Subprime lending and mortgage finance


Bates White has the financial, economic, and statistical expertise to analyze the full range of financial and economic issues surrounding mortgage markets and structured finance. Our experience includes some of the important recent cases at the center of the subprime and mortgage finance litigation landscape. In these cases, our expertise in mortgage origination, mortgage pool analysis, structured finance, financial economics, and statistics have allowed our experts to analyze many mortgage-related issues including:

  • Loss causation and damages in contractual breaches and fraudulent misrepresentation
  • RMBS- and CDO-related origination and pricing
  • Mortgage pool sampling
  • Cash flow and risk modeling

Whether the issues arise in dispute resolution, public investigation, policymaking, or compliance, we accurately and efficiently measure economic and financial impacts and provide clients with clear, precise answers.

Selected experience

  • Testified as the damages expert on behalf of plaintiffs in Mastr Adjustable Rate Mortgages Trust 2006-OA2 v. UBS Real Estate Securities, a residential mortgage-backed securities (RMBS) matter. Calculated damages suffered by trusts or certificate holders as a result of UBS’s alleged failure to repurchase mortgages that breached the representations and warranties.
  • In the matter Federal Home Loan Mortgage Corp. v. Deloitte & Touche LLP, served as testifying expert on behalf of Freddie Mac in its dispute with Deloitte & Touche LLP (Deloitte) over improperly performed audits on Taylor Bean & Whitaker Mortgage Corporation (TBW). Freddie Mac alleged that, as a result of these audits and Deloitte’s failure to detect that TBW’s financial condition was fraudulently represented, Deloitte was responsible for the losses Freddie Mac sustained from loans purchased from TBW. Freddie Mac further claimed that many of these loans were in breach of the representations and warranties TBW made to Freddie Mac and, as a result of TBW’s collapse, it was unable to fulfill its repurchase obligations associated with those loans. Estimated damages to compensate Freddie Mac for all losses due to its purchase or guarantee of TBW loans, and for TBW’s failure to repurchase loans that breached the associated representations and warranties. The parties agreed to a settlement.
  • In Ambac v. EMC, served as testifying expert on behalf of Ambac Assurance Corporation (Ambac) in a dispute with JPMorgan Chase over residential mortgage-backed securities (RMBS). Ambac alleged that 11 RMBS sponsored by EMC Mortgage LLC (EMC), a subsidiary of JPMorgan Chase, were knowingly securitized with defective mortgage loans. Estimated damages to Ambac caused by insuring EMC-sponsored RMBS. Reconstructed the payment waterfalls and forecasted future loan performance to create a “but-for” model in which EMC bought back all significantly defective loans. JPMorgan Chase agreed to a $995 million settlement.
  • In the matter United States v. Wells Fargo Bank, served as testifying expert on behalf of the Department of Justice in connection with allegations that Wells Fargo defrauded the Federal Housing Administration (FHA) on loans that Wells Fargo underwrote and submitted for FHA endorsement. Determined damages arising from insurance claims on loans that allegedly failed to meet FHA-mandated underwriting guidelines. Wells Fargo agreed to a $1.2 billion settlement.
  • Retained as a testifying expert by multiple financial institutions in disputes over the quality of mortgages pooled into various mortgage-backed securities. Providing statistical analysis to estimate the fraction of mortgage loans in the securitized pools that failed to meet the originator’s stated guidelines. Analyzing the underlying risk of the pools and securities, examining loss causation issues, and estimating current damages and future losses.
  • Assisted a major monoline insurer in a dispute with a mortgage originator. Retained to assist the insurer in determining whether the originator followed its stated underwriting process when it made certain loans that were ultimately sold and packaged into asset-backed securities. Work involved analysis of representations and warranties made by the originator concerning its underwriting process for loans that were later used to create asset-backed securities. Generated a random sample of loans to be re-underwritten. Analyzed the results to estimate the fraction of loans in the portfolio that were defective as well as to determine whether the defective loans had a material impact on portfolio performance.
  • Provided consulting services for outside counsel representing a special committee formed to evaluate allegations in a shareholder derivative action involving a monoline insurer. Analysis focused on insurer’s policies for and models related to underwriting financial guarantees on subprime RMBS, closed-end second and HELOC ABS, and multisector CDO securities. Evaluated the insurer’s processes and procedures, including its deal origination, underwriting, pricing, cash flow modeling, risk modeling, and surveillance activities.
  • On behalf of Mitsubishi Motors Credit of America (MMCA), provided direct and cross-examination testimony regarding expected credit losses for loans originated by MMCA and subsequently sold to Household Auto Finance in ADR proceeding of HSBC Auto Finance, Inc v. Mitsubishi Motors Credit of America, Inc. Demonstrated that the credit loss information submitted by the offeror during the due diligence phase of a loan portfolio sale accurately reflected the credit quality of the portfolio. Successfully challenged the purchaser’s damages estimate. The three judge arbitration panel, in ruling unilaterally for our client, found that the purchaser’s damages calculation was highly speculative and not supported by the evidence.
  • Served as testifying expert in litigation involving the subprime automobile finance industry. The litigation, brought by the monoline insurer of the ABS portfolios, involved breach of servicing contract issues and required a detailed forecast of “but-for” net credit losses. Evaluated the reasonableness of various sets of credit loss forecasts. Prepared two expert reports that analyzed industry structure, evaluated underwriting and servicing practices, forecasted credit losses for damages purposes, and rebutted opposing experts’ methodologies. Demonstrated post-servicing loss experience consistent with preservicing loss performance. Testified in two depositions on the content of two expert reports. 
  • Our experts directed statistical and economic analyses on behalf of a major financial institution with multiple prime and subprime mortgage business units. Developed statistical models to detect pricing disparities between protected and unprotected classes and to analyze the relationship between its mortgage pricing strategies and credit risk. Developed alternate risk-adjusted pricing algorithms and credit-scoring models to reduce adverse impacts without sacrificing effectiveness.
  • For a large company in the home mortgage industry, our experts evaluated the ability of the company’s automated underwriting system (AUS) to predict default, foreclosure, and other adverse outcomes for all groups. We analyzed whether the AUS predictions were equally valid for all groups and whether the underlying statistical model over-predicted minority defaults. We also considered whether there were alternative AUS systems that would have fewer disparate impacts and that could predict default and other loss measures equally well.
  • On behalf of a prominent investment group, researched and analyzed market position and product revenues for a $10 billion multifaceted consumer finance company. Conducted in-depth investigation of the finance company’s auto finance, mortgage origination, mortgage servicing, and subprime business units.
  • On behalf of a major financial institution with multiple mortgage business units, our experts provided statistical and economic analysis to respond and comply with government regulatory bodies assessing fair lending pricing and underwriting practices. Analyzed subprime mortgage underwriting practices and constructed comprehensive algorithmic and statistical models to detect loan-level pricing disparities between protected and unprotected classes.
  • On behalf of a major financial institution, our experts provided statistical and economic analysis to assess fair lending pricing and underwriting practices. Analyzed subprime mortgage pricing practices and developed statistical models to detect pricing disparities between protected and unprotected classes. Analyzed the relationship between borrower credit, property, and loan characteristics and mortgage pricing.
  • One of our experts developed and managed the marketing department for a major subprime auto finance company. Created four new direct marketing programs. Aligned price and risk-on-product tiers to achieve above-hurdle ROI performance on all products and customer segments. Constructed target population segmentation algorithms to maximize ROI and NPV of marketing expenditures. Built and instituted credit risk models to lower risk while raising approval rate. Marketing and product improvements resulted in 100 percent growth rates while reducing credit risk exposure.