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STRUCTURED FINANCE

Special Report

Moody's Criteria for Evaluating Representations and Warranties
in U.S. Residential Mortgage Backed Securitizations (RMBS)

AUTHORS:

SUMMARY OPINION

Moody's is updating its rating criteria for evaluating the
protection afforded by loan-level representations and
warranties C'R&Ws"). Our goal with this report is to
Kathy Kelbaugh
standardize our methodology so that Moody's is
@noodys.com
equipped to further improve its ability to assess credit
Yehudah Forster
risk. The credit benefit that Moody's ascribes to the
\/ice President R&Ws will depend upon a) the content of the specific
Senior Analyst
(212) 553- 7995
R&Ws, b) the contractual oversight and remedies in
Yehudah. Forster
place for breaches of R&Ws and c) the financial strength
@noodys.com
of the entity making the loan level R&Ws and, where
CONTACTS:
applicable, the strength of its origination processes and
procedures. Although Moody's has reviewed R&Ws as
Debashish Chatterjee
Team Leader
part of its overall evaluation of transactions in the past,
(212) 553-1329
our updated criteria more specifically address the
Debashish. Chatterjee
aspects of R&Ws that we believe will improve
@noodys.com
transparency, data integrity and accountability for U.S.
Warren Kornfeld
Managing Director
RMBS. The updated criteria described in this report
(212) 553-1932
generally will apply to U.S. RMBS issued after the
Wa rren. Ko rnfeld
publication date of this paper. Moody's welcomes your
@noodys.com
comments on this special report; please direct them to
James Duca
Group Managing Director cpc@noodys.com .
Kathryn Kelbaugh
\/ice President Senior Analyst
(212) 553-3645

(212) 553-1415

James.Duca@noodys.com

MOODY'S
CLIENT SERVICES:
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WEBSITE:
www.moodys.com

Representations and Warranties

Overview of Moody's
RM BS Enhancement
Proposals
On March 26, 2008 , Moody's
published five proposals to
enhance the U.S. RMBS
securitization process. 1 Those
proposals were: increased loan
level data, stronger
representations and warranties,
independent third-party presecuritization loan reviews,
standardized forensic reviews for
underperforming loans, and more
comprehensive originator
assessments. These
enhancements are intended to
work together to improve the
reliability and transparency of
information for RMBS
transactions.
This paper addresses stronger
representations & warranties
(R&Ws). In this special report we
present a baseline set of R&Ws
and our criteria for analyzing the
R&Ws provided for a transaction.
Separate papers released
concurrently with this paper focus
on pre- and post-securitization
independent third-party reviews
and our enhanced originator
assessments.

Moody's has identified a baseline set of R&Ws, which
can be found in Appendix A.
The first ten
Moody's continues to work with
representations and warranties listed in appendix A are
the American Securitization
based on those set forth in Moody's special report
Forum (ASF) on Project RESTART
and the Securities Industry and
"Moody's Proposed Enhancements to U.S. Residential
Financial Markets Association
Mortgage Securitizations: Call for Comments,"1
(SIFMA) to achieve an industry
published on March 26, 2008. They cover matters such
consensus for our proposed
enhancements for U.S.RMBS
as property valuation, income verification, fraud and data
accuracy. Moody's believes that the R&Ws listed in
securitization , including increased
loan level data. The results of
Appendix A would afford investors greater protection
these projects are expected to be
reported in Moody's publications
than those typically found in past securitizations. In
throughout 2009.
addition, Moody's has identified a minimum set of R&Ws
that an RMBS transaction must include for Moody's to
rate the transaction, though it is unlikely that the securities issued in a transaction
providing only the minimum R&Ws will achieve an investment grade rating. These
minimum R&Ws can be found in Appendix B.
See "Moody's Proposed Enhancements to U S Residential Mortgage Securitizations· Call for Comments,"
Moody's Structured Finance, March 26, 2008.

Moody's Investors Service

November 24,2008

Going forward, the R&Ws for each transaction will be reviewed on a case-by-case basis to evaluate the relative
level of credit benefit they afford the securitization trust. R&Ws that closely match Moody's baseline set generally will be viewed as credit-neutral for purposes of Moody's ratings. R&Ws that lack one or more of the R&Ws
in the baseline set, or key elements of those R&Ws, generally will be viewed by Moody's as providing less credit
protection. However, it may be possible that weaknesses in the R&Ws provided in a given securitization may be
offset through the provision of a more extensive third-party pre- and post-securitization loan level review. 2
Based on the nature of the R&Ws provided, the level of third-party, pre- and post-securitization reviews conducted, the financial strength and, where applicable, the originator assessment3 of the loan level R&W provider,
Moody's may decide i) that additional credit protection is needed to achieve a given rating level, ii) to assign a
lower rating or iii) to decline to rate the transaction.
Independent Third Party Loan Reviews
While R&Ws are important investor protections, it is important that additional steps be taken to reduce the likelihood that the R&Ws do not accurately characterize the loans going into the transaction. Therefore, as part of
its credit analysis, Moody's also will look for a third party review of a sample of the loans underlying each RMBS
transaction it rates in order to gauge how well the actual characteristics and qualities of the loans meet those
being represented. 2
Breaches of Representat ion and Warrant ies
Historically, RMBS transactions have not incorporated specific mechanisms or procedures, or obligated third
parties, to identify breaches of representations and warranties. Also, procedures for enforcing repurchase obligations have been less than clear. Ambiguity surrounding these issues has increased the likelihood that an
RMBS transaction will absorb losses on defaulted loans, even when loans breach R&Ws.
To address these issues and strengthen transaction governance, Moody's believes that, in addition to presecuritization loan reviews, post-securitization forensic reviews 2 should be conducted on any loan that
becomes severely delinquent4 during the initial 18 months following securitization. To obtain unbiased and
timely determination of breaches, Moody's believes the forensic review should be conducted by an independent third party2 within 30 days of the loan becoming severely delinquent. Reporting these breaches in the
monthly remittance report along with a list of loans with breaches that have not been repurchased will increase
transparency of the underlying R&W provider's performance. Moody's will consider such information in its
ongoing analysis.
Remedies for breaches of R&Ws, particularly repurchase remedies, that have clear timeframes and guidelines
within which the provider must operate to be in compliance with the terms of the transaction increase the probability of a timely and predictable resolution for breaches. Therefore, even where there are loan level R&Ws and
pre-securitization loan level reviews, to the extent the mechanisms and procedures for breach resolution do not
have such timeframes and guidelines, Moody's may decide i) that additional credit protection is needed to
achieve a given rating level, ii) to assign a lower rating or iii) to decline to rate the transaction.
Criteria for Representations and Warranties Provider
In its credit analysis, Moody's will weigh the loan level R&W provider's financial strength and origination processes and performance. 5 Moody's will not rate transactions where the loan level R&W providerS has been
assessed as "unacceptable" by Moody's or where the R&W provider does not have a sufficient net worth. 7
2
3
4
5
6
7

See "Moody's Criteria for Evaluating Independent Third-Party Loan Level Reviews for U.S. Residential Mortgage Backed Secur~ies (RMBSl, " Moody's
Structured Finance, November 24, 2008.
See "Moody's Enhanced Approach to Originator Assessments for U.S. Residential Mortgage Backed Securities (RMBS)," Moody's Structured
Finance, November 24, 2008.
Severely delinquent means 120+ days delinquent, in foreclosure, REO, or the loan was modified or a short payoff occurred and the lender experienced a loss or the borrower has filed for bankruptcy.
R&W providers for which an originator assessment would not be applicable will be assessed on a case-by-case basis. See "Moody's Enhanced
Approach to Originator Assessments for U S Resident ial Mortgage Backed Securities (RMBS)," Moody's Structured Finance, November 24. 2008.
Moody's considers the R&W provider to be the originator for purposes of Moody's originator assessment review. Refer to "Moody' s Enhanced
Approach to Originator Assessments for U.S. Residential Mortgage Backed Securities (RMBS)," Moody's Structured Finance, November 24,2008,
for more details.
To have sufficient net worth, the R&W provider must have an "adjusted tangible equity" at least equal to 1% of the volume of total securitization and
whole loan sale exposure for the prior 12 months (which amount may be adjusted if (a) expected future securitization and whole loan activity differs
from the prior 12 months or (b) if repurchase history of a particular R&W provider is higher than expected). "Adjusted tangible equity" generally will
equal pure common equity minus ((1 /2 (Mortgage Servicing Rights + I/O Strips + Residuals)). Moody's will consider the net worth of an entity other
than the R&W provider if such entity has provided the securitization trust with an irrevocable guaranty of the R&W provider's obligations (or like
arrangement).

2· Moody's Investors Service

Moody's Criteria for Evaluating Representations and Warranties
in U.S. Residential Mortgage Backed Securitizations (RMBS)

APPENDIX A

Proposed Baseline Representations and Warranties
The substantive elements of the baseline R&Ws are described below. It is anticipated that the specific form or
wording of the R&Ws in each transaction will vary from these conceptual descriptions. Moody's will view the
R&Ws in any given transaction as being in line with the baseline R&Ws so long as they are clearly drafted and all
of the elements of the baseline R&Ws are addressed. In general, Moody's believes that adding a knowledge
qualifier such as "To the best of the R&W provider's knowledge ... ," to any R&W materially diminishes the credit
protection afforded by the R&W
1.

Property Valuation • Each mortgage loan with a written appraisal, as indicated on the mortgage loan schedule, contains a written
appraisal prepared by an appraiser licensed or certified by the applicable governmental body in which the
mortgaged property is located and in accordance with the requirements of Title XI of the Financial Institutions
Reform Recovery and Enforcement Act of 1989 (FIRREA).
• The appraisal was written, in form and substance, to 0) customary Fannie Mae or Freddie Mac standards for
mortgage loans of the same type as such mortgage loans and Oi) USPAP standards, and satisfies applicable
legal and regulatory requirements.
• The appraisal was made and signed prior to the final approval of the mortgage loan application.
• The person performing any property valuation Oncluding an appraiser) received no benefit from, and such
person's compensation or flow of business from the loan originator was not affected by, the approval or
disapproval of the mortgage loan.
• The selection of the person performing the property valuation was made independently of the broker (where
applicable) and the originator's loan sales and loan production personnel. The selection of the appraiser met
Fannie Mae's and Freddie Mac's criteria for selecting an independent appraiser.
• For each mortgage loan where the value of the related mortgaged property was derived from an automated
valuation model (AVM), as indicated on the mortgage loan schedule, the model used has been duly researched
by the originator and, to the best of the originator's knowledge, provides an accurate assessment of the
property value.
• For each mortgage loan where the value of the related mortgaged property was derived from a brokers price
opinion (BPO), as indicated on the mortgage loan schedule, the BPO was conducted by a licensed real estate
broker or realtor licensed in the jurisdiction of the subject property.

