Chapter 12

Banking Experts Opinion Analysis on Credit Issues

Thomas Tarter is the Managing Director of the Andela Consulting Group, Inc. (ACG), in Sherman Oaks, California, a Consulting firm whose services include the providing of research; financial, management and turn around consulting services; board of directorships and expert testimony services on a variety of matters including banking and lending standards and practices involving processing. He has served as a management consultant, business advisor and on the board of directors of public, financially troubled and closely held corporations (large and small) including serving as a reorganization advisor to The Bank of Saipan and for SEC reporting corporations such as First Alliance Mortgage Company. Mr. Tarter was appointed to First Alliances board of directors subsequent to its filing for bankruptcy protection. First Alliance was active in the subprime lending market. It was accused of predatory lending practices and unfair and deceptive sales tactics involving consumer loans. Mr. Tarters experience in the financial institutions industry spans more than 35 years. He started his career at Lloyds Bank California, where he was a Vice President in the Corporate finance and California Divisions; and continued it at the Sanwa Bank of California, as Vice President and the Senior Credit Officer for Southern California; Bank of Los Angeles, as Founding Director, President and Chief Executive Officer; Center Nation Bank, as Director, President and Chief Executive Officer; First Los Angeles Bank, as Executive Vice President; Western States Bankcard Association, as a director and ACG. He was also a director of the Fort Ord Credit Union, advisor to Matadors Community Credit Union and a founder and organizer of Hancock Saving Bank. Mr. Tarter has been appointed to the mediator panel for the Bankruptcy Mediation Program of the United States Bankruptcy Court for the Central District of California and was a member of the Board of the Los Angeles Bankruptcy Forum. He received a Master of Business Administration from Santa Clara University and a Bachelor of Science in business from the University of California at Los Angeles. Section 12.1 is expert opinion analysis of the direct damages to a consumer as a result of a foreclosure being recorded against their house, pointing out that the public record of a foreclosure is kept forever, not just for the seven years that credit reporting information may be retained. It points out that a foreclosure will make business credit unavailable for the borrower and that a mortgage loan in the subprime market is likely to cost an extra $115,000 on an existing home and $175,000 on a new home. It quantifies similar penalties on car loans and student loans. Section 12.2 is expert opinion analysis of a secured credit card that is so expensive that its benefit to the consumer was illusory. It analyzes the misrepresentations made in the telemarketing of the credit card. It concludes that the lender did not deal with the consumer in good faith and fairly as required by banking standards. Section 12.3 is an expert opinion analysis of a car dealers and banks incentives to inflate the interest rate on a nonrecourse credit sale of an automobile to a consumer. It describes how the the bank closely controls the terms of the credit transaction. Section 12.4 is an expert opinion analysis of Truth in Lending and HOEPA(Home Ownership and Equity Protection Act) applicability to a predatory mortgage loan concluding that the loan violated both laws.

12.1 Direct Damages to Consumer Caused by Recording of Foreclosure

F O : LINDEN 8 RM

1,

2.
3.

4.

5.
0,

7.
K.

0.

1 0. 11,
12.

13. 14.
15.
16.

17.
18.

I 0.
20.

21
22.
23.
24,

FROM : LINDEN 8 FlSSOCIRTES

TEL: 3102052442

NW.19.1990

4:39 p~

p 5

scc.1.11~cc1 n s to boi-rowcrs who h a w li)rcclnsnscs on Ilicir rccords. (:Icnlcr T:in:~nci:rl loo

FROM :

LINDEN &

RSSOCIRTES

TEL: 3102052442

FROM :

LINDEN 8 RSSOCIQTES

TEL: 3192052442

i~~cIt~(lill~ I~IICC!OSI~IWthiil lhc cost is \~ciy X ~ C I I Sf~:id , ? O f h \4;1h ~ V d C l l ~:~l ihi l~~ j I J ~ C ~ V is f C ~~.:lcliccs.I ~ I S I I ~ I : L ~ Voj'lllis js II C
ti

c~wiil C

I I 11181 ~ ~

is (11lkrcdto CoJwllnxrs will1 poor ~1-cdil by

I'irsl Alliil~~cc h4orlgq..c (lompnny, lrviixr, (Ialifor~~ia, 1v1lcl.c in ~~clclilion it 24.S'Kbanilu:il lo

HW d intcrost riltc 111~1'~ also :I $ 1 70.50 sign-up f'ce r~rlcln $38.50 n n i ) ~ ~ ;fee.

In olhcr instenccs, Ixli~~.owcrs~ i incur "l~idtlcn" bosi-owinp.cosls s d i :IS n ~y

L\I~IC'I.~ I ) O I * [ ~ ~ ~ ~ C I

inicres1 rilles i1I.C ci11c~ll;itcd tljc "i~vc~t~g' l 011 Jr~ily

itt

j i t l ; ~ ~i ) ~ ~ ~ " ~ '

IIIC "simple

in[c~tsl" n c t l l ~ d accoun[ing. O n i1 loan 0j.$j00,000 ~ of

7.0% intc~w! \vjlho;~l 11lc IS-(lily

p.sr1c.c pcsjod ~ ~ o r ~ n at~yr~il;~hlc ~ T ~ W C I ' S lly 10 I wjth good crecli( ratings, Ihr: b o ~ ~ o \ v cmt~y ~'s il'thcy mnkc thcir p y ~ n c ~(111 tlic 15"' (ilic it ply almns! $290 i n rxlra iiitcrcst coat tach 111ont11 Ii~sl ot'thc g ~ ~ i pcriod), 'I'his is i1 Irtigc pcndly. tliiy cc 111ilclditiorl, thcl-c Inrly hc ot11c.r cnsls such as hcinp rr:quirctl lo iiii~kc cr;t~yl~icIy t l o \ ~ n 11igIl 1wymc11tsor p:~ying "hyped" prices jiv autonwhilcs from tlct~lol-s w1.10 colllpc~ls;l~c tl1cinselvc.s li.11. (Itc: cx[r:t risl( by ngrceing 10 rr:~~ur*clxw Ihc.
~ 0 l l ~ W l l ~ l " S il'a 1r)im

tlciit~llloc.l:uss by cllnrgillg i.1 11igbc.r(Ili~u m i d < ~ t " " price for 1hc \~d1iGlc, s lo crcilit cards. A
i1~:1i11 they

111i1y tl\wil;.ihlc i l l high riitcs m d MISC) 1 1 S~C C L W C ~ cilsh. I f ~ ~ c ~ l ~ c i hc JINIY by hy

Will1

c.iIsll illc: c:11'({ u,SCr gcrs 1 0 ]lily :I h i ~ h ~ O Itllc j>]CWIJl'c ~ ' s c c L ~1~1'1~CII 'IC~ ,~ ~ I jkc: ' o ~ C Ci\i'(\ his/hcs o\~11 cash.

