of the Originators limited the maximum permissible CLTV and LTV ratios to 95%,depending on factors such as the borrower's credit score and level of income documentation. However, it was not unusual for the underwriting guidelines of subprime or Alt-A lenders topermit approval of mortgages with LTV or CLTV ratios up to 100% if certain conditions weremet.  Many of the Originators' underwriting guidelines capped the maximum allowable CLTVratio at 100%."<br><br><a name="10FN" href="#10CASE"><b>Footnote 10:</b></a>In his expert report, JoelSpolin ("Spolin") takes issue with how Payne uses post-origination information as evidence ofunderwriting defects at origination. He states, in part: "Even if these Retrospective AVM valueshad existed at the time of origination, it would be improper and impractical for the originalunderwriter to use them to second guess the value opinion embodied in the guideline-mandatedappraisals performed by a licensed appraiser."<br><br><a name="11FN" href="#11CASE"><b>Footnote 11:</b></a>An AVM is "a computerizedvaluation based on mathematical modeling that utilized a nationwide database of real estate salesand prices to generate a value for the subject property."  <br><br><a name="12FN" href="#12CASE"><b>Footnote 12:</b></a>Home Equity argues that theCLTV ratios were materially higher than the warrantied amount of 100% because the originator'sunderwriters used "inflated" appraisals in calculating these ratios. Home Equity contends that, ifthe appraisers used the actual property values, instead of artificially inflated appraisals, the CLTVrations would have been more than 100%, breaching the CLTV warranty.<br><br><br><br><div align="center"><form method="LINK" action="../../slipidx/com_div_idxtable.shtml"><input type="submit" value="Return to Decision List"></form></div></para></para></partyblock>