Although this representation contemplates alternative valuation methods such as AVMs or BPOs, Moody's generally views these alternative methods as less reliable than a properly performed appraisal. As a result,
enhancement levels generally will be increased for such alternative valuation methods, even if they satisfy the
applicable elements of the R&W
2.

Income/Employment/Assets:
• The originator verified the borrower's income, employment and/or assets in accordance with its written
underwriting guidelines.
• The originator employed procedures designed to reasonably authenticate the documentation supporting such
income, employment and/or assets.
• Wlere commercially reasonable, the originator utilized public and/or commercially available information in order
to test the reasonableness of the income.
• The originator reviewed other attributes of the borrower, which may include but are not limited to, assets,
disposable income, reserves and credit history, and reasonably determined that such attributes supported the
income used to approve the loan.

Moody's Criteria for Evaluating Representations and Warranties
in U.S. Residential Mortgage Backed Securitizations (RMBS)

Moody's Investors Service· 3

3.

Occupancy:
• The originator has given due consideration to factors, including but not limited to, other real estate owned by
the borrower, commuting distance to work, appraiser comments and notes, the location of the property and
any difference between the mailing address active in the servicing system and the subject property address to
evaluate whether the occupancy status of the property as represented by the borrower is reasonable.

4.

Early Payment Default Repurchase: 8
• With respect to any mortgage loan originated not more than 90 days prior to the securitization closing date, the
originator shall promptly repurchase such mortgage loan if, by the third mortgage loan due date following the
securitization closing date, the borrower has made neither of the two preceding monthly payments.

5.

Data:
• The information on the mortgage loan schedule relating to the terms of the mortgage loan and the mortgage
note9 is true and correct in all material respects.
• The information on the mortgage loan schedule and the information that was provided to Moody's are
consistent with the contents of the originator's records and the underlying loan files.
• The mortgage loan schedule contains all the fields requested by Moody's.
• Any seller or builder concession has been subtracted from the appraised value of the mortgaged property for
purposes of determining the LTV and CLTV
• Except for information specified to be as of the origination date of the mortgage loan, the mortgage loan
schedule contains the most current information possessed by the originator.
• No FICO score listed on the mortgage loan schedule was more than 4 months old at the time of securitization.
• No appraisal or other property valuation listed on the mortgage loan schedule was more than 3 months old at
the time of loan closing.

6.

Fraud:
• No fraud or misrepresentation, material error or omission or gross negligence has taken place on the part of
any person in connection with the origination of the mortgage loan, the determination of the value of the
mortgaged property, or the sale or servicing of the mortgage loan prior to the securitization closing date. 1o

7.

Underwriting:
• Each mortgage loan was either 0) underwritten in substantial conformance to the originator's underwriting
guidelines in effect at the time of origination without regard to any underwriter discretion or Oi) if not
underwritten in substantial conformance to the originator's underwriting guidelines, has reasonable and
documented compensating factors.

8.

Mortgage Insurance:
• For mortgage loans with mortgage insurance, such mortgage loan has the benefit of a valid, binding and
enforceable primary mortgage insurance policy issued by a primary mortgage insurer acceptable to Fannie
Mae and Freddie Mac.
• The form and substance of such mortgage insurance policy is in substantial conformance with primary
mortgage insurance policies acceptable to Fannie Mae and Freddie Mac.

9.

Mortgage Insurance Repurchase: 8
• With respect to any mortgage loan having mortgage insurance, in the event the mortgage insurer rejects,
denies, or rescinds a claim on the basis of any defect in connection with the origination of the mortgage loan or
the servicing of the mortgage loan prior to the securitization closing date (a "mortgage insurer rejection"), other
than as a result of the mortgage insurer's breach of its obligations or insolvency, the originator shall either
repurchase such mortgage loan or pay the trust the amount of such claim within 30 days from such mortgage
insurer rejection.

8
9
10

This obligation is technically a covenant, not a R&W
Such information would include the identity of the originator, lien position, loan type, loan amount, interest rate, term to maturity, first payment date,
interest rate caps and floors, prepayment penalty terms, property location and other key terms listed in the mortgage or the mortgage note.
So long as the transaction provides for a post-closing forensic review of severely delinquent loans, remedies for a breach of this R&W due solely to
borrower fraud or misrepresentation may expire if notice of such breach is not given by the later of (a) 18 months after the securitization closing date
and (b) 12 months after the expiration of any teaser or interest-only period on the mortgage loan.

4· Moody's Investors Service

Moody's Criteria for Evaluating Representations and Warranties
in U.S. Residential Mortgage Backed Securitizations (RMBS)

• If the originator has a good-faith dispute of such mortgage insurer rejection, it shall notify the trustee of the
basis of such dispute and shall have an additional period of up to 30 days to resolve such dispute.
• If at the end of such additional 30 day period, the claim still remains unpaid, the originator shall immediately
repurchase such mortgage loan or pay the trust the amount of such claim.
10. Regulatory Compliance:
• Each mortgage loan complies with all applicable federal, state and local laws including, without limitation,
truth-in-Iending, real estate settlement procedures, consumer credit protection, equal credit opportunity,
predatory and abusive lending laws and disclosure laws.
11. Borrower:
• Each borrower is a natural person.
• As of origination, each borrower was legally permitted to reside in the United States.
• No borrower is a debtor in any state or federal bankruptcy or insolvency proceeding.
• No borrower had a prior bankruptcy in the last ten years.11
• No borrower previously owned a property in the last ten years that was the subject of a foreclosure during the
time the borrower was the owner of record. 11

12. Source of Loan Payments:
• No loan payment has been escrowed as part of the loan proceeds on behalf of the borrower.
• No payments due and payable under the terms of the note and mortgage or deed of trust, except for seller or
builder concessions or temporary buydown funds, have been paid by any person who was involved in, or
benefited from, the sale or purchase of the mortgaged property or the origination, refinancing, sale, purchase
or servicing of the mortgage loan other than the borrower.
13. Downpayment:
• For each mortgage loan whose proceeds were used to purchase the related mortgaged property, the borrower
paid at least the lesser of (a) 100% minus the CLTV of the mortgage loan and (b) 5% of the purchase price,
with his/her own funds.

14. No Prior Liens:
• Immediately prior to the transfer and assignment of the mortgage loan to the securitization trust, the seller was
the sole owner and holder of the mortgage loan free and clear of any and all liens, pledges, charges or security
interests of any nature.
• The seller has good and marketable title and has full right and authority to sell and assign the mortgage loan.
15. Enforceability and Priority of Lien:
• The mortgage is a valid, subsisting and enforceable [first] [second] lien on the property therein described.
• The mortgaged property is free and clear of all encumbrances and liens having priority over the lien of the
mortgage except for liens for real estate taxes and special assessments not yet due and payable; and any
security agreement, chattel mortgage or equivalent document related to, and delivered to the custodian.
• The mortgage establishes in the seller a valid and subsisting [first] [second] lien on the property described
therein and the seller has full right to sell and assign the same to the securitization trust.
16. Complete Mortgage Files:
• All of the required loan documents have been delivered to the custodian in accordance with the requirements
of the governing document.

11

Moody's recognizes that non-prime and sub-prime securitization pools will contain some borrowers who have a history of foreclosure or bankruptcy.
However, in general, to be credit-neutral the expectation is that the criteria listed in the R&Wwill be met.

Moody's Criteria for Evaluating Representations and Warranties
in U.s. Residential Mortgage Backed Securitizations (RMBS)

Moody's Investors Service· 5

17. No Modifications:
• Unless otherwise noted on the mortgage loan schedule, none of the mortgage loans have been modified in
any material respect. If a mortgage loan has been modified, the modified terms are reflected on the mortgage
loan schedule.
• None of the mortgage loans have been satisfied, canceled or subordinated in whole or in part.
• With respect to each mortgage loan, the mortgaged property has not been released in whole or in part from
the lien of the mortgage.
18. Taxes Paid:
• All taxes, governmental assessments, insurance premiums, and water, sewer and municipal charges, which
previously became due and owing have been paid, or an escrow of funds has been established, to the extent
permitted by law, in an amount sufficient to pay for every such item which remains unpaid.
19. No Damage / Condemnation:
• The mortgaged property is undamaged so as to affect adversely the value of the mortgaged property as
security for the mortgage loan or the use for which the premises were intended.
• There is no proceeding pending or threatened for the total or partial condemnation of the mortgaged property.
20. No Mechanics Liens:
• The mortgaged property is free and clear of all mechanics' and materialmen's liens or liens in the nature
thereof.
21. Fee Simple Estate / No Encroachments / Compliance with Zoning:
• The mortgaged property consists of a fee simple estate in real propertyY
• All of the improvements which are included for the purpose of determining the appraised value of the
mortgaged property lie wholly within the boundaries and building restriction lines of such property.
• No improvements on adjoining properties encroach upon the mortgaged property (unless insured against
under the related title insurance policy).
• The mortgaged property and all improvements thereon comply with all requirements of any applicable zoning
and subdivision laws and ordinances.
22. No Usury:
• The mortgage loan is not usurious.
23. Legally Occupied:
• All inspections, licenses and certificates required to be made or issued with respect to all occupied portions of
the mortgaged property and, with respect to the use and occupancy of the same, including, but not limited to,
certificates of occupancy and fire underwriting have been made or obtained from the appropriate authorities.
24. Mortgage Loan Legal and Binding:
• The mortgage note, the related mortgage and other agreements executed in connection therewith are
genuine, and each is the legal, valid and binding obligation of the maker thereof, enforceable in accordance
with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally and by general equity principles (regardless
of whether such enforcement is considered in a proceeding in equity or at law).
• All parties had legal capacity to execute the documents.
• Such documents have been duly and properly executed.
25. Proceeds Fully Disbursed / Recording Fees Paid:
• The proceeds of the Mortgage Loan have been fully disbursed.
• There is no requirement for future advances.
12

If the mortgage loan is secured by co-op shares or a residential long-term lease, a R&W addressing this type of mortgage loan should be included.

6· Moody's Investors Service

Moody's Criteria for Evaluating Representations and Warranties
in U.S. Residential Mortgage Backed Securitizations (RMBS)

o

o

All requirements as to completion of improvements and as to disbursements of any escrow funds therefore
have been complied with.
All costs, fees and expenses incurred in making, closing or recording the mortgage loan have been paid.