Ag:lin, t l x s ~ ~ b p r j mt~rltct r~ n~;~rlccl ~ n c is ol'Jnsl rcsori. 11 is 111c I I I ~ I S I ~ C I WIWI-C ~li~i\clv;tn[;~gcd or "virtia~imd"parple like ihc r v i m l up. It i s
it

csocl mnslicl

tllnt,

FROM :

LINDEN

RSSOCIATES

--ROFl :

LINDEN

RSSOC IRTES

T R : 3102052442

FROM : LINDEN 8 RSSOC I RTES

FROM :

LINDEN 8 RSSOCIRTES

E L : 3182052442

NOU. 19.1998

4 : 43 ppl

1,

c c r t ~ l t ihc scctt~.cd by

Irust dccds on llrcir scsidonccs thnl would c~xlhlc 1 1 ~ :it~tcrcsl l w l 1 t

FROY : LINDEN 8 RSSOCIRTES

FROM : LINDEN 8 RSSOCIQTES

TEL: 3102852442

NOU.19.1998

4:43

PN

:~cquirc invcsl~ncll p~qwrlics; t c,rcutc werrltll fiw rct iscmcnt rrnd ollwwisc i~nlrlwc h c i r ~
ljlksf)~Ic*
111 ortlcs

to I W I I ~ C i t
tltil(

c s ~ s i c ~ ~tllc for

I - W ~ C S S (11'

this

( I ~ ~ l i \ f i ~ l o ~i~ltcsprcli111d ti ) ~ l

cornp:ltr: tl,c cconomii: i n l p c t

thc li)rGclns~~rc~ oln thc .1 I>i t -

I Ir;lvc (i) r n ~ ~ ~ i c l c t l
'

;,It illtclwl si,lcs irr l l ~ c ncorcst "icnth d'I %'); (ii) iaundcd tllc princijti~l on t 1 1 c l O ) l C duc
Ih.

t:\ll.l.cnt ntor-[gage 10 $1 75,000; (iii) cmor~izcd loans sccwetl by the _ i r~.sidcncc .' ovcs

FROM :

LINDEN 8 QSSOCIQTES

TEL : 3102052442

NOW. 19.1998

4 : 44 P m

PIS

&w~ruldhc appmximnlcly $7.400.00

1 ,ikc.wisr.., givcn tllc fc>~.cclos~wc, the

ovcr thc lili: oi'lha lwo (2) l w ~~ i ibr cirdl. o c

il

u'br.. ~cqilircdto 1 x 1 ~prcmirrm of \vo\lld

l l i ~ ~ t : t I I \ 11 v,ost ()

il]>]".(WilllilI~ly if lhcy \vjsl~cd 1wrch:lsc u ~ c vchiclc fi)r Ihcir child. 8% to l

111;s tr:.rr~sl;~tc 1111 CX~I';I$1.444 in inlcrcsl. in10 o1'!$7.$00 jinarlcccl ovor 48 mon~lis, \vo~~ld

Now,ns ti> sluclcnt louns, i\ sclirtively laccnt li)l~c=clos1.11~ l (wilhin

ycnrs) OII tllc '
li1iir.1

h I~ S ~ W 5

crcdit rcpo161would ttlso r~ll'ccttl~cir ttbjlity 10 clwlify for. it st~tdc~it

firtllcir child at hnlh IhC f i n ; l n c i : ~ l instil\ltion Iwcl t ~ n d !.hc collcp 1r:vr.l. 'I'his i s ul.

Ixx;~~lsc (jnnucjt~l insiitr~tions s~.i(:lI I ~ t ~ itrc cr-cdjlrcpo~-I tts ks scnsjtivc and ~ v ~ r ~ r ~ o : ~ l l y d ~ rlol ~xcclldIO:II~S 10 ijlcljvjduals cvit]~ ~.cJ;~tivcJy I'oj~cclosurcs their crcdit ~*cccjlt o11
I s ;~dditio\l,coninctcd IWOJ~!;.

111

lin;t~lci;rl;lid oflicc :in(! w:rs odviscd

111i11;i li)rct:l~wurc jniyht

lil(c\visc prccludc n pnl.cnt fiwlqualifying for n loan 10 picy liw Il~cir. cliilil's ciltlc.;rlic>n,
lllc 8.5%. 13nscd upon the nvcmgc : r n ~ ~ r rco,sl ol' tl \slllc!.~c curl.ent r;\tu is qq~~.cixiniaIc:ly
Iltilicm.

r(.to111 boa1.d of $1 0,000 .liw 4 yca1.s. 111c and

would T"' i n c u r
SL~I.VCY did

:\

pcn:111yof
8.5% I.il!c
,

; ~ p p r ~ ) s i l ~ i $3(),C)()()~ \ l c l11 15 jio11. ~tcly . pcrivtl, ' h i s is hWCd

vcrsus :I 1 5% ~ ~ at11~1t t c ~niglit tlvtlili~blc n tile nir.lrltc.1, My hc i

011 CilllllXtn), it11

nc.lt ~ C V C ~ I i~lly I

FROM :

LINDEN & RSSOCIRTES

TEL: 3102052442

FROM. :

LINDEN 8 RSSOCIQTES

TEL : 3202052442

NOV.19.1998

4 : 4 6 Prq

p19

Inuhili[y to cp:ilify

Jilr

11.S. Sl11t.111 13~1silicss Aihni~~istion Ionas. rirl

rl.

I1~111ili1y (1)

c ~ ~ l i ~ l for ify

IO;~IIS to cxp;tnd

existing ~

EXHIBIT LIST

DESCRIPTION

CV - Thomas A. Tarter

Lender Survey Freddie Mac Form 65 Credit Application - Greentree Financial and Deutch Financial Chart; Interest paid on a $175,000 loan amortized over 30 years. Summary of Damages

12.2 Illusory Benefit of Secured Credit Card

The Andela Consulting Group, Inc.

15250 Ventura Blvd., Suite 610 Sherman Oaks, California 91403
Thomas A. Tarter Managing Director Expert Witness - Banking Consulting - Financial and Management Phone: (818) 380-3102 Fax: (818) 501-5412 E-Mail: ttarter@earthlink.net

March 27,200X Re: Case No:

Dear Mr. :

I have been retained by XXXXX. to provide litigation consulting, and if necessary, expert witness testimony at deposition and trial, relative to the business and banking practices of the plaintiffs involved in this matter. In connection with this engagement, I have prepared this report. The opinions expressed in this report are based upon my knowledge and experience developed throughout my more than 35 year career in banking, business and consulting as well as information that has been produced as part of the discovery process in this Matter. During my banking, business and consulting career, in addition to what I have learned from my professional work experience, I have attended numerous seminars, conferences and courses. I have studied various textbooks and read professional and trade publications. The subject matters covered by these materials include: banking, lending litigation, damages and consulting issues. While the sources for these materials may vary, they are sponsored or published by various organizations closely associated with banking, lending and consumer credit protection organizations. In forming the opinions contained in this report, I have relied on my education and knowledge gained over the years from these sources, as well as my own business, banking and consulting experience. I understand that discovery is ongoing. This report is, therefore, subject to amendment, modification and supplementation upon any information, facts, documents or testimony that may be provided to me in the future. QUALIFICATIONS I am the Managing Director of the Andela Consulting Group, Inc. ("ACG"), a consulting firm whose services include the providing of research; financial, management and turnaround consulting

services; board of directorships and expert testimony services on a variety of matters including consumer lending standards and practices.

