Page 196 - untitled

ALL IN 

Rejected Loans Waived in by Selected Banks
From January 2006 through June 2007, Clayton rejected 28% of the mortgages
it reviewed. Of these, 39% were waived in anyway.

A B C D E
ACCEPTED REJECTED REJECTED REJECTED FINANCIAL
LOANS LOANS LOANS LOANS AFTER INSTITUTION
(Event 1 & 2)/ (Event 3)/ WAIVED IN BY WAIVERS WAIVER RATE
Total pool of Total pool of FINANCIAL (B–C) (C/B)
loans loans INSTITUTIONS
Financial Institution
Citigroup 58% 42% 13% 29% 31%
Credit Suisse 68 32 11 21 33
Deutsche 65 35 17 17 50
Goldman 77 23 7 16 29
JP Morgan 73 27 14 13 51
Lehman 74 26 10 16 37
Merrill 77 23 7 16 32
UBS 80 20 6 13 33
WaMu 73 27 8 19 29
Total Bank Sample 72% 28% 11% 17% 39%
NOTES: From Clayton Trending Reports. Numbers may not add due to rounding.
SOURCE: Clayton Holdings

Figure .

guidelines. “As you know, there was stated income, they were telling us look for rea-

sonableness of that income, things like that.” With stricter guidelines, one would ex-
pect more rejections, and, after the securitizer looks more closely at the rejected
loans, possibly more waivers. As Moody’s Investors Service explained in a letter to
the FCIC, “A high rate of waivers from an institution with extremely tight underwrit-
ing standards could result in a pool that is less risky than a pool with no waivers from

an institution with extremely loose underwriting standards.” Nonetheless, many
prospectuses indicated that the loans in the pools either met guidelines outright or
had compensating factors, even though Clayton’s records show that only a portion of
the loans were sampled, and that of those that were sampled, a substantial percentage
of Grade  Event loans were waived in.
Johnson said he approached the rating agencies in  and  to gauge their
interest in the exception-tracking product that Clayton was developing. He said he
shared some of their company’s results, attempting to convince the agencies that the
data would benefit the ratings process. “We went to the rating agencies and said,
‘Wouldn’t this information be great for you to have as you assign tranche levels of