26. Existence of Title Insurance:
o

o

The mortgage loan is covered by an American Land Title Association mortgagee title insurance policy or other
generally acceptable form of policy or insurance acceptable to Fannie Mae or Freddie Mac, issued by a title
insurer acceptable to Fannie Mae or Freddie Mac insuring the originator, its successors and assigns, as to the
[first] [second] priority lien of the mortgage in the original principal amount of the mortgage loan.
The assignment to the securitization trust of such mortgagee title insurance policy does not require any
consent of or notification to the insurer which has not been obtained.

o

Such mortgagee title insurance policy is in full force and effect.

o

No claims have been made under such mortgagee title insurance policy.

o

No prior holder of the related mortgage has done, by act or omission, anything which would impair the
coverage of such mortgagee title insurance policy.

27. Hazard Insurance:
o

o

o

o

o

o

The mortgaged property is insured by an insurer acceptable to Fannie Mae or Freddie Mac against loss by fire
and such hazards as are covered under a standard extended coverage endorsement.
The amount of coverage is not less than the lesser of 100% of the insurable value of the mortgaged property
and the outstanding principal balance of the mortgage loan, but in no event less than the minimum amount
necessary to fully compensate for any damage or loss on a replacement cost basis.
If the mortgaged property is a condominium unit, it is included under the coverage afforded by a blanket policy
for the project.
If upon origination of the mortgage loan, the mortgaged property was in an area identified in the Federal
Register by the Federal Emergency Management Agency as having special flood hazards, a flood insurance
policy meeting the requirements of the current guidelines of the Federal Insurance Administration is in effect
with a generally acceptable insurance carrier.
If applicable, the amount of flood hazard coverage is not less than the least of (A) the outstanding principal
balance of the mortgage loan, (8) the full insurable value of the mortgaged property and (C) the maximum
amount of insurance which was available under the National Flood Insurance Act of 1968, as amended.
Each mortgage obligates the mortgagor thereunder to maintain all such insurance at the mortgagor's cost and
expense.

28. No Default:
o

There is no default, breach, violation or event of acceleration existing under the mortgage or the related
mortgage note and no event which, with the passage of time or with notice and the expiration of any grace or
cure period, would constitute a default, breach, violation or event of acceleration.

o

No default breach, violation or event of acceleration has been waived.

o

No foreclosure action is currently threatened or has been commenced with respect to the mortgage loan.

29. No Rescission:
o
o

o

No mortgage note or mortgage is subject to any right of rescission, set-off, counterclaim or defense.
None of the terms will render the mortgage note or mortgage unenforceable or subject it to any right of
rescission, set-off, counterclaim or defense.
No such right of rescission, set-off, counterclaim or defense has been asserted.

Moody's Criteria for Evaluating Representations and Warranties
in u.s. Residential Mortgage Backed Securitizations (RMBS)

Moody's Investors Service· 7

30. Enforceable Right of Foreclosure:
• Each mortgage contains customary and enforceable provisions such as to render the rights and remedies of
the holder thereof adequate for the realization against the mortgaged property of the benefits of the security.
• There is no homestead or other exemption available to the Mortgagor which would interfere with such right of
foreclosure.
31. Mortgaged Property is 1-4 Family:
• Unless noted on the mortgage loan schedule, each mortgaged property is located in the United States and
consists of a one- to four-unit residential property, which may include a detached home, townhouse,
condominium unit or a unit in a planned unit development or, in the case of mortgage loans secured by co-op
shares, leases or occupancy agreements.
32. Mortgage Loan Qualifies for REM IC:
• The mortgage loan is a "qualified mortgage" within the meaning of Section 860G(a)(3) of the Internal Revenue
Code of 1986, as amended.
33. Lost Note Affidavit:
• With respect to each mortgage where a lost note affidavit has been delivered to the custodian in place of the
related mortgage note, the related mortgage note is no longer in existence.
34. Doing Business:
• All parties that have had any interest in such mortgage loan, whether as mortgagee, assignee, pledgee or
otherwise, are (or, during the period in which they held and disposed of such interest, were) in compliance with
any and all applicable licensing requirements of the laws of the state wherein the related mortgaged property is
located.
35. Environmental Laws:
• As of origination of the mortgage loan, the mortgaged property was in material compliance with all applicable
environmental laws pertaining to environmental hazards including, without limitation, asbestos.
36. Loans Current / Prior Delinquencies:
• Unless noted on the mortgage loan schedule, all payments required to be made up to the due date
immediately preceding the cut-off date for such mortgage loan under the terms of the related mortgage note
have been made and no mortgage loan had more than one delinquency in the 12 months preceding the cut-off
date.

8· Moody's Investors Service

Moody's Criteria for Evaluating Representations and Warranties
in U.S. Residential Mortgage Backed Securitizations (RMBS)

APPENDIX B:

Moody's Minimum Set of Representations and Warranties
Moody's may analyze an RMBS transaction for which only this minimum set of R&Ws is provided. It is highly
unlikely, however, that the issued securities would achieve investment grade ratings under such circumstances.
1.

Data:
• The information on the mortgage loan schedule and the information provided to Moody's are consistent with
the contents of the underlying loan files.

2.

No Fraud:
• No fraud, misrepresentation, material error or omission or gross negligence has taken place on the part of the
originator or, to the best of the originator's knowledge, any other party in connection with the origination of the
mortgage loan, the determination of the value of the mortgaged property, or the sale or servicing of the
mortgage loan prior to the securitization closing date.

3.

Regulatory Compliance:
• Each mortgage loan complies with all applicable federal, state and local laws including, without limitation,
truth-in-Iending, real estate settlement procedures, consumer credit protection, equal credit opportunity,
predatory and abusive lending laws and disclosure laws.

4.

No Prior Liens:
• Immediately prior to the transfer and assignment contemplated herein, the seller was the sole owner and
holder of the mortgage loan free and clear of any and all liens, pledges, charges or security interests of any
nature.
• The seller has good and marketable title and has full right and authority to sell and assign the mortgage loan.

5.

Enforceability and Priority of Lien:
• The mortgage is a valid, subsisting and enforceable [first] [second] lien on the property therein described.
• The mortgage establishes in the seller a valid and subsisting [first] [second] lien on the property described
therein and the seller has full right to sell and assign the same to the securitization trust.

6.

Mortgage Loan Legal and Binding:
• The mortgage note, the related mortgage and other agreements executed in connection therewith are
genuine, and each is the legal, valid and binding obligation of the maker thereof, enforceable in accordance
with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally and by general equity principles (regardless
of whether such enforcement is considered in a proceeding in equity or at law).
• All parties had legal capacity to execute the documents.
• Such documents have been duly and properly executed.

7.

No Rescission:
• No mortgage note or mortgage is subject to any right of rescission, set-off, counterclaim or defense.
• None of the terms will render the mortgage note or mortgage unenforceable or subject it to any right of
rescission, set-off, counterclaim or defense.
• No such right of rescission, set-off, counterclaim or defense has been asserted.

8.

Enforceable Right of Foreclosure:
• Each mortgage contains customary and enforceable provisions such as to render the rights and remedies of
the holder thereof adequate for the realization against the mortgaged property of the benefits of the security.
• There is no homestead or other exemption available to the mortgagor which would interfere with such right of
foreclosure.

Moody's Criteria for Evaluating Representations and Warranties
in U.S. Residential Mortgage Backed Securitizations (RMBS)

Moody's Investors Service· 9

Doc 10# SF148641
© C11Jyright 2008, M:xxJy's Investcrs8=rvice, Inc. ard/cr its licenscrs ard affiliates~cgetrer, "MCXIJY'S') ~I rightsres=rve:J ALL INFCRMATI(J\JCXNTAIr£:lf-ffiEN ISF'R:JftDBJBYCXPYAGfTLAWAf\O~
CFSL.O-1INFCRMATI(J\J MAYBECXPIBJCROfl-ffiNEERf'R::D..CH:I Rf)'\,(XI\CB:i FLRTl-ffilR'\NSMITTBJ ~ DSEEMINATBJ RDSTABLlTIDCRRBlq CRsrCRBJFCRSL.BSB:l..&JT
L.JS::FCRANYSL.O-1 PI.RFI::El:; INWUECR IN PAR!; IN ANY FCRM CR MAN~CRBY ANY M6'\NSW,I'Us:::Bm BY ANY f'ER3:J\JWTl-DJT MCXIJY'S PklCR\l\ATffi\J CXJ\ISENT I'JI infmnatim cmlaine:J
heren is cbtaine:J by MCXIJY'Sfrcrn s::uces bEJieve:J by it to be axurate ard reiable BocaLre d the p::sSbility d human cr rre:hanical errcr as IMJI as drer foctcrs, hCllVeVer, suoh infcrmatim is p-cwicJe:j"as is'
withcx1 warranty d any ki rd ard MCXIJY'S in particular, makes no representatim cr warrant~ exp-ess cr implie:J, as to the axura:y, ti me iness, ocrnpeteness, merchantaib lity cr fitness fcr any particular purpose d
any such infcrmatim Lhder no droumstances shail MCXIJY'S hate any liaiblity to any persm cr entity fcr (a) any loss cr damage in whoe cr in part cause:J b~ resulting frcrn, cr reating to, anyerrcr (negligent cr
dherwse) cr drer ciroumslance cr cmlingency within cr cx1sde the cmlrd d MJJJY'S cr any d its directcrs, dfioers, empoyees cr agents in Dmnectim with the proourernent, odlectim, ocrnpilatim, anaIySs,
interpretatim, ocrnmunicatim, publicalim cr dEJiveryd anysuoh infcrmatim, cr (b) any direct, indirect, special, Dmsecuential, ocrnpersatcrycr inddental damageswihats::ever (induding withcx1limitatim, lest prdits),
even if MCXIJY'S is a::Mse:J in a::Ivance d the p::sSblity d such damages, resulting frcrn the Lre d cr inaiblity to use, any such infcrmatim The cre:Jit ratings and financial repaiing anaIySs d:.Eavatims, if any,
cxrstituting part dthe infcrmatim cmlaine:J reren are, and must becxrstrue:J sdey as, staternentsd opinim and nd statements d foct cr reocrnmerdations to purchase, sat I cr hod any securities. r,o~
El<F'RBSCR IMPLIEq ASTOTl-EACQ.RI\CX TIMELI~ cx::MPl.El1NBS, MERJ-lI\NTABILITY CR RTNBS FCRANY PARrlillAR PL.ffi:EECF ANY SL.O-1 Rl\TINSCROfl-ffiCPINI(J\J CR INFCRMATI(J\J IS
G'v£N CR MADE BY MCXIJY'S IN ANY FCRM CR MANNER WJl\Ts:::Bffi Ea;h rating cr dher opinim must be weghe:J sdey as me foctcr in any investment dedsm made by cr m behalf d any user d the
infcrmatim cmlaine:J reren, ard each such user must aoccrdingly make its ClNn study and 6laiuatim d each seourity ard d each issuer and guarantcr d, ard each p-cwider d cre:Jit supp:rt fcr, each security that it
mayoonsder purohaSng, hdding cr satling
MCXIJY'S hereby disdoses that mcst issuers d deI:J: seourities (induding ocrpcrate ard municipal bmds, debentures, ndes and ocrnmerdal paper) and p-Eferre:J stock rate:J by MCXIJY'S have, p-icr to
asSgnment d any rating, agree:J to pay to MCXIJY'Sfcr app-aisai and rating services rendere:J by it fees ranging frcrn $1,5XJtoappre»<imatey$2,4OJ,eXn Moody'sCtrpcratim (M::Q and its wihd ly-owne:J credit rating
agency suoodiar~ M:xxJy's Investcrs 8=rvice (MI~, also maintain pdicies and proce:Jures to address the irdependence d MISs ratings ard rating p-ocesses Infcrmatim regarding certain affiliations that may exist
betvveen directcrs d M:Oand rate:J entities, ard between entities who hod ratings frcrn MISand hate also publidy repaie:J to the 8:Can ClNnership interest in M:Od mcre than 5% is pcste:J annually m Moody's
wEJOOteat wwwmoodysocrn urderthe hee:Jing" Sharehdder RoJatims- CtrpcrateG::wernance- Drectcr ard Sharehdder Miliatim Rlicy"