I have significant experience in banking, business and consulting inclusive of experience in connection with the matters set forth in this report.
I have served as a management consultant, business advisor and on the boards of directors of public, financially troubled and closely held corporations (large and small) including SEC reporting corporations such as First Alliance Mortgage Company. I was appointed to First Alliance's board of directors subsequent to its filing for bankruptcy protection. First Alliance was active in the subprime lending market. It was accused of predatory lending practices, as well as unfair and deceptive sales tactics involving consumer loans. My experience in the financial institutions industry spans more than 35 years inclusive of experience in connection with the matters set forth in this Declaration. I started my career at Lloyds Bank California, where I was a Vice President in the Corporate Finance and California Divisions; and continued it at the Sanwa Bank of California, as Vice President and Senior Credit Officer for Southern California; Bank of Los Angeles, as Founding Director, President and Chief Executive Officer; Center National Bank, as Director, President and Chief Executive Officer; First Los Angeles Bank, as Executive Vice President; Western States Bankcard Association, as a director and ACG. I was also director of the Fort Ord Credit Union, advisor to Matadors Community Credit Union and a founder and organizer of Hancock Savings Bank. A copy of my resume is attached hereto as Exhibit A and is incorporated herein by this reference. My work with financial institutions, lenders, ACG and my consulting experience includes (i) consumer credit lending and collection practices; (ii) the development and implementation of consumer loan origination, loan disclosure, loan underwriting, loan approval, loan disbursement and collection policies and procedures; (iii) the establishment of interest rates for consumer loans; (iv) the development of telemarketing scripts and promotional materials; and (v) credit cards. As a prior financial institution officer, senior executive and board of directors member, I have considerable experience in consumer loan related issues such as those involved in this matter. Since 1993, I have advised ACG's clients and served as a litigation consultant regarding the above subject matters. I have been appointed to the mediator panel for the Bankruptcy Mediation Program of the United States Bankruptcy Court for the Central District of California and have mediated disputes. In addition, I am a member of the Board of Directors of the Los Angeles Bankruptcy Forum.

I have a Master of Business Administration from Santa Clara University and a Bachelor of Science in business from the University of California at Los Angeles.
DOCUMENTS

In preparing the Report, I have reviewed numerous documents including but not limited to the following: First Amended Class Action Complaint for Violation of the Truth-In-Lending Act; Violations of the XXX Xtate Consumers Legal Remedies Act; Unlawful, Unfair and Fraudulent Business Practices; False Advertising; Consumer Fraud; Breach of Contract; and Breach of Implied Covenant if Good Faith and Fair Dealing Comptroller of the Currency, Administrator of National Banks, Fact Sheet Consent Order Stipulation and Consent to the Issuance of a Consent Order Various Telemarketing Scripts Better Business Bureau Correspondence Credit Card Notice VISA Acceptance Form Approval is Guaranteed, ZZZZ Letter

OPINIONS AND CONCLUSIONS Based upon my review of the aforementioned Documents and my own banking, board, business and consulting experience, I have formulated the following opinions and conclusions: A credit card is a product that is issued by a bank to a consumer which the consumer uses to purchase goods and services. In most cases, banks make a credit decision based upon the applicant's credit history and information provided on an application form in connection with the issuance of a credit card to a consumer. That process was not followed by ZZZZ because it guaranteed the applicant a credit card regardless of the applicant's credit history or any other factor. From the consumer's point the consumer makes a decision makes a decision to accept and/or reject a credit card based upon represented fees, interest rates and other terms and conditions pertaining to the proposed card. The text of consumer disclosures is based upon state and federal rules, regulations and guidelines as well as industry standards. With respect to ZZZZ's credit card product, the text and disclosures made to consumers were not consistent with TILA and banking industry customs, standards and practices. The TILA disclosures made to the consumers were not accurate and were in violation of TILA and banking industry standards. The ZZZZ credit card product involved in this matter was a form of predatory lending.

8.

Normally, the penalty for faulty lending practices is a credit loss. In this case, it was the consumer who suffered. ZZZZ was primarily interested in consumers with poor credit histories. ZZZZ's inaccurate, misleading and contradictory sales pitches, coupled with faulty TILA disclosures resulted in consumers whose credit ratings were further eroded. This appears to be a situation where consumers were exploited. ZZZZ had superior knowledge about the credit card's illusory benefits and provided inaccurate and self-serving financial advice that the consumers relied upon to their detriment. It has been my experience that banks recognize that the balance of power between a bank and a consumer is not always equal. The banking industry standard requiring credit providers to deal in good faith helps to equalize the relationship and prevent a bank from taking advantage of a consumer. Banks, therefore, according to banking industry customs, standards and practices have a duty to act in good faith and honestly with their customers. This includes but is certainly not limited to providing accurate disclosures; negotiating in good faith; not exercising undue control and influence over a consumer; and not exercising improper discretion in setting fees or charges, including interest, late charges and fees. My review of the documents indicates that in this matter the consumers: had faith, trust and confidence in the credit card issuance process; were in a position of weakness, dependence, inequality and a lack of knowledge compared to ZZZZ; and that ZZZZ exercised control and influence over the consumers affairs. Based upon my more than 35 years of experience in the banking and lending industries, ZZZZ's actions and conduct were egregious. It appears that consumers were taken advantage of by ZZZZ and that the credit card product involved an abuse of trust and confidence. ZZZZ's conduct in this matter was below banking and lending industry standards and inherently created an injustice. Due to the extraordinary circumstances associated with ZZZZ's credit card issuance and subsequent actions, it is my opinion that there was a heightened duty to disclose and not provide self-serving advice, which resulted in high fees and improper disclosure.

9.

10.

12.

It seems only fair, reasonable and equitable that the profits that ZZZZ received be disgorged and that any employee or intermediary related incentives paid in connection with the marketing and servicing of ZZZZ's credit card product be likewise disgorged. Any payments made by ZZZZ in settlement to consumers in this matter should be viewed as being a refund of fees, interest and charges to which ZZZZ was not entitled.

13.

