SUPREME COURT OF THE STATE OF NEW ... - New York Times

performance characteristics—information that the originators had reason to expect would be
relayed to investors like AIG, as they understood the purpose of the sale was to put the loans into
a pool for securitization.
95. Both Merrill and Bank of America engaged in warehouse lending. As a result of
these close financial ties with otherwise unaffiliated originating lenders, the investment banks
had abundant information about the third-party originators’ abandonment of publicly disclosed
underwriting guidelines and predatory lending practices.
96. Investment banks like Merrill and Bank of America also entered into purchase
agreements with third-party originators to buy batches of mortgages to securitize. As part of
those agreements, the investment banks typically set the prices and quantities of the types of
loans it wanted to buy, and also gained access to loan information prior to purchase.
97. Conversely, Countrywide, a loan originator, formed its own underwriter so it
could securitize its loans without paying fees to the Wall Street banks.
98. Moreover, as originators, Countrywide, Merrill, and Bank of America understood
and expected that the loans they were generating would end up in securitizations like those
purchased by AIG. They provided information regarding collateral loans to the sponsors and
underwriters, which they knew and had reason to expect would be distributed to investors like
AIG.
99. In many cases, for example, the originator sold its loans directly to the depositor
of the securitization and was a party to the pooling and servicing agreement that established the
securitization trust. Countrywide-sponsored deals typically reflected this structure. For
example, in CWALT 2007-OC2 and CWL 2007-S3, Countrywide Home Loans sold the loans in
the mortgage pools to depositors CWALT, Inc. and CWHEQ, Inc., respectively. Countrywide
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