10 • Moody's Investors Service

Moody's Criteria for Evaluating Representations and Warranties
in U.S. Residential Mortgage Backed Securitizations (RMBS)

STRUCTURED FINANCE

Special Report

The Importance of Representations and Warranties in
RMBS Transactions
AUTHOR:

CONTENTS

Marjan Riggi
Vice President
Senior Credit Officer
(212) 553-4468

•

Summary Opinion

•

Importance of Representations and Warranties

•

Provider's Ability to Honor Its Obligations Is Key

Matjan. Riggi@moodys.com

CONTACTS:
Pramila Gupta
Managing Director
(212) 553-4489
Pramiia. Gupta@moodys.com

Jay Siegel
Managing Director
(201) 915-8737
Jay Siegei@moodys.com

Brett Hemmerling
Investor Liaison
(212) 553-4796
Brett. Hemmeriing@moodys.com

WEBSITE:

SUMMARY OPINION
Moody's believes that representations and warranties against the inclusion of certain loans in securitized transactions provide a small but important protection
against losses. The party making the representations is required to repurchase or
substitute for any loan that is noncompliant. In arriving at total credit enhancement
for each securitized transaction, Moody's takes into consideration the value of
such repurchase and substitution provisions by analyzing the financial and operational history of the transaction's sponsor. In general, sponsors with investmentgrade ratings are acceptable providers of representations and warranties for Aaarated securities. In certain instances, however, Moody's has used a case-by-case
analysis for unrated companies that may also be acceptable for securitized trusts.

www.moodys.com

-,-,--_.-_._--,-----

Moody's Investors Service

January 14, 2005

IMPORTANCE OF REPRESENTATIONS AND WARRANTIES
One of the ways RMBS investors are protected from losses in a transaction is through the representations and
warranties (R&W) provided by the originator/seller regarding the mortgage loans it has sold to the securitization
trust. These provisions require that a seller repurchase or substitute any loan that is discovered to materially and
adversely affect the transaction.
R&Ws can be designed to limit uncertainties about loans in a pool in a variety of ways and to different degrees.
Standard R&Ws are intended to protect investors from misinformation regarding loan characteristics, as well as
guard against risks such as fraud, previous liens, and/or regulatory noncompliance. 1 (See Appendix 1 for a list
of standard R&Ws in residential mortgage-backed transactions.)

PROVIDER'S ABILITY TO HONOR ITS OBLIGATION IS KEY
In calculating credit enhancement for each securitized transaction, Moody's takes into consideration the value
of such repurchase and substitution provisions to the extent that they can remedy against losses. That is why
the willingness and financial ability of the party who provides the representations and warranties are key to the
provisions' ultimate value to the transaction.
In general, Moody's evaluates the benefit of representations and warranties based on the rating of the company
that provides them. Companies with investment grade ratings as low as Baa3 often provide standard R&Ws for
Aaa-rated securities without an adverse credit impact.
However, in certain cases where failure to satisfy the R&W could lead to substantial losses other arrangements
for alleviating such risks must be made. For example, a Baa3-rated company's R&W cannot guard against
losses to a trust that is subject to unlimited damages from the application of a particularly strict predatory lending rule.
Moody's may also conclude that certain unrated companies' R&Ws are satisfactory for highly-rated securities.
For instance, operating affiliates of investment-grade companies with established "industry-norm" practices and
procedures for loan compliance may be acceptable to provide standard R&Ws. A good example is GMACRFC, whose R&Ws are accepted by Moody's because of its established market presence and practices as well
as the strength of its parent, GMAC.
For other unrated or non-investment grade companies that are frequent securitizers, procedures to ensure that
loans comply with the standard R&W provisions become more important. With a sufficient combination of
strong procedures and borderline financial standing, these parties may prove acceptable for providing R&W on
transactions.
In such cases, Moody's would prefer that the company have either strong, established practices and procedures
to ensure compliance, and adequate tangible net worth relative to its R&W liability,2 or a Ba3 or better rating.
For those securitizers that don't meet the above standards, Moody's would seek additional credit enhancement, or financial backing from another company, or acceptable third-party verification of compliance with the
standard R&Ws. In the latter case, the company must have established "industry-norm" practices and procedures for loan compliance, and Moody's must also be fully satisfied with the due diligence or auditing review of
information supporting the R&Ws.

2

Although 3 rd parties such as transaction accountants and auditors have some obligation to review loan files and characteristics. these reviews are
not of sufficient depth to validate the compliance of all loans.
The Net Worth (TNW) Test: Adjusted tangible equity should be at least equal to 0.5% of the volume of total securitization exposure for two years.
Generally TNW will equal pure common equitY-((l 12 (MSRs+I/O Strips+Residuals)). If repurchase history of a particular sponsor is very high then the
TNW must be adjusted upwards to reflect higher repurchases.

2 • Moody's Investors Service

The Importance of Representations and Warranties in RMBS Transactions

APPENDIX 1
• Generally issuers/sponsors of securitized transactions represent and warrant as to the following with respect
to the loans in a trust:
• Validity and enforceability of the lien
• Transfer of good title to the trust
• Disclosure about the delinquent loans in the pool
• Disclosure regarding taxes owed on a property
• Disclosure regarding the state of repairs on a property
• Full compliance with applicable Federal, state and local laws including predatory lending laws
• Disclosure regarding loan characteristics and accuracy of the information in the loan schedule
• Disclosure regarding the source of loan originations and whether they were regulated entities.
• Validity of the title insurance policy on each loan
• Validity of primary mortgage insurance on the loans which were disclosed to have such insurance
• Validity of any other insurance policy including those with respect to the loans, the servicer or the issuer
• Validity and enforceability of the mortgage note
• Disclosure on the type of appraisals used for each property
• Disclosure on underwriting standards used for the loans
• Existence of due-on-sale clauses

The Importance of Representations and Warranties in RMBS Transactions

Moody's Investors Service • 3

Doc 10# SF48812
© Copyright 2005, Moody's Investors Service, Inc. and/or its licensors including Moody's Assurance Company, Inc. (together, "MOODY'S"). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY
COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR
STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT.
All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, such
information is provided "as is" without warranty of any kind and MOODY'S, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness
for any particular purpose of any such information. Under no circumstances shall MOODY'S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to,
any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY'S or any of its directors, officers, employees or agents in connection with the procurement, collection,
compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without
limitation, lost profits), even if MOODY'S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings and financial reporting analysis
observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any
securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER
OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on
behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support
for, each security that it may consider purchasing, holding or selling.
MOODY'S hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MOODY'S have, prior to assignment
of any rating, agreed to pay to MOODY'S for appraisal and rating services rendered by it fees ranging from $1,500 to $2,400,000. Moody's Corporation (MCO) and its wholly·owned credit rating agency subsidiary,
Moody's Investors Service (MIS), also maintain policies and procedures to address the independence of MIS's ratings and rating processes. Information regarding certain affiliations that may exist between directors of
MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually on Moody's website at
www.moodys.com under the heading "Shareholder Relations - Corporate Governance - Director and Shareholder Affiliation Policy."

4 • Moody's Investors Service

The Importance of Representations and Warranties in RMBS Transactions

Moody·s Criteria for Evaluating Representations and Warranties
in U.S. Residential Mortgage Backed Securitizations (RMBS)**
AUTHORS:
Kathryn Kelbaugh
Vice President Senior Analyst
212-553-3645

SUMMARY OPINION

Moody's is updating its rating criteria for evaluating the
protection afforded by loan-level representations and
warranties ("R&Ws"). Our goal with this report is to
standardize our methodology so that Moody's is
Kathryn. Kelbaugh
@moodys.com
equipped to further improve its ability to assess credit
risk. The credit benefit that Moody's ascribes to the
Yehudah Forster
R&Ws will depend upon a) the content of the specific
Vice President R&Ws, b) the contractual oversight and remedies in
Senior Analyst
place for breaches of R&Ws and c) the financial strength
212-553-7995
Yehudah .Forster
of the entity making the loan level R&Ws and, where
@moodys.com
applicable, the strength of its origination processes and
procedures. Although Moody's has reviewed R&Ws as
CONTACTS:
part of its overall evaluation of transactions in the past,
~:~i~~~i~g~~~~~ent our updated criteria more specifically address the
(212) 553-3674
aspects of R&Ws that we believe will improve
Navneet.Agarwal
transparency, data integrity and accountability for U.S.
@moodys.com
RMBS. The updated criteria described in this report
Linda Stesney
generally will apply to U.S. RMBS issued after the
Managing Director
publication date of this paper. Moody's welcomes your
(212) 553-3691
comments on this special report; please direct them to
Linda. Stesney@moodys.com cpc@moodys.com.