DISCUSSION

Predatow Lending
Predatory lending is not a new phenomenon. Simply stated, predatory lending involves instances where consumers are harmed by abusive lending practices. Structurally, abusive lending practices incorporate a targeted borrower market; the credit sale or "pitch" to the consumer; origination fees; the structure of the transaction - collateral, amount, loan documents, collection - renewal fees; and the ostensible benefits of the transaction for both the consumer and the lender. Predatory lending involves credit facilities that are marketed to consumers who normally have poor or no credit histories; are unsophisticated; have no alternative sources of credit; involve loans extended and collected at exorbitant interest rates and fees; and are collected through abusive collection practices. Will Rogers once said, "It's not politics worrying this Country; it's the second payment." In this instance, it's not the second payment that is a problem. It is the whole transaction. This is because the consumers in this matter made payments that were required for a credit card that offered no ostensible, tangible benefits because on their face the consumers were burdened with payments, high interest rates, substantial fees and were, for all practical purposes, not able to charge any purchases on their cards. A credit card that effectively does not allow a consumer to charge anything to their account other than fees and a collateral advance is illusory. It is my opinion, that illusory credit card products, like ZZZZ's, are inconsistent with the standard of the banking industry.

Subprime Borrowers
"Subprime" borrowers are borrowers with low credit ratings and a FICO score (a nationally recognized credit scoring company routinely utilized by lenders in the U.S.) below an arbitrary cutoff, usually between 600 - 650 points. Subprime borrowers typically have a more difficult time obtaining credit. Many times subprimes are characterized by the fact that they have poor or limited credit histories or are otherwise economically, mentally or physically disadvantaged. ZZZZ is a "subprime" oriented bank that offered credit card products to individuals that were partially secured. ZZZZ's credit card products were made via a credit card that was sold through a deceptive sales presentation that among other things misrepresented the true cost of the credit card and the amount of available credit to purchase goods and services. The common outcome of predatory lenders, in the subprime lending market, is that borrowers who can least afford certain credit products receive the strongest pitch for the purchase of those products. It is my opinion that as a result of ZZZZ's misrepresentations, that consumers were financially harmed. This report will outline damages, as well as other opinions relative to the consumers who were involved in ZZZZ's credit card activities. It has been my business, banking and consulting experience that borrowers who are the most financially unsophisticated and desperate for credit are the ones who are traditionally targeted and

subsequently "hooked" on subprime lending products such as the ZZZZ credit card scheme. It has been my experience that consumers place a high value on their credit rating. Consequently, consumers desire to have their credit repaired so that they will able to qualify for future credit. Subprime rated consumers also have the desire and need to charge and purchase consumer goods just like people with good credit histories do. Typically, a consumer's entry into the subprime lending world involves the consumer interacting with a bank that specializes in subprime credit arrangements as part of its overall business operations and strategic plans. One method of entry into the subprime lending market is through a consumer dealing directly with the bank that is the source of funds. In this instance, the consumer would most likely discuss the credit arrangements with a loan officer andlor employee of the bank. Under this structure, the bank is accountable for its loan officers and employees and has a responsibility to monitor their activities. Another method of entry into the subprime lending market is through a consumer dealing with an intermediary that brings the consumer together with the lender. This structure leaves room for abuse in the subprime marketplace. Lenders have claimed that they are not accountable for the resulting abuses because they have no control or responsibility over the practices that these intermediaries (telemarketers) may employ. The standard of the banking industry requires banks to closely supervise their employees and any entity that might market its products. This is because banks are aware that consumer advocates and borrowers have reported that bank employees and intermediaries particularly in the subprime market, may use aggressive or deceptive marketing techniques. These advocates point out that because of aggressive sales techniques, consumers who otherwise might not have sought credit products are introduced into the subprime credit market. In recent years the subprime market has experienced significant turbulence. Risks have arisen on various fronts: Credit risks; Liquidity risks; and Reputation risks. First, many subprime lenders have been slow to adopt "best practice underwriting techniques", resulting in higher than expected defaults. Second, the volatile financial markets have put liquidity pressure on subprime lenders. In this instance, part of ZZZZ's source of funds emanates from the borrowers. Lastly, litigation and media exposes arising from alleged abuses by subprime lenders have spawned financial institutional concern about "reputation risk" across the subprime lending industry.

ZZZZ's Marketing
ZZZZ solicited perspective consumer customers through telemarketing and direct mail advertising that hi-lighted the benefits of obtaining a credit product that would result in the borrower having credit available and provide a mechanism for credit repair.

The Office of the Comptroller of the Currency (the "OCC") is ZZZZ's primary banking regulator. The OCC alleged that ZZZZ's sales presentation and telemarketing programs, deceived consumers about material terms pertinent to its credit card product. The OCC further alleged that ZZZZ deceived consumers with regard to interest rate charges and available funds. Based upon my experience involving telemarketing programs with various banks and with First Alliance, I agree with the OCC's findings. The following are excerpts from ZZZZ's telemarketing scripts: "I am calling from the ZZZZZZ to let you know that if you are 18 years of age or older, you are guaranteed approval for a partially secured VISA card under our XXXXXXX! Program.. ... The XXXXXXX! Program is a complete money management tool designed to help our customers use their ZZZZ Bank VISA card more effectively." "All you have to do is sign your application that we will mail to you. A $65.90 initial down payment which includes $5.95 for shipping and handling is drafted directly from your checking account. Your initial payment pays for more than half the one time enrollment fee of $115.90." (ZZZZ DOC #> "You do not need to send any money after we receive your initial down payment. The remaining $50.00 for the enrollment fee is charged directly to your card, along with $200.00 to open your FDIC insured savings account. When you receive your first bill, you can repay it in full, or you can repay in monthly installments - the choice is yours." (ZZZZ Doc #s) "There is an annual membership fee of $72.00 per year, which is charged to your account in monthly installments of only $6.00. Cash advances will be charged a fee of $3.00 or 3% of the advanced amount whichever is greater." (ZZZZ Doc #s) In cold call scripts similar representations are made.

"M - M most secured credit cards require that you make a deposit for the full amount of the credit limit immediately. However, ZZZZ has made it easier by charging the full $200.00 savings deposit to your new credit card. You have the option of paying it off once you receive your statement or making monthly payments." (ZZZZ Doc #).
If "I don't have the $65.90 ($85.90) available, the response from the program is, 'Okay, M - M when will you have the funds available? I can postdate the draft for up to 5 days. I have to make sure you are able to take advantage of this offer, so what day would you like to have the draft done?"' (ZZZZ Doc#s) ZZZZ represented that the program is more than just a credit card. Because "[Ilt is a comprehensive money management tool designed to help you use your credit card more effectively, gain control of your finances, and get out of debt - - - ZZZZ charges your savings deposit directly to your card." (ZZZZ Doc #)

