Gestió de residus

84. The drastic rise in default rates on the Mortgage Loans underlying Allstate’s Certificates is itself evidence that the underwriting practices Goldman represented were followed were, in fact, violated. The Certificates were supposed to be long-term, stable investments. Yet, as seen in the following chart, they have already experienced payment problems at an

astronomical rate, well beyond what should have occurred for loan pools that had been properly underwritten and contained loans that actually had the characteristics Goldman’s Offering Materials claimed.

Securitization

Percentage of original loans already written

off

Percentage of current loans 30, 60, or 90+

days delinquent

GSAMP Trust 2006-HE7 29.76% 48.38%

GSAMP Trust 2006-HE5 33.13% 46.08%

GSAMP Trust 2006-S4 45.52% 19.11%

GSAMP Trust 2006-S3 54.26% 19.74%

GSAA Trust 2006-13 21.30% 28.69%

Shockingly, overall, approximately 36.79% of the Mortgage Loans underlying the Certificates that Allstate invested in have already had to be written off, and approximately 32.40% of the remaining loans are currently 30, 60, or 90 or more days delinquent—all within a few years of when the loans were made.

85. Relatedly, the ratings given to the Certificates have significantly deteriorated. Allstate’s investments were all initially investment grade, receiving ‘AAA’ or ‘AA’ ratings. Because of the systemic abandonment of underwriting standards and the resulting inclusion of highly risky or outright fraudulent Mortgage Loans in the collateral pools backing the

Certificates, as seen in the following table, the majority of Allstate’s Certificates have been downgraded to “junk-bond” ratings. All of the most serious downgrades (i.e., to non-investment grade) did not take place until mid-2008 or later.

Certificate Initial Rating Current Rating

GSAMP Trust 2006-HE7, M2 AA/Aa2 C/CC

GSAMP Trust 2006-HE5, M2 AA/Aa2 CCC/C

GSAMP Trust 2006-S4, A1 AAA/Aaa CCC/C

GSAMP Trust 2006-S3, A1 AAA/Aaa D/C

GSAA Trust 2006-13, AF2 AAA/Aaa CCC/Caa3

86. These downgrades underscore the fact that the investment-grade ratings reported in the Offering Materials were unjustifiably high and misstated the true credit risk of the RMBS purchased by Allstate.

87. Defaults are usually caused by a large and unexpected disruption to a borrower’s income. In a properly underwritten pool of loans, there should not be a large spike of defaults occurring shortly after origination, because it is unlikely that many borrowers would all incur a sudden and unexpected change to their payment ability so soon after purchasing a home. However, when borrowers are put into loan products they cannot actually afford, they quickly and predictably fall behind on their payments. As such, high, early rates of default and

delinquency—such as the high rates here—are cogent evidence that the loans were not properly underwritten.

88. The defaults and related drop in value thus are due to Goldman’s wrongdoing, and not because of the general change in economic conditions. Economic studies confirm this common-sense conclusion. For instance, the F.B.I. investigated three million residential mortgages, and found that between 30% and 70% of early payment defaults were linked to significant misrepresentations in the original loan applications. Loans containing egregious misrepresentations were five times more likely to default in the first six months than loans that did not.

89. The defaults and related drop in value thus are due to Goldman’s wrongdoing, and not because of the general change in economic conditions. “Investment banks were the driving force behind the structured finance products that provided a steady stream of funding for lenders originating high risk, poor quality loans and that magnified risk throughout the U.S. financial system. The investment banks that engineered, sold, traded, and profited from mortgage related structured finance products were a major cause of the financial crisis.” (SPSI Report at 11 (emphasis added).)

B. Loan-Level Evidence That The Mortgaged Properties Were Not Owner- Occupied

90. Using techniques that only recently became available to investors, Allstate tested Goldman’s representations on a loan-level basis for thousands of loans across all of the

Securitizations.

91. For each offering, Allstate analyzed between 1,444 and 1,600 randomly-selected loans from within the collateral pool. This sample size is more than sufficient to provide statistically-significant data to demonstrate the degree of misrepresentation of the Mortgage Loans’ characteristics. Analyzing data for each Mortgage Loan in each Offering would have been unnecessary for purposes of Allstate’s pleading. Statistical sampling is an accepted method

of establishing reliable conclusions about broader data sets, and is routinely used by courts, government agencies, and private businesses. As the size of a sample increases, the reliability of its estimations of the total population’s characteristics increases as well. Experts in residential mortgage-backed securities cases have found that a sample size of just 400 loans can provide statistically significant data.

92. To determine whether a given borrower actually occupied the property as claimed, Allstate’s analysis looked at various factors, including an investigation of tax information for the sampled loans. One would expect that a borrower residing at a property would have the tax bills sent to that address, and would take all applicable tax exemptions available to residents of that property. If a borrower had his or her tax records sent to another address, that is good evidence that that borrower did not actually reside at the mortgaged property. If a borrower declined to make certain tax exemption elections that depend on the borrower living at the property, that also is strong evidence the borrower was living elsewhere.

93. A review of credit records was also conducted. One would expect that people have bills sent to their primary address. If a borrower was telling creditors to send bills to another address, even six months after buying the property, that is good evidence the borrower was living elsewhere.

94. A review of property records was also conducted. It is less likely that a borrower lives in any one property if in fact that borrower owns multiple properties. It is even less likely the borrower resides at the mortgaged property if a concurrently owned separate property did not have its own tax bills sent to the supposedly owner-occupied property included in Goldman’s mortgage pool.

95. A review of other lien records was also conducted. If the property was subject to additional liens but those materials were sent elsewhere, that is good evidence the borrower was not living at the mortgaged property. If the other lien involved a conflicting declaration of residency, that too would be good evidence that the borrower did not live in the subject property.

96. Though the ability to gather such information for large numbers of loans and run these tests was only recently made available to investors like Allstate, these tests draw from data contemporaneous with the transactions at issue. They thus are evidence that a then-existing fact—owner occupancy—was misrepresented.

97. The results of Allstate’s loan-level analysis of true owner-occupancy rates on the Mortgage Loans underlying its Certificates are set forth below and are further detailed in the Exhibits. Failing multiple of the tests described above is strong evidence that the borrowers did not in fact reside at the mortgaged properties. The results thus show that, despite Goldman’s representations, a much higher percentage of borrowers did not occupy the mortgaged properties:

Asset Percentage of Owner-Occupied Properties in Prospectus Actual Percentage of Owner- Occupied Properties Prospectus Overstatement GSAMP 2006-HE7 91.9% 82.2% 9.7% GSAMP 2006-HE5 92.2% 82.1% 10.1% GSAMP 2006-S4 88.0% 75.3% 12.7% GSAMP 2006-S3 94.0% 81.6% 12.4% GSAA 2006-13 77.8% 69.5% 8.3%

98. The consistency of these misrepresentations across the offerings confirms that the underwriting problems within the Mortgage Loans and the Certificates were systemic. As such, Allstate’s loan-level analysis not only shows that the specific owner-occupancy statistics were false and misleading, but also supports the conclusion that the Offering Materials’

representations regarding the originators’ adherence to the given underwriting guidelines were also false and misleading.

99. Further, the consistency of the results shows that these were not simply borrowers that changed their mind. Rather, Goldman and the originators knew that borrowers were

misrepresenting their intent to live at the property, because Goldman, the originators, and the borrowers all knew it would help shuffle the loan through the approval and securitization process.

C. Evidence That The LTV And CLTV Ratios Were Materially Misrepresented