MOODY'S
CLIENT SERVICES:
New York
+ 1-212-553-1653
Tokyo
+81-3-5408-4100
London
+44-20-7772-5454
Hong Kong
+852-3551-3077
Sydney
+61-2-9270-8100
Singapore
+65-6398-8308

WEBSITE:
www.moodys.com

Representations and Warranties

Overview of Moody's
RMBS Enhancement
Proposals
On March 26, 2008, Moody's
published five proposals to
enhance the U.S. RMBS
securitization process. 1 Those
proposals were: increased loan
level data, stronger
representations and warranties,
independent third-party presecuritization loan reviews,
standardized forensic reviews for
underperforming loans, and more
comprehensive originator
assessments. These
enhancements are intended to
work together to improve the
reliability and transparency of
information for RMBS
transactions.
This paper addresses stronger
representations & warranties
(R&Ws). In this special report we
present a baseline set of R&Ws
and our criteria for analyzing the
R&Ws provided for a transaction.
Separate papers released
concurrently with this paper focus
on pre- and post-securitization
independent third-party reviews
and our enhanced originator
assessments.

Moody's has identified a baseline set of R&Ws, which
can be found in Appendix A.
The first ten
Moody's continues to work with
representations and warranties listed in appendix A are
the American Securitization
based on those set forth in Moody's special report
Forum (ASF) on Project RESTART
and the Securities Industry and
"Moody's Proposed Enhancements to U.S. Residential
Financial Markets Association
Mortgage Securitizations: Call for Comments, ,,1
(SIFMA) to achieve an industry
published on March 26, 2008. They cover matters such
consensus for our proposed
enhancements for U.S.RMBS
as property valuation, income verification, fraud and data
securitization, including increased
accuracy. Moody's believes that the R&Ws listed in
loan level data. The results of
Appendix A would afford investors greater protection
these projects are expected to be
reported in Moody's publications
than those typically found in past securitizations. In
throughout 2009.
addition, Moody's has identified a minimum set of R&Ws
that an RMBS transaction must include for Moody's to
rate the transaction, though it is unlikely that the securities issued in a transaction
providing only the minimum R&Ws will achieve an investment grade rating. These
minimum R&Ws can be found in Appendix B.
See "Moody's Proposed Enhancements to U.S. Residential Mortgage Securitizations: Call for Comments,"
Moody's Structured Finance, March 26, 2008.

** As of September 22. 2009 this methodology contains an update regarding seasoned
loans in the annex at the end of the report. **

Moody's Investors Service

Originally electronically published on November 24, 2008,
but due to minor changes republished on October 5, 2009

Going forward, the R&Ws for each transaction will be reviewed on a case-by-case basis to evaluate the relative
level of credit benefit they afford the securitization trust. R&Ws that closely match Moody's baseline set generally will be viewed as credit-neutral for purposes of Moody's ratings. R&Ws that lack one or more of the R&Ws
in the baseline set, or key elements of those R&Ws, generally will be viewed by Moody's as providing less credit
protection. However, it may be possible that weaknesses in the R&Ws provided in a given securitization may be
offset through the provision of a more extensive third-party pre- and post-securitization loan level review. 2
Based on the nature of the R&Ws provided, the level of third-party, pre- and post-securitization reviews conducted, the financial strength and, where applicable, the originator assessment3 of the loan level R&W provider,
Moody's may decide i) that additional credit protection is needed to achieve a given rating level, ii) to assign a
lower rating or iii) to decline to rate the transaction.

Independent Third Party Loan Reviews
While R&Ws are important investor protections, it is important that additional steps be taken to reduce the likelihood that the R&Ws do not accurately characterize the loans going into the transaction. Therefore, as part of
its credit analysis, Moody's also will look for a third party review of a sample of the loans underlying each RMBS
transaction it rates in order to gauge how well the actual characteristics and qualities of the loans meet those
being represented. 2

Breaches of Representation and Warranties
Historically, RMBS transactions have not incorporated specific mechanisms or procedures, or obligated third
parties, to identify breaches of representations and warranties. Also, procedures for enforcing repurchase obligations have been less than clear. Ambiguity surrounding these issues has increased the likelihood that an
RMBS transaction will absorb losses on defaulted loans, even when loans breach R&Ws.
To address these issues and strengthen transaction governance, Moody's believes that, in addition to presecuritization loan reviews, post-securitization forensic reviews 2 should be conducted on any loan that
becomes severely delinquent 4 during the initial 18 months following securitization. To obtain unbiased and
timely determination of breaches, Moody's believes the forensic review should be conducted by an independent third party2 within 30 days of the loan becoming severely delinquent. Reporting these breaches in the
monthly remittance report along with a list of loans with breaches that have not been repurchased will increase
transparency of the underlying R&W provider's performance. Moody's will consider such information in its
ongoing analysis.
Remedies for breaches of R&Ws, particularly repurchase remedies, that have clear timeframes and guidelines
within which the provider must operate to be in compliance with the terms of the transaction increase the probability of a timely and predictable resolution for breaches. Therefore, even where there are loan level R&Ws and
pre-securitization loan level reviews, to the extent the mechanisms and procedures for breach resolution do not
have such timeframes and guidelines, Moody's may decide i) that additional credit protection is needed to
achieve a given rating level, ii) to assign a lower rating or iii) to decline to rate the transaction.

Criteria for Representations and Warranties Provider
In its credit analysis, Moody's will weigh the loan level R&W provider's financial strength and origination processes and performance. 5 Moody's will not rate transactions where the loan level R&W provider6 has been
assessed as "unacceptable" by Moody's or where the R&W provider does not have a sufficient net worth.7
2
3
4

5
6
7

See "MQ_Qdy'!?j:~rjtexl"LlQLE).IglwgtiogJndSlRJ;:JJ:1dSlDUbin;t:EgrtyLQ_goL§'!J;:JL8Sl).liSlW!?JQXUS,_B§!?idJ;:JJ:1tlglMQJ:tgggJ:L8_Q._CJ<;Sld_SSlQwritj§_sJ8MES)," Moody's
Structured Finance, November 24, 2008.
See "MQ_Q_dy'!?_Eob_Q.J:lQSld)~pmQ-,aQbJ_Q_QrjgLmtQ[)~!?!?§_S_SJrlSlOiSJQLU,S,_B§_sjd_entjgLMQrtggg§_Bg_cJ<,e.d __SSlQJ)xltle.!?jBMBSJ, " Moody's Structured
Finance, November 24, 2008.
Severely delinquent means 120+ days delinquent, in foreclosure, REO, or the loan was modified or a short payoff occurred and the lender experienced a loss or the borrower has filed for bankruptcy.
R&W providers for which an originator assessment would not be applicable will be assessed on a case-by-case basis. See "MQQdy_'_s_£ntlgOQ§_d__
Approach to Originator Assessments for U.S. Residential Mortgage Backed Securities (RMBS)," Moody's Structured Finance, November 24.2008.
Moody's considers the R&W provider to be the originator for purposes of Moody's originator assessment review. Refer to "MQQd_y_'_S_£ntlgOQ§_d__
A.QR[QgQb_JQDrigiJwtQLAs_s_e_!?!?mSlJJt!?JQrU5,_B§_sktSlOtigLMQrtggg§_Bg_CJSSld_SSlQJJxltlSl!?_(BMBSJ," Moody's Structured Finance, Novem ber 24, 2008,
for more details.
To have sufficient net worth, the R&W provider must have an "adjusted tangible equity" at least equal to 10/0 of the volume of total securitization and
whole loan sale exposure for the prior 12 months (which amount may be adjusted if (a) expected future securitization and whole loan activity differs
from the prior 12 months or (b) if repurchase history of a particular R&W provider is higher than expected). "Adjusted tangible equity" generally will
equal pure common equity minus ((1/2 (Mortgage Servicing Rights + I/O Strips + Residuals)). Moody's will consider the net worth of an entity other
than the R&W provider if such entity has provided the securitization trust with an irrevocable guaranty of the R&W provider's obligations (or like
arrangement).

2 • Moody's Investors Service

Moody's Criteria for Evaluating Representations and Warranties
in U.S. Residential Mortgage Backed Securitizations (RMBS)**

APPENDIX A

Proposed Baseline Representations and Warranties
The substantive elements of the baseline R&Ws are described below. It is anticipated that the specific form or
wording of the R&Ws in each transaction will vary from these conceptual descriptions. Moody's will view the
R&Ws in any given transaction as being in line with the baseline R&Ws so long as they are clearly drafted and all
of the elements of the baseline R&Ws are addressed. In general, Moody's believes that adding a knowledge
qualifier such as "To the best of the R&W provider's knowledge ... ," to any R&W materially diminishes the credit
protection afforded by the R&W.

1. Property Valuation • Each mortgage loan with a written appraisal, as indicated on the mortgage loan schedule, contains a written
appraisal prepared by an appraiser licensed or certified by the applicable governmental body in which the
mortgaged property is located and in accordance with the requirements of Title XI of the Financial Institutions
Reform Recovery and Enforcement Act of 1989 (FIRREA).
• The appraisal was written, in form and substance, to (i) customary Fannie Mae or Freddie Mac standards for
mortgage loans of the same type as such mortgage loans and (ii) USPAP standards, and satisfies applicable
legal and regulatory requirements.
• The appraisal was made and signed prior to the final approval of the mortgage loan application.
• The person performing any property valuation (including an appraiser) received no benefit from, and such
person's compensation or flow of business from the loan originator was not affected by, the approval or
disapproval of the mortgage loan.
• The selection of the person performing the property valuation was made independently of the broker (where
applicable) and the originator's loan sales and loan production personnel. The selection of the appraiser met
Fannie Mae's and Freddie Mac's criteria for selecting an independent appraiser.
• For each mortgage loan where the value of the related mortgaged property was derived from an automated
valuation model (AVM) , as indicated on the mortgage loan schedule, the model used has been duly researched
by the originator and, to the best of the originator's knowledge, provides an accurate assessment of the
property value.
• For each mortgage loan where the value of the related mortgaged property was derived from a brokers price
opinion (BPO), as indicated on the mortgage loan schedule, the BPO was conducted by a licensed real estate
broker or realtor licensed in the jurisdiction of the subject property.
Although this representation contemplates alternative valuation methods such as AVMs or BPOs, Moody's generally views these alternative methods as less reliable than a properly performed appraisal. As a result,
enhancement levels generally will be increased for such alternative valuation methods, even if they satisfy the
applicable elements of the R&W.

2. Income/Employment/Assets:
• The originator verified the borrower's income, employment and/or assets in accordance with its written
underwriting guidelines.
• The originator employed procedures designed to reasonably authenticate the documentation supporting such
income, employment and/or assets.
• Where commercially reasonable, the originator utilized public and/or commercially available information in order
to test the reasonableness of the income.
• The originator reviewed other attributes of the borrower, which may include but are not limited to, assets,
disposable income, reserves and credit history, and reasonably determined that such attributes supported the
income used to approve the loan.