Additionally, ZZZZ represented that "maintaining a good credit history with ZZZZ is one of the best ways to establish your credit rating." $65.90 is inexpensive when you consider that we report your payment history to the three major credit bureaus monthly. You can rebuild your credit much faster when you keep a good credit history with your VISA credit card. When you break down the total cost of our standard fees, it will only cost you about $.50 a day." (ZZZZ Doc #) The above sections are deceptive because they make untrue representations and leave out the remainder of the fee which was $1 15 .go. Based upon my banking, business and consulting experience, which has included marketing and telemarketing, ZZZZ's scripts were not accurate and contained gross misrepresentations including but not limited to use, benefits, cost and impact on credit. What the ZZZZ Credit Card Product Really Is The ZZZZ credit card product can be viewed from two different perspectives: Bank; and Consumer. First, from the bank's perspective, the ZZZZ credit card product is: A credit card issued to a consumer; Loadcredit product; Source of fee income created by advances for origination fees and credit card purchases; and Source of liquidity and funds derived from borrower deposits that were created by advances on the credit card. From the consumer's perspective: A credit card that can be used to purchase and pay for goods and services; A mechanism for deferred payments; An opened-ended line of credit High fees and service charges that were not disclosed; and Hidden charges and fees accessed. What the ZZZZ Credit Card Product Did Not Provide to the Consumer The ZZZZ line of credit did not provide: A reasonable opportunity for actual credit repair for the consumer; A reasonable opportunity for additional charges to be made on the card; No actual benefits; and Ability to borrow at reasonable and fair interest rates. Results of the ZZZZ Credit Card Product: Reasonable and highly likely chance for default;

Creation of unrealistic expectations on the part of the consumer; No benefit to the consumer; High profits for ZZZZ; High probability of default; Denigration of credit; and Payments that would not result in a benefit to credit. It is well known in the banking industry that credit scores are adversely impacted by additional credit. Further, in the event that a default takes place, lenders well know and are well aware that the borrower's credit score and perception to credit providers is diminished by missed or late payments. The amount of credit ZZZZ provided $250 - $600 was miniscule. This is especially true looking at the amount of credit that the consumer was able to effectively draw on after the charges are assessed by the lender in the form of fee origination fees and the advance to create the deposit that partially secures the credit card period. Little or no money was left for the consumer. Consequently, the concept of a credit card, providing any additional credit and being able to be used in the marketplace is purely illusory. Based on my business, banking and consulting experience involving credit issuance, ZZZZ's credit card product was manifestly unfair and inconsistent with any credit facilities or credit card issuance that I have experienced. According to consumer correspondence and Better Business Bureau documents, the ability to cancel ZZZZ's credit card was also very difficult. Procedurally, the consumer had to jump through hoops and was stuck with fees and charges even if no payments were made. This is below banking industry standards. As stated above, the consumer had little capability to initiate or charge any purchases to the card because of the relatively low limits provided. Consequently again, the effect and benefits of the card, in my opinion, were illusory.

The Purpose of Credit Cards

The purpose of credit cards is to provide income for a bank and availability of a multi-purpose credit card product for the benefit of the consumer. The intent is mutual benefit. In this case, the cost and charges that inured to the benefit of ZZZZ far outweighed any consumer benefits. Industry standards require that credit facilities be fair, reasonable and equitable. In this instance, the credit card product provided by ZZZZ did not meet the standards of fairness, reasonability and equitability because:
0

ZZZZ did not fully disclose the terms and condition of the card; ZZZZ did not disclose the true costs of the credit; and ZZZZ misrepresented that the credit card would result in improvement of the borrower's overall credit worthiness.

It has been my experience that the purpose of TILA is primarily to promote business and provide meaningful disclosure to consumers so that the consumers could competitively shop a credit product. In this instance, it appears to me that consumers were solicited who had poor credit performance

track records. Therefore, it was unrealistic on the part of ZZZZ to expect that payment would be made on a timely basis. No credit underwriting was taking place predicated upon the sales and telemarketing representations made. Consequently, there was no reasonable expectation for an actual improvement in the borrower's credit score because it was a virtual certainty that many of the borrowers would default. Indicative of this is the high default and loan charge-off rate reported in the financial statements of ZZZZ.

The Office of the Comptroller of the Currency ("OCC") is the primary federal regulator of ZZZZ. I have reviewed, in formulating the opinions expressed in this report, the Fact Sheet, dated -----------prepared by the OCC, administrator of national banks. (Doc #s) Based upon my business, banking and consulting experience, it is my opinion that the OCC correctly, ". ..concluded that the Bank's conduct in marketing a secured credit card constituted unfair and deceptive practices in violation of the Federal Trade Commission Act, and was an unsafe or unsound within the meaning of the Federal Deposit Insurance Act." It is clear from the Fact Sheet that ZZZZ provided illusory credit and made misrepresentations to a number of consumers. It has been my experience working with regulators that their reports are accurate, dispassionate and are intended to identify and eliminate unsafe and unsound banking practices. Based upon my review of documents, I concur with the OCC. A hallmark of lending is fairness and honesty. Unfair and deceptive practices are not consistent with banking industry standards. Likewise, false and misleading statements as reported by the OCC, are inconsistent with banking industry standards.

The practices cited by the OCC regarding guaranteed credit cards, consumers who had little or no available credit after the card was first issued and were unable to obtain usable credit as a result of the card, consisted and represented a large percent (80%) of applicants who received the ZZZZ $250.00 credit line. Additionally, other solicitations and other representations regarding the guaranteed approval, "worldwide acceptance", and inaccurate disclosures and failures to disclose by the consumers were again below banking industry standards. Additionally, consent orders require banks to adapt marketing and lending practices that are consistent with industry standards. It has been my experience that consent orders are not required unless a bank is operating inconsistent with banking industry standards as promulgated by the OCC. Further it appears, based on the consent order that was entered into (Doc #) likewise required the bank to implement written programs to identify and evaluate on an ongoing basis communications from consumers who say that they did not understand the bank's solicitations. Clarity and clearness in communications are also banking industry standards. Clear and conspicuous disclosures are required by the banking industry. To do otherwise is to be inconsistent with the standards of the industry. It is my opinion that improper and misleading disclosures were made by ZZZZ that were below any industry standard with which I am familiar.

Credit Agreements
In general, the credit agreement sets forth the basic terms of the agreement between the consumer and the credit provider or lender i.e. the credit transaction, the grant of a security interest, the description of any collateral, fees, late charges, payment terms and dispute resolution. The customs, standards and practices of the industry are that the credit provider or lender is expected to act in good faith just the same as the borrower and not to summarily be unreasonable, act unfair or an onerous way. The term "reasonable" is always implied when utilized in connection with the actions of the credit provider.

The Due Diligence Process

Lenders typically monitor market conditions with respect to economic evaluation and factors that may influence their risks. That did not appear to be taking place in this matter. There was nothing in the data that was produced that indicated that ZZZZ conducted any due diligence regarding a consumer's credit history and/or capacity to make payments. Simply stated there were no credit criteria. If a consumer breathed and remitted the form, the consumer qualified. This is below banking industry standards that take into consideration credit performance factors.

