Mr Cooper Group Inc (COOP)

[JohnnyWinter]

FDICFederal Deposit Insurance Corporation
550 17th Street NW, Washington, D.C. 2042~9990
TO: Steve Funaro
Examiner-in-Charge
FROM: Christopher Hovik.
Examination Specialist
Division aI Supervision and Consumer Protection
June S, 2007
SUBJECT: WaMu - Long Beach Mortgage Company (LMBC) Repurchases
Objective: Assess LBMe repurchase activity and related reserves.
Repurchase Activity



Repurchase reasons are broken down into three main categories: 1) [ust payment default (FPD) -
the mortgagor fails to make the fIrst monthly payment, 2) early payment default (EPD) - the
mortgagor fails to make the first payment due after the loan has been sold. and 3) representations
and warranties (R&W) - the seller guarantees various facts about the sold loans.
During 2006, more than 5,200 LBMC loans were repurchased, totaling $875.3 million.
Approximately 46% percent of the dollar volume was due to EPD. 43% due to FPD, and 10%
due to R& W. All of the EPD occurred during the first four months of the year as the bank:
ceased doing whole loans sales in January 2006. Consequently repurchase volume dropped off
dramatically during the second quarter and continued at lower levels throughout the remainder of
the year.
During the fourth quarter of 2006, there was a jump in repurchase requests under R& W
provisions. Management stated that it was a one time event relating to just a couple of deals.
The reasons for and steps the bank is taking to mitigate this adverse trend needs to be discussed
further.
Repurchases are not even distributed among various loan sales. The most recent sales contain
the FPD and EPD buybacks as they are relatively short lived guarantees. Loans bought back for
those reasons will typically be repurchased within 2 or 3 months after sale. In fact, about 30% of
all repurchases in 2006 came from two whole loan sales 2006-WL2 LBMLT and 2006-WL3
LBMLT. The far majority of these whole loans sale repurchases were due to early payment
provisions.
R&W constitute a longer term guarantee with loans being repurchased in 2006 that were sold as
far back as 1999. The reasons for R&W repurchases in 2006 are listed in the following table:
Permanent Subcommittee on InVestigations
EXHmIT#13b