Moody's Criteria for Evaluating Representations and Warranties
in U.S. Residential Mortgage Backed Securitizations (RMBS)**

Moody's Investors Service • 3

3. Occupancy:
• The originator has given due consideration to factors, including but not limited to, other real estate owned by
the borrower, commuting distance to work, appraiser comments and notes, the location of the property and
any difference between the mailing address active in the servicing system and the subject property address to
evaluate whether the occupancy status of the property as represented by the borrower is reasonable.

4. Early Payment Default Repurchase: 8
• With respect to any mortgage loan originated not more than 90 days prior to the securitization closing date, the
originator shall promptly repurchase such mortgage loan if, by the third mortgage loan due date following the
securitization closing date, the borrower has made neither of the two preceding monthly payments.

5. Data:
• The information on the mortgage loan schedule relating to the terms of the mortgage loan and the mortgage
note9 is true and correct in all material respects.
• The information on the mortgage loan schedule and the information that was provided to Moody's are
consistent with the contents of the originator's records and the underlying loan files.
• The mortgage loan schedule contains all the fields requested by Moody's.
• Any seller or builder concession has been subtracted from the appraised value of the mortgaged property for
purposes of determining the L1V and CL1V.
• Except for information specified to be as of the origination date of the mortgage loan, the mortgage loan
schedule contains the most current information possessed by the originator.
• No FICO score listed on the mortgage loan schedule was more than 4 months old at the time of securitization.
• No appraisal or other property valuation listed on the mortgage loan schedule was more than 3 months old at
the time of loan closing.

6. Fraud:
• No fraud or misrepresentation, material error or omission or gross negligence has taken place on the part of
any person in connection with the origination of the mortgage loan, the determination of the value of the
mortgaged property, or the sale or servicing of the mortgage loan prior to the securitization closing date. 1o

7. Underwriting:
• Each mortgage loan was either (i) underwritten in substantial conformance to the originator's underwriting
guidelines in effect at the time of origination without regard to any underwriter discretion or (ii) if not
underwritten in substantial conformance to the originator's underwriting guidelines, has reasonable and
documented compensating factors.

8. Mortgage Insurance:
• For mortgage loans with mortgage insurance, such mortgage loan has the benefit of a valid, binding and
enforceable primary mortgage insurance policy issued by a primary mortgage insurer acceptable to Fannie
Mae and Freddie Mac.
• The form and substance of such mortgage insurance policy is in substantial conformance with primary
mortgage insurance policies acceptable to Fannie Mae and Freddie Mac.

9.

Mortgage Insurance Repurchase: 8
• With respect to any mortgage loan having mortgage insurance, in the event the mortgage insurer rejects,
denies, or rescinds a claim on the basis of any defect in connection with the origination of the mortgage loan or
the servicing of the mortgage loan prior to the securitization closing date (a "mortgage insurer rejection"), other
than as a result of the mortgage insurer's breach of its obligations or insolvency, the originator shall either
repurchase such mortgage loan or pay the trust the amount of such claim within 30 days from such mortgage
insurer rejection.

8
9
10

This obligation is technically a covenant, not a R&W.
Such information would include the identity of the originator, lien position, loan type, loan amount, interest rate, term to maturity, first payment date,
interest rate caps and floors, prepayment penalty terms, property location and other key terms listed in the mortgage or the mortgage note.
So long as the transaction provides for a post-closing forensic review of severely delinquent loans, remedies for a breach of this R&W due solely to
borrower fraud or misrepresentation may expire if notice of such breach is not given by the later of (a) 18 months after the securitization closing date
and (b) 12 months after the expiration of any teaser or interest-only period on the mortgage loan.

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Moody's Criteria for Evaluating Representations and Warranties
in U.S. Residential Mortgage Backed Securitizations (RMBS)**

• If the originator has a good-faith dispute of such mortgage insurer rejection, it shall notify the trustee of the
basis of such dispute and shall have an additional period of up to 30 days to resolve such dispute.
• If at the end of such additional 30 day period, the claim still remains unpaid, the originator shall immediately
repurchase such mortgage loan or pay the trust the amount of such claim.

10. Regulatory Compliance:
• Each mortgage loan complies with all applicable federal, state and local laws including, without limitation,
truth-in-Iending, real estate settlement procedures, consumer credit protection, equal credit opportunity,
predatory and abusive lending laws and disclosure laws.

11. Borrower:
• Each borrower is a natural person.
• As of origination, each borrower was legally permitted to reside in the United States.
• No borrower is a debtor in any state or federal bankruptcy or insolvency proceeding.
• No borrower had a prior bankruptcy in the last ten years.11
• No borrower previously owned a property in the last ten years that was the subject of a foreclosure during the
time the borrower was the owner of record. 11

12. Source of Loan Payments:
• No loan payment has been escrowed as part of the loan proceeds on behalf of the borrower.
• No payments due and payable under the terms of the note and mortgage or deed of trust, except for seller or
builder concessions or temporary buydown funds, have been paid by any person who was involved in, or
benefited from, the sale or purchase of the mortgaged property or the origination, refinancing, sale, purchase
or servicing of the mortgage loan other than the borrower.

13. Downpayment:
• For each mortgage loan whose proceeds were used to purchase the related mortgaged property, the borrower
paid at least the lesser of (a) 100% minus the CL1V of the mortgage loan and (b) 5% of the purchase price,
with his/her own funds.

14. No Prior Liens:
• Immediately prior to the transfer and assignment of the mortgage loan to the securitization trust, the seller was
the sole owner and holder of the mortgage loan free and clear of any and all liens, pledges, charges or security
interests of any nature.
• The seller has good and marketable title and has full right and authority to sell and assign the mortgage loan.

15. Enforceability and Priority of Lien:
• The mortgage is a valid, subsisting and enforceable [first] [second] lien on the property therein described.
• The mortgaged property is free and clear of all encumbrances and liens having priority over the lien of the
mortgage except for liens for real estate taxes and special assessments not yet due and payable; and any
security agreement, chattel mortgage or equivalent document related to, and delivered to the custodian.
• The mortgage establishes in the seller a valid and subsisting [first] [second] lien on the property described
therein and the seller has full right to sell and assign the same to the securitization trust.

16. Complete Mortgage Files:
• All of the required loan documents have been delivered to the custodian in accordance with the requirements
of the governing document.

11

Moody's recognizes that non-prime and sub-prime securitization pools will contain some borrowers who have a history of foreclosure or bankruptcy.
However, in general, to be credit-neutral the expectation is that the criteria listed in the R&W will be met.

Moody's Criteria for Evaluating Representations and Warranties
in U.S. Residential Mortgage Backed Securitizations (RMBS)**

Moody's Investors Service • 5

17. No Modifications:
• Unless otherwise noted on the mortgage loan schedule, none of the mortgage loans have been modified in
any material respect. If a mortgage loan has been modified, the modified terms are reflected on the mortgage
loan schedule.
• None of the mortgage loans have been satisfied, canceled or subordinated in whole or in part.
• With respect to each mortgage loan, the mortgaged property has not been released in whole or in part from
the lien of the mortgage.

18. Taxes Paid:
• All taxes, governmental assessments, insurance premiums, and water, sewer and municipal charges, which
previously became due and owing have been paid, or an escrow of funds has been established, to the extent
permitted by law, in an amount sufficient to pay for every such item which remains unpaid.

19. No Damage / Condemnation:
• The mortgaged property is undamaged so as to affect adversely the value of the mortgaged property as
security for the mortgage loan or the use for which the premises were intended.
• There is no proceeding pending or threatened for the total or partial condemnation of the mortgaged property.

20. No Mechanics Liens:
• The mortgaged property is free and clear of all mechanics' and materialmen's liens or liens in the nature
thereof.

21. Fee Simple Estate / No Encroachments / Compliance with Zoning:
• The mortgaged property consists of a fee simple estate in real property.12
• All of the improvements which are included for the purpose of determining the appraised value of the
mortgaged property lie wholly within the boundaries and building restriction lines of such property.
• No improvements on adjoining properties encroach upon the mortgaged property (unless insured against
under the related title insurance policy).
• The mortgaged property and all improvements thereon comply with all requirements of any applicable zoning
and subdivision laws and ordinances.

22. No Usury:
• The mortgage loan is not usurious.

23. Legally Occupied:
• All inspections, licenses and certificates required to be made or issued with respect to all occupied portions of
the mortgaged property and, with respect to the use and occupancy of the same, including, but not limited to,
certificates of occupancy and fire underwriting have been made or obtained from the appropriate authorities.

24. Mortgage Loan Legal and Binding:
• The mortgage note, the related mortgage and other agreements executed in connection therewith are
genuine, and each is the legal, valid and binding obligation of the maker thereof, enforceable in accordance
with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally and by general equity principles (regardless
of whether such enforcement is considered in a proceeding in equity or at law).
• All parties had legal capacity to execute the documents.
• Such documents have been duly and properly executed.

25. Proceeds Fully Disbursed / Recording Fees Paid:
• The proceeds of the Mortgage Loan have been fully disbursed.
• There is no requirement for future advances.
12

If the mortgage loan is secured by co-op shares or a residential long-term lease, a R&W addressing this type of mortgage loan should be included.

6 • Moody's Investors Service

Moody's Criteria for Evaluating Representations and Warranties
in U.S. Residential Mortgage Backed Securitizations (RMBS)**

• All requirements as to completion of improvements and as to disbursements of any escrow funds therefore
have been complied with.
• All costs, fees and expenses incurred in making, closing or recording the mortgage loan have been paid.

26. Existence of Title Insurance:
• The mortgage loan is covered by an American Land Title Association mortgagee title insurance policy or other
generally acceptable form of policy or insurance acceptable to Fannie Mae or Freddie Mac, issued by a title
insurer acceptable to Fannie Mae or Freddie Mac insuring the originator, its successors and assigns, as to the
[first] [second] priority lien of the mortgage in the original principal amount of the mortgage loan.
• The assignment to the securitization trust of such mortgagee title insurance policy does not require any
consent of or notification to the insurer which has not been obtained.
• Such mortgagee title insurance policy is in full force and effect.
• No claims have been made under such mortgagee title insurance policy.
• No prior holder of the related mortgage has done, by act or omission, anything which would impair the
coverage of such mortgagee title insurance policy.