Credit Analysis
Normally credit providers undertake basic credit analysis of a consumer applicant. This includes information pertaining to sources and amount of income; rent or mortgage payment; employment status; and existing credit obligation. ZZZZ fell below banking industry standards because I observed no evidence of such investigation playing a role in the credit determination. The credit card product was guaranteed to provide to the consumer. There was no underwriting that was required. Based on my more than 35 years of experience in the banking, business and consulting industries, ZZZZ's failure to conduct any credit analysis was below banking industry standards.

Factors Lenders Look At In Credit Analysis

* * * *
8

Income; Sources of income; Employment; Debt obligations; Expenses such as rent and/or mortgage payments; and Past credit history determined from credit reports.

The Cornerstones of Lending

The basic cornerstones of lending are the five C's of credit: Character Capacity Collateral Conditions

Capital. A fundamental fiber of the lender-borrower relationship is trust. This involves honesty and fair dealing on the part of both parties. Subterfuge and dishonesty are considered to be deviant behavior. It is wrong for either party, borrower or lender, to knowingly enter into a credit relationship that it expressly does not plan to honor. Such an action would be dishonest and consequently would impugn the basic character of the party making the misrepresentations.

Constructive Knowledge
ZZZZ, the credit provider and lender, had constructive knowledge that it did not communicate to its consumer applicants. ZZZZ was aware of the hidden costs and that the economic reality of the product that they were marketing was that the consumer could not use the card to make purchases "worldwide" or even locally because in many instances any potentially available credit was consumed by ZZZZ's up-front fees and the advance required by ZZZZ to partially secure the card. Key information was not communicated to the consumer. In effect, ZZZZ was orchestrating a way to minimize its perceived risks and maximizing its profits. This is illogical in a fair, reasonable and equitable credit relationship but it existed in this instance. Banks are acutely aware that credit cards and credit arrangements become a basis upon which consumers conduct their daily affairs including but not limited to purchasing goods and services. Consequently, ZZZZ's prior knowledge that its credit card product would not provide the consumer with any substantive available credit to make even minimal purchases was below banking industry standards.

Good Faith and Fair Dealing Are Basic Banking: Industry Standards
Banking industry customs, standards and practices are predicated upon the principle of good faith being evidenced by both sides - consumer and credit provider. The industry definition of good faith is essentially honesty in the representations that are made in the conduct of the transaction by all of the parties involved. A borrower is required to act in good faith with a credit provider by providing information, likewise a credit provider is required to deal in good faith with a consumer. This is because the banking business is affected with the public interest. Traditionally, banks and their employees have been held to a high degree of integrity and responsiveness to their public calling. ZZZZ fell below this standard because in my opinion, its credit card provided no benefits to the consumer. In my opinion the ZZZZ card only drained economic resources to pay exorbitant fees and charges that could have been used by the consumer for other purposes. The only entity that benefited was ZZZZ.

Fair, Reasonable and Equitable Are Banking Industry Standards

The standard of the banking industry is that the terms of credit should be fair, reasonable and equitable. It appears that ZZZZ solicited financially unsophisticated individuals for their credit card products. ZZZZ marketed credit repair. This too was deceptive because of the amount of credit available and characteristics of the ZZZZ credit card product. Based upon my more than 35 years of

experience in the banking, business and consulting industries, the fairness of the credit provided to the plaintiffs involved in this matter does not appear to exist. The ZZZZ credit card arrangement involved in this matter is manifestly on its face, unfair, unreasonable and not equitable. High interest rates, hidden fees and high late charges coupled with illusory credit are characteristic of the product that ZZZZ marketed. In addition, with respect to basic credit, default was highly likely, predictable and inevitable. This is because, ZZZZ did little or no underwriting. Consequently, if the consumer had a history of bad credit and no underwriting took place, merely the card was issued. It doesn't take "a rocket scientist" to determine that an event of default was highly likely predicated upon the credit histories of borrowers. By definition, borrowers who have credit that they wish to have repaired are borrowers who have impaired credit histories. Historically, borrowers with impaired credit histories are more likely to default than borrowers with pristine credit histories. Those are basic axioms of banking and are foundations of my opinions in this matter. In summary, therefore, a bank should not market a credit product without providing full disclosure of the terms and conditions. Misrepresentations are below industry standards.
Supplemental Information:

Pursuant to Federal Rule of Civil Procedure 26: Disclosure of expert testimony, the following is submitted:

12.3 Car Dealer and Bank Incentives to Inflate Interest Rate on NonRecourse Credit Sale

I, Thomas Tarter, declare:

I have personal knowledge of the matters detailed h e r e i n w e d as a witness I could and would testify competently thereto. 1. I am the Managing Director of the Andela Consulting Group, Inc.

E i m

( ~ / r/ s p f l Y u

("ACG"), a banking and corporate finance firm which provides research, consulting and expert witness services involving a variety of matters including lender liability issues, consumer credit practices, fraud, and dispute resolution.

2.

1 have over 25 years of experience in the commercial lending and

banking businesses inclusive of experience in advising parties in connection with the matters set forth on paragraph 2 above. I started my career at Lloyds Bank California, where I was a Vice President in the Corporate and California Divisions; and continued it at the Sanwa Bank of California, as Vice President and Senior Credit Officer for Southern California; Bank of Los Angeles, as Founding Director, President and Chief Executive Officer; Center National Bank, as Director, President and Chief Executive Officer; First Los Angeles Bank, as Executive Vice President; and ACG. I was also a founder and organizer of Hancock Savings Bank. Attached hereto as Exhibit A is a copy of my Curriculum

Vitae.

3.

1 have served as a litigation consultant in banking and financial

institution matters in numerous cases, and I am frequently requested to provide advice to accountants, bankers and attorneys regarding general practices of the banking industry, including but not limited to questions and disputes regarding consumer credit lending and collection practices. 4. My work with these financial institutions and my consulting

experience on financial institution matters includes; (i) consumer credit lending

27

and collection practices; (ii) the development and implementation of consumer

Declaration of Thomas Tarter

lending and collection policies and procedures; (iii) the establishment of interest rates for consumer loans; and, (iv) guidelines for the purchase of consumer automobile loans and leases. These assignments and duties also covered the recruitment and training of loan administration, departmental managers, marketing and loan collection personnel involved in automobile leases and loans including contracts (leases and loans) purchased from automobile dealers.

5.

1 have also served on Investment, AssetILiability, Funds Allocation

and Loan Committees and participated in audit examinations involving consumer credit and bank practices. 6. During my banking career, I was involved in a direct and

administrative capacity in consumer credit related matters which included contracts and leases purchased from automobile dealers as well as loans made directly to consumers.
7.