27. Hazard Insurance:
• The mortgaged property is insured by an insurer acceptable to Fannie Mae or Freddie Mac against loss by fire
and such hazards as are covered under a standard extended coverage endorsement.
• The amount of coverage is not less than the lesser of 100% of the insurable value of the mortgaged property
and the outstanding principal balance of the mortgage loan, but in no event less than the minimum amount
necessary to fully compensate for any damage or loss on a replacement cost basis.
• If the mortgaged property is a condominium unit, it is included under the coverage afforded by a blanket policy
for the project.
• If upon origination of the mortgage loan, the mortgaged property was in an area identified in the Federal
Register by the Federal Emergency Management Agency as having special flood hazards, a flood insurance
policy meeting the requirements of the current guidelines of the Federal Insurance Administration is in effect
with a generally acceptable insurance carrier.
• If applicable, the amount of flood hazard coverage is not less than the least of (A) the outstanding principal
balance of the mortgage loan, (8) the full insurable value of the mortgaged property and (C) the maximum
amount of insurance which was available under the National Flood Insurance Act of 1968, as amended.
• Each mortgage obligates the mortgagor thereunder to maintain all such insurance at the mortgagor's cost and
expense.

28. No Default:
• There is no default, breach, violation or event of acceleration existing under the mortgage or the related
mortgage note and no event which, with the passage of time or with notice and the expiration of any grace or
cure period, would constitute a default, breach, violation or event of acceleration.
• No default breach, violation or event of acceleration has been waived.
• No foreclosure action is currently threatened or has been commenced with respect to the mortgage loan.

29. No Rescission:
• No mortgage note or mortgage is subject to any right of rescission, set-off, counterclaim or defense.
• None of the terms will render the mortgage note or mortgage unenforceable or subject it to any right of
rescission, set-off, counterclaim or defense.
• No such right of rescission, set-off, counterclaim or defense has been asserted.

Moody's Criteria for Evaluating Representations and Warranties
in U.S. Residential Mortgage Backed Securitizations (RMBS)**

Moody's Investors Service • 7

30. Enforceable Right of Foreclosure:
• Each mortgage contains customary and enforceable provisions such as to render the rights and remedies of
the holder thereof adequate for the realization against the mortgaged property of the benefits of the security.
• There is no homestead or other exemption available to the Mortgagor which would interfere with such right of
foreclosure.

31. Mortgaged Property is 1-4 Family:
• Unless noted on the mortgage loan schedule, each mortgaged property is located in the United States and
consists of a one- to four-unit residential property, which may include a detached home, townhouse,
condominium unit or a unit in a planned unit development or, in the case of mortgage loans secured by co-op
shares, leases or occupancy agreements.

32. Mortgage Loan Qualifies for REMIC:
• The mortgage loan is a "qualified mortgage" within the meaning of Section 860G(a)(3) of the Internal Revenue
Code of 1986, as amended.

33. Lost Note Affidavit:
• With respect to each mortgage where a lost note affidavit has been delivered to the custodian in place of the
related mortgage note, the related mortgage note is no longer in existence.

34. Doing Business:
• All parties that have had any interest in such mortgage loan, whether as mortgagee, assignee, pledgee or
otherwise, are (or, during the period in which they held and disposed of such interest, were) in compliance with
any and all applicable licensing requirements of the laws of the state wherein the related mortgaged property is
located.

35. Environmental Laws:
• As of origination of the mortgage loan, the mortgaged property was in material compliance with all applicable
environmental laws pertaining to environmental hazards including, without limitation, asbestos.

36. Loans Current / Prior Delinquencies:
• Unless noted on the mortgage loan schedule, all payments required to be made up to the due date
immediately preceding the cut-off date for such mortgage loan under the terms of the related mortgage note
have been made and no mortgage loan had more than one delinquency in the 12 months preceding the cut-off
date.

8 • Moody's Investors Service

Moody's Criteria for Evaluating Representations and Warranties
in U.S. Residential Mortgage Backed Securitizations (RMBS)**

APPENDIX B:
Moody's Minimum Set of Representations and Warranties
Moody's may analyze an RMBS transaction for which only this minimum set of R&Ws is provided. It is highly
unlikely, however, that the issued securities would achieve investment grade ratings under such circumstances.

1. Data:
• The information on the mortgage loan schedule and the information provided to Moody's are consistent with
the contents of the underlying loan files.

2. No Fraud:
• No fraud, misrepresentation, material error or omission or gross negligence has taken place on the part of the
originator or, to the best of the originator's knowledge, any other party in connection with the origination of the
mortgage loan, the determination of the value of the mortgaged property, or the sale or servicing of the
mortgage loan prior to the securitization closing date.

3. Regulatory Compliance:
• Each mortgage loan complies with all applicable federal, state and local laws including, without limitation,
truth-in-Iending, real estate settlement procedures, consumer credit protection, equal credit opportunity,
predatory and abusive lending laws and disclosure laws.

4. No Prior Liens:
• Immediately prior to the transfer and assignment contemplated herein, the seller was the sole owner and
holder of the mortgage loan free and clear of any and all liens, pledges, charges or security interests of any
nature.
• The seller has good and marketable title and has full right and authority to sell and assign the mortgage loan.

5. Enforceability and Priority of Lien:
• The mortgage is a valid, subsisting and enforceable [first] [second] lien on the property therein described.
• The mortgage establishes in the seller a valid and subsisting [first] [second] lien on the property described
therein and the seller has full right to sell and assign the same to the securitization trust.

6. Mortgage Loan Legal and Binding:
• The mortgage note, the related mortgage and other agreements executed in connection therewith are
genuine, and each is the legal, valid and binding obligation of the maker thereof, enforceable in accordance
with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally and by general equity principles (regardless
of whether such enforcement is considered in a proceeding in equity or at law).
• All parties had legal capacity to execute the documents.
• Such documents have been duly and properly executed.

7. No Rescission:
• No mortgage note or mortgage is subject to any right of rescission, set-off, counterclaim or defense.
• None of the terms will render the mortgage note or mortgage unenforceable or subject it to any right of
rescission, set-off, counterclaim or defense.
• No such right of rescission, set-off, counterclaim or defense has been asserted.

8. Enforceable Right of Foreclosure:
• Each mortgage contains customary and enforceable provisions such as to render the rights and remedies of
the holder thereof adequate for the realization against the mortgaged property of the benefits of the security.
• There is no homestead or other exemption available to the mortgagor which would interfere with such right of
foreclosure.

Moody's Criteria for Evaluating Representations and Warranties
in U.S. Residential Mortgage Backed Securitizations (RMBS)**

Moody's Investors Service • 9

ANNEX:
Updated Criteria For Evaluating Representations And Warranties In U.S. RMBS For Seasoned Loans 1

Moody's has modified its criteria for evaluating representations and warranties in U.S. RMBS for seasoned and
non-performing loans to better reflect risks associated with older collateral. For these transactions, the set of
Baseline R&Ws listed on Appendix A is replaced with the R&Ws below and the R&W provider criteria have been
clarified. All other aspects of Moody's original criteria for evaluating representations and warranties in U.S.
RMBS remain the same.

Baseline R&Ws:
1. Property Valuation 2

-

• Each mortgage loan with a written appraisal, as indicated on the mortgage loan schedule, contains a written
appraisal prepared by an appraiser licensed or certified by the applicable governmental body in which the
mortgaged property is located and in accordance with the requirements of Title XI of the Financial Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA).
• The appraisal was written, in form and substance, to (i) customary Fannie Mae or Freddie Mac standards for
mortgage loans of the same type as such mortgage loans and (ii) USPAP standards, and satisfies applicable
legal and regulatory requirements.
• For each mortgage loan where the value of the related mortgaged property was derived from an automated
valuation model (AVM) , as indicated on the mortgage loan schedule, the model used has been duly
researched by the originator and, to the best of the originator's knowledge, provides an accurate assessment of the property value.
• For each mortgage loan where the value of the related mortgaged property was derived from a brokers price
opinion (BPO), as indicated on the mortgage loan schedule, the BPO was conducted by a licensed real
estate broker or realtor licensed in the jurisdiction of the subject property.
2. Occupancy:
• The sponsor has given due consideration to factors, including but not limited to any difference between the
mailing address active in the servicing system and the subject property address to evaluate whether the
occupancy status of the property as originally represented by the borrower is still reasonable.

3. Data:
• The information on the mortgage loan schedule and the information provided to Moody's are true and correct in all material respects
• Except for information specified to be as of the origination date of the mortgage loan, the mortgage loan
schedule contains the most current information possessed by the originator.
• No FICO score listed on the mortgage loan schedule was more than 120 days old at the time of securitization.
• No appraisal or other property valuation listed on the mortgage loan schedule was more than 120 days old
at the time of securitization.3
4. No Fraud
• No fraud, misrepresentation, material error or omission or gross negligence has taken place on the part of
the sponsor and to the best of the sponsor's knowledge, any other party in connection with the origination
of the mortgage loan, the determination of the value of the mortgaged property, or the sale or servicing of
the mortgage loan prior to the securitization closing date.

2
3

For purposes of this document a seasoned loan is defined as a currently performing loan that is at least 18 months from its first scheduled payment
date. Generally all loans in the pool must be seasoned to be eligible for the seasoned loan R&Ws, however, non-performing loans less than 18
months seasoned that are included in seasoned pools will be eligible for the seasoned loan criteria as well.
If the sponsor has obtained an updated property valuation, this R&W pertains to the updated property valuation; otherwise this R&W pertains to the
original property valuation. Sponsor refers to the issuer, banker, originator or any party supplying data to Moody's for credit evaluation.
To be considered credit-neutral, property values for seasoned loans should be less than 120 days old, refer to the annex within "Moody's Enhanced
Approach to Originator Assessments", 9/22/2009.