1 have been appointed as a mediator in the Bankruptcy Mediation

Program of the United States Bankruptcy Court for the Central District of California. In addition, I was a member of the Board of the Los Angeles Bankruptcy Forum. 8.
1 have a Master of Business Administration degree from Santa

Clara University and a Bachelor of Science degree in business from the University of California at Los Angeles.
9.

over the past 25 years, but I have specific experience in the particular issues of this matter. As an expert, I have been retained in more than 30 matters involving consumer vehicle loan and lease financing. I have also reviewed various dealer agreements, reviewed many
-3-

v e h i c l e lease and loan transactions and have read and reviewed

1 not only have a broad basis of experience in the banking industry

_?nPrl-.-yrCof

Tarter

A many '
10.

consumer loan policies and procedures.

1 have been qualified as an expert in both Federal Court as well as

California Superior Court.

11. I have been retained by plaintiffs as an expert in this case to form opinions

in this case regarding general business and lending practices involving automobile

dealers and banks, including but not limited to, yield spread premiums, the splitting of the difference between contract and buy rates between a bank and a dealer and consumer disclosure responsibilities and obligations.
111

SUMMARY OF OPINIONS IN THIS CASE:

12.

'
was an illusory lender.
Simply put,

was an agent f r o-

originated consumer loans secured by vehicles which

purchased and did not intend to provide financing itself to vehicle purchasers.

because they

13.

intended to shop plaintiff-s

loan around

like a loan broker or middleman to different lenders to obtain mqximum profit. It did not * intend to retain the contract, based upon the testimony of , its finance manager. did not intend to be a lender. It was in the business of selling cars and not making loans to customers. 14.

'
solicited

of consumer loans secured by vehicles and entered into a Dealer Agreement that involved non-recourse financing and profit incentives for both the123

-4-

in order to increase its loan portfolio

that were dependent upon the rate that was charged to the borrower: i.e., the higher the rate, the higher the profit for the bank and the dealer.
15.

24 25 26 27
3Q

aware of the

would represent additional profit for both its self a n d -

and

The buy rate for the loan set a floor. As a result, since

was

lending guidelines, it was aware that anything above the floor

16.

established when a 17.

accept assignments of vehicle loans that do not meet its criteria.

18.

The borrowing relationship between

accepted the plaintiffs credit application.

advised o

Plaintiff dlCI could have gone directly to

vehicle loan at a lower rate than he obtained from

e.
Plaintiff

and plaintiff,

was

f its lending criteria and does not

and obtained a

Based on the testimony of could have obtained a

7 Risk Manager,,Credit
time.
/I/

at 12.5% loan at ] which is consistent with my perception of the market at that

DISCUSSION

20.

Banking Industry Changes: As discussed in its commentary in

1977, the Federal Reserve Board reported that in 1977 that most consumer loans secured by vehicles assigned to banks by dealers were on a recourse basis. This means that if a default occurred, the bank had the option to charge the loan back to the dealer at any time during the life of the loan. The banking industry recourse vehicle loan practice described by the Federal Reserve Board in 1977 was materially different than the non-recourse practice that exists in the banking industry today and in this matter. Non-recourse financing normally means that the bank can not charge a loan back to a dealer if a default occurs after 90 days or 3 payments. This is a very narrow window. 21. Consequently, in non-recourse financing, as it exists today, the

dealer has a very small risk of charge back as compared to recourse financing that existed in 1977. This is especially relevant when compared to the length of contracts (the period that the bank is at risk) which routinely range between 48 and 72 months today versus 36 to 48 months that was common in 1977. 22. Therefore, today the risk for all practical considerations has
-5Declaration of Thomas Tarter

effectively been shifted from the dealer having liability for borrower default to the bank. Today the bank is the real lender versus just being a renter of money to the dealer.

23. Today, dealers are well aware of bank loan guidelines. Technology
has enabled dealers to be aware during the negotiation process, prior to loan consummation of a purchaser1s credit profile. As a result, at the time that a vehicle purchase contract has been written. The dealer has a very good idea that the contract will be purchased and on what terms. Again, the dealer is able to write a contract in a manner that it knows that the contract will be bought, that it will not be liable and that it will be paid an incentive to write the loan in excess of the buy rate in the form of splitting the differential between the contract rate and the buy rate with the bank.

16.

As a result, while an argument could have been made in 1977 that a dealer

was compensated for the risk of loss and remaining liable in recourse loan situations through dealer participation in the splitting of the difference between contract and buy rates involving consumer vehicle loan contracts. It is clear to me that in today's environment that same argument can not be made with respect to non-recourse loans such as the one made to plaintiff in this matter. The dealer participation fee

split appears to me to represent an origination fee paid to the dealer by the bank and additional income to increase the yield on the loan to the bank. 25. The Dealer Agreement: The dealer agreement is created and controlled h e . -solicits

exclusively by a bank. In this matter t potential vehicle purchasers, such as , loan to. -

on the bank's behalf, and then sells the

The consumer vehicle purchaser, however, must fit very but yet which are

specific guidelines created and tightly controlled by

well known by the dealer at the time that the consumer is purchasing the vehicle. In fact, the dealer acts as a brokerlagent for the bank, procuring loans on behalf of the
-6Declaration of Thomas Tarter

bank, and subject to the specification and control of the bank.

26.

provides dealerships, such as, -

with various documents including rate sheets, tiered credit criteria and special promotions. Before providing all of these documents to the dealership, the dealership has to enter into a Dealer Agreement with " . pursuant to agreement with , -

'
and

Agreement, including the fee splitting agreement between the contract and buy rates are not to be disclosed to consumer vehicle purchasers.

27.
Agreement at the time of the-

* I (See Declaration o II I, f to Adjudication, Exh.)-

-had such a Dealer transaction. Thomas Tarter

Further,

the ~ a l e r

and

in Support of Plaintiffs' Opposition

Motion for Summary Judgment andlor Summary Dealer Agreement sets forth some of the over by
w

factual basis of the considerable control that ' e x e r c i s e s motor vehicle purchase transactions that were procured f r o-

Il l
Il l

I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed on January 17, 2003, at Sherman Oaks, California.

peclaration of Thomas Tarter

12.4 Applicability of TILA and HOEPA to Predatory Mortgage Loan

The Andela Consulting Group, Inc.

15250 Ventura Blvd., Suite 610 Sherman Oaks, California 91403
Thomas A. Tarter Managing Director Expert Witness - Banking Consulting - Financial and Management Phone: (818) 380-3102 Fax: (818) 501-5412 E-Mail: ttarter@earthlink.net

August 14,2002

Via Fax and Mail

Re:

a n d , Plaintiffs, vs. Nortwest Loan Center, Inc., Access Mortgage Company Inc., Rainier American Mortgage Company Inc., Patrick Woods, David Keith Woods, Phil1 Nadeau, Flagstar Bank, Chase Manhattan Mortgage Corporation, Redland Insurance Company, Inc., Hartford Fire Insurance Company, Inc., Amwest Surety, Inc., et al, Defendants; Case No.: CS-0 1-0126-WFN.