10 • Moody's Investors Service

Moody's Criteria for Evaluating Representations and Warranties
in U.S. Residential Mortgage Backed Securitizations (RMBS)**

5. Regulatory Compliance: 4
• Each mortgage loan complies with all applicable federal, state and local laws including, without limitation,
truth-in-Iending, real estate settlement procedures, consumer credit protection, equal credit opportunity,
predatory and abusive lending laws and disclosure laws.
6. Borrower: 4
To the best of the sponsor's knowledge:
• Each borrower is a natural person.
• As of origination, each borrower was legally permitted to reside in the United States.
• No borrower is a debtor in any state or federal bankruptcy or insolvency proceeding. No borrower had a
prior bankruptcy in the last ten years5.
• No borrower previously owned a property in the last ten years that was the subject of a foreclosure during
the time the borrower was the owner of record 5.
7. Source of Loan Payments: 4
To the best of the sponsor's knowledge:
• No loan payment has been escrowed as part of the loan proceeds on behalf of the borrower.
• No payments due and payable under the terms of the note and mortgage or deed of trust, except for seller
or builder concessions or temporary buydown funds, have been paid by any person who was involved in, or
benefited from, the sale or purchase of the mortgaged property or the origination, refinancing, sale, purchase or servicing of the mortgage loan other than the borrower.
8. No Prior Liens:
• Immediately prior to the transfer and assignment contemplated herein, the seller was the sole owner and
holder of the mortgage loan or property (if REO) free and clear of any and all liens, pledges, charges or security interests of any nature.
• The seller has good and marketable title and has full right and authority to sell and assign the mortgage loan
or property.
9. Enforceability and Priority of Lien: 4
• The mortgage is a valid, subsisting and enforceable [first] [second] lien on the property therein described
• The mortgage establishes in the seller a valid and subsisting [first] [second] lien on the property described
therein and the seller has full right to sell and assign the same to the securitization trust.
10. Complete Mortgage Files: 4
• All of the required loan documents have been delivered to the custodian in accordance with the requirements of the governing document.
• For each mortgage loan, all loan documents necessary to foreclose on the mortgaged property are included
in the mortgage files delivered to the custodian. For each REO property, all documents needed to transfer
title to the property have been delivered to the custodian.
11. No Modifications: 4
• Unless otherwise noted on the mortgage loan schedule, none of the mortgage loans have been modified in
any material respect. If a mortgage loan has been modified, the modified terms are reflected on the mortgage loan schedule.
• None of the mortgage loans have been satisfied, canceled or subordinated in whole or in part.
• With respect to each mortgage loan, the mortgaged property has not been released in whole or in part from
the lien of the mortgage.
12. Taxes Paid:
• All taxes, governmental assessments, insurance premiums, and water, sewer and municipal charges, which
previously became due and owing have been paid, or an escrow of funds has been established, to the
extent permitted by law, in an amount sufficient to pay for every such item which remains unpaid.
4
5

Not required for REO properties.
Moody's recognizes that non-prime and sub-prime securitization pools will contain some borrowers that have a history of foreclosure or bankruptcy.
However, in general, to be credit-neutral the expectation is that the criteria listed in the R&W will be met. The sponsor should provide the number of
years past since bankruptcy discharge or initial foreclosure proceeding on the mortgage loan schedule and to Moody's if available.

Moody's Criteria for Evaluating Representations and Warranties
in U.S. Residential Mortgage Backed Securitizations (RMBS)**

Moody's Investors Service • 11

13. No Damage / Condemnation:
• The mortgaged property is undamaged so as to affect adversely the value of the mortgaged property as
security for the mortgage loan or the use for which the premises were intended.
• There is no proceeding pending or threatened for the total or partial condemnation of the mortgaged property.

14. No Mechanics Liens:
• The mortgaged property is free and clear of all mechanics' and material men's liens or liens in the nature
thereof.
15. Fee Simple Estate / No Encroachments / Compliance with Zoning:
• The mortgaged property consists of a fee simple estate in real property4.
• All of the improvements which are included for the purpose of determining the appraised value of the mortgaged property lie wholly within the boundaries and building restriction lines of such property.
• No improvements on adjoining properties encroach upon the mortgaged property (unless insured against
under the related title insurance policy).
• The mortgaged property and all improvements thereon comply with all requirements of any applicable zoning and subdivision laws and ordinances.
16. No Usury:4
• The mortgage loan is not usurious.
17. Legally Occupied:
• All inspections, licenses and certificates required to be made or issued with respect to all occupied portions
of the mortgaged property and, with respect to the use and occupancy of the same, including, but not limited to, certificates of occupancy and fire underwriting have been made or obtained from the appropriate
authorities.
18. Mortgage Loan Legal and Binding: 4
• The mortgage note, the related mortgage and other agreements executed in connection therewith are genuine, and each is the legal, valid and binding obligation of the maker thereof, enforceable in accordance with
its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally and by general equity principles (regardless of whether such enforcement is considered in a proceeding in equity or at law).
• All parties had legal capacity to execute the documents.
• Such documents have been duly and properly executed.
19. Proceeds Fully Disbursed / Recording Fees Paid: 4
• The proceeds of the Mortgage Loan have been fully disbursed.
• There is no requirement for future advances.
• All requirements as to completion of improvements and as to disbursements of any escrow funds therefore
have been complied with.
• All costs, fees and expenses incurred in making, closing or recording the mortgage loan have been paid.
20. Existence of Title Insurance:
• The mortgage loan is covered by an American Land Title Association mortgagee title insurance policy or
other generally acceptable form of policy or insurance acceptable to Fannie Mae or Freddie Mac, issued by
a title insurer acceptable to Fannie Mae or Freddie Mac insuring the originator, its successors and assigns,
as to the [first] [second] priority lien of the mortgage in the original principal amount of the mortgage loan.
• The assignment to the securitization trust of such mortgagee title insurance policy does not require any consent of or notification to the insurer which has not been obtained.
• Such mortgagee title insurance policy is in full force and effect.
• No claims have been made under such mortgagee title insurance policy.
• No prior holder of the related mortgage has done, by act or omission, anything which would impair the coverage of such mortgagee title insurance policy.

12 • Moody's Investors Service

Moody's Criteria for Evaluating Representations and Warranties
in U.S. Residential Mortgage Backed Securitizations (RMBS)**

21. Hazard Insurance:
• The mortgaged property is insured by an insurer acceptable to Fannie Mae or Freddie Mac against loss by
fire and such hazards as are covered under a standard extended coverage endorsement.
• The amount of coverage is not less than the lesser of 100% of the insurable value of the mortgaged property
and the outstanding principal balance of the mortgage loan, but in no event less than the minimum amount
necessary to fully compensate for any damage or loss on a replacement cost basis.
• If the mortgaged property is a condominium unit, it is included under the coverage afforded by a blanket policy for the project.
• If upon origination of the mortgage loan, the mortgaged property was in an area identified in the Federal
Register by the Federal Emergency Management Agency as having special flood hazards, a flood insurance
policy meeting the requirements of the current guidelines of the Federal Insurance Administration is in effect
with a generally acceptable insurance carrier.
• If applicable, the amount of flood hazard coverage is not less than the least of (A) the outstanding principal
balance of the mortgage loan, (8) the full insurable value of the mortgaged property and (C) the maximum
amount of insurance which was available under the National Flood Insurance Act of 1968, as amended.
• Each mortgage obligates the mortgagor thereunder to maintain all such insurance at the mortgagor's cost
and expense.
22. No Defense of Insurance Coverage:
• No action has been taken or failed to be taken, no event has occurred and no state or facts exists which has
resulted or will result in an exclusion from, denial of, or defense to coverage under any applicable special
hazard insurance policy or bankruptcy bond irrespective of the cause of such failure of coverage except the
failure of the insurer to pay by reason of such insurer's breach of the insurance policy or the insurer's financial inability to pay
23. No Default:4
• There is no default, breach, violation or event of acceleration existing under the mortgage or the related
mortgage note and no event which, with the passage of time or with notice and the expiration of any grace
or cure period would constitute a default, breach, violation or event of acceleration.
• No default breach, violation or event of acceleration has been waived.
• Unless noted on the mortgage loan schedule, no foreclosure action is currently threatened or has been
commenced with respect to the mortgage loan.
24. No Rescission: 4

• No mortgage note or mortgage is subject to any right of rescission, set-off, counterclaim or defense.
• None of the terms will render the mortgage note or mortgage unenforceable or subject it to any right of
rescission, set-off, counterclaim or defense.
• No such right of rescission, set-off, counterclaim or defense has been asserted.
25. Enforceable Right of Foreclosure: 4
• Each mortgage contains customary and enforceable provisions such as to render the rights and remedies of
the holder thereof adequate for the realization against the mortgaged property of the benefits of the security.
• There is no homestead or other exemption available to the mortgagor which would interfere with such right
of foreclosure.
26. Subject Property is 1-4 Family:
• Unless noted on the mortgage loan schedule, each property is located in the United States and consists of
a one- to four-unit residential property, which may include a detached home, townhouse, condominium unit
or a unit in a planned unit development or, in the case of by co-op shares, leases or occupancy agreements.
27. Mortgage Loan Qualifies for REMIC: 4

For REMIC transactions:
• The mortgage loan is a "qualified mortgage" within the meaning of Section 860G(a)(3) of the Code.

Moody's Criteria for Evaluating Representations and Warranties
in U.S. Residential Mortgage Backed Securitizations (RMBS)**

Moody's Investors Service • 13

28. Doing Business:
To the best of the Seller's knowledge:
• All parties that have had any interest in such mortgage loan, whether as mortgagee, assignee, pledgee or
otherwise, are (or, during the period in which they held and disposed of such interest, were) in compliance
with any and all applicable licensing requirements of the laws of the state wherein the related mortgaged
property is located.
29. Environmental Laws:
• The property is in material compliance with all applicable environmental laws pertaining to environmental
hazards including, without limitation, asbestos.
30. Loans Current / Prior Delinquencies: 4
• Unless noted on the mortgage loan schedule, all payments required to be made up to the due date immediately preceding the cut-off date for such mortgage loan under the terms of the related mortgage note have
been made and no mortgage loan had more than one delinquency in the 12 months preceding the cut-off
date.
31. Servicing: 4
• The servicing and collection practices used by the Servicer with respect to the Mortgage Loan have been in
all respects legal, proper, prudent and customary in the mortgage servicing business. While the Mortgage
Loan has been serviced by the Servicer, it has been serviced in accordance with the terms of the Mortgage
Note or any applicable Forbearance Plan or Bankruptcy Plan

Criteria for Representations and Warranties Provider
The R&W provider must:
a. be rated A 1 or higher by Moody's

Or
b. Provide additional .50% to 5% or more of the original balance of the collateral as credit enhancement ("CE")
or liquid reserves ("LR") to cover losses incurred due to R&W breaches
a. The amount of CElLR will be determined based on
i. the sample size of the third party pre-securitization review (TPR)
ii. the results of the TPR
iii. the amount of seasoning of the collateral
iv. the past performance of the collateral
b. For example, if the sponsor elects to do 100% compliance/legal TPR, the result of which reveals minimal
or no errors, the amount of CElLR would tend toward the minimum of the range. Conversely, for a transaction
where the sponsor elects to perform the minimum sample, a significantly higher CElLR would be needed to
absorb potential losses due to R&W breaches.

14 • Moody's Investors Service

Moody's Criteria for Evaluating Representations and Warranties
in U.S. Residential Mortgage Backed Securitizations (RMBS)**

Doc 10# SF148641
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15 • Moody's Investors Service

Moody's Criteria for Evaluating Representations and Warranties
in U.S. Residential Mortgage Backed Securitizations (RMBS)**