Dear Mr. McNeil: I have been retained by University Legal Assistance to provide litigation consulting, and if necessary, expert witness testimony at deposition and trial, relative to the business and lending practices of the defendants involved in this matter. In connection with this engagement, I have prepared this report. The opinions expressed in this report are based upon my knowledge and experience developed throughout my more than 30 year career in business and consulting as well as information that has been produced as part of the discovery process in this Matter. I understand that discovery is ongoing. This report is, therefore, subject to amendment, modification and supplementation upon any information, facts, documents or testimony that may be provided to me in the future.

QUALIFICATIONS

I am the Managing Director of the Andela Consulting Group, Inc. ("ACG"), a consulting firm whose services include the providing of research; financial, management and turn around consulting services; board of directorships and expert testimony services on a variety of matters

including consumer lending standards and practices.

I have significant experience in banking, business and consulting inclusive of experience in connection with the matters set forth in this report. I have served as a management consultant, business advisor and on the boards of directors of public, financially troubled and closely held corporations (large and small) including SEC reporting corporations such as First Alliance Mortgage Company.
My experience in the financial institutions industry spans more than 30 years inclusive of experience in connection with the matters set forth in this Declaration. I started my career at Lloyds Bank California, where I was a Vice President in the Corporate Finance and California Divisions; and continued it at the Sanwa Bank of California, as Vice President and the Senior Credit Officer for Southern California; Bank of Los Angeles, as Founding Director, President and Chief Executive Officer; Center National Bank, as Director, President and Chief Executive Officer; First Los Angeles Bank, as Executive Vice President; Western States Bankcard Association, as a director and ACG. I was also director of the Fort Ord Credit Union, advisor to Matadors Community Credit Union and a founder and organizer of Hancock Savings Bank. A copy of my resume is attached hereto as Exhibit A and is incorporated herein by this reference. My work with financial institutions, lenders, ACG and my consulting experience includes (I) consumer credit lending and collection practices; (ii) the development and implementation of consumer loan origination, loan disclosure, loan underwriting, loan approval, loan disbursement and collection policies and procedures; (iii) the establishment of interest rates for consumer loans; and, (iv) the development of guidelines for the purchase and sale of consumer loans. As a prior financial institution officer, senior executive and board of directors member, I have considerable experience in consumer loan related issues such as those involved in this matter. Since 1993, I have advised ACG's clients and served as a litigation consultant regarding the above subject matters.

I have also supervised litigation counsel involved in consumer lending disputes and initiated audit examinations pertaining to suspicious circumstances involving consumer credit disputes and bank practices. I have been appointed to the mediator panel for the Bankruptcy Mediation Program of the United States Bankruptcy Court for the Central District of California and have mediated disputes. In addition, I am a member of the Board of the Los Angeles Bankruptcy Forum.
I have a Master of Business Administration from Santa Clara University and a Bachelor of Science in business from the University of California at Los Angeles.

DOCUMENTS AND DISCUSSIONS

In preparing the Report, I have reviewed numerous documents including but were not limited to the following: Amended Complaint; Instructions to Escrow; Final - Settlement Statement U.S. Department of Housing and Urban Development; Estimated - Settlement Statement U.S. Department of Housing and Urban Development; Note, May, 19,2000; Deed of Trust, dated May 19,2000 and notarized May 24,2000; Assignment of Deed of Trust, notarized May 24,2000; Notice of Assignment, Sale, Or Transfer of Servicing Rights, dated May 24,2000; Norwest Loan Center, Inc. -Notice of new loan servicer - Flagstar Bank; dated May 26,2000; Notice of Right to Cancel, dated May 24,2000; Broker Closing Instructions, signed May 18,2000 [Rainier] and May 24,2000 [signature not legible]; Table Funding Request Form; Truth-In-Lending Disclosure Statement, dated May 19,2000 annual percentage Rate 9.508%; Truth-In-Lending Disclosure Statement morwest Loan Center], preparation date, April 24,2000 annual percentage rate E 8.7 17%; Access Mortgage, Fax dated May 3 1,2000 re $640 credit; Rainier American Mortgage, Rate Lock Agreement/Disclosure Agreement, Lock Date, May 04, 2000, 8.50%; Appraisal Invoice, dated May 05,2000, handwritten note "paid wlcredit card"; Good Faith Estimate, Norwest Loan Center, prepared April 24,2000; Uniform Residential Loan Applications - Georgiana and Sidney Ott; Instructions to Escrow, dated May 19, 2000; Pioneer Title Company, Second Supplemental to Commitment; Norwest Loan Center, Inc., Trust Department Post Closing Checklist. Report of Ronald F. Greenspan

OPINIONS AND CONCLUSIONS

Based upon my review of the aforementioned Documents and my own banking, board, business and consulting experience, I have formulated the following opinions and conclusions: 1. The are consumers, used the funds derived from the refinance their residence

primarily for personal, family or household purposes, and the loan that they received was payable in more than 4 installments. he loan was, therefore, subject to TILA disclosure. 2. 3. T h e loan qualified for HOEPA because the "points and fees" exceeded 8% of the loan amount. In determining the "points and fees" in this matter, I included the following as finance charges: Broker Credit $(640.16) Loan Origination Fee 3,337.00 Processing fee, NW 15.00 Admin Fee 150.00 Commitment Fee 425.00 80.00* Tax Service Underwriting Fee 250.00 Escrow waiver 162.50 Interest 15.14 Closing Fee SEC 350.00** Fed Express 50.00* Wire Fee to Close 50.00* Total $4,924.48 included because either kept andlor were considered to be unreasonable. included because Norwest treated the closing fee as a finance charge and further it appears as if the fee was not a service itemized as being excludable and must be included in the finance charge. No title, services were apparently provided by SEC and Flagstar Bank prepared almost all of the documents involved in the loan.

**

4.

In calculating the total loan amount, I deducted the $700.00 from that the Otts were required to pay at closing because it had the effect to reduce the amount that they financed. I calculated the amount financed to be $60,073.52. This calculation included $379.13 in various amount financed charges including the credit report [$25.00], title policy [$180.00}, reconveyence fee [$50.40] and other miscellaneous fees.

5.

5.

Based upon my review of the documents, it appears to me that HOEPA would apply by using the creditor's own disclosure documents wherein the creditor disclosed an amount financed of $59,393.56 and prepaid finance charges of $5,605.44, it can be seen that the

points and fees exceeded 8% of the total loan amount by $853.96. Alternatively, using my calculations, HOEPA also applied because the total points and fees exceeded 8% of the total loan amount by $1 18.60. 6. 7. TILA disclosures are inaccurate. The normal lender borrower relationship did not exist. Lenders normally do not provide financial advise to a consumer regarding a change in property ownership. The requirement t h a l b e on title is banking and lending industry standards. did not qualify for the loan. It appears that based upon their respective incomes The hich totaled approximately $13 12.001mo that after the $499.79 loan payment that only $8 12.001mo remained for food, utilities, pills, transportation and basic subsistance for two people. One of whom was elderly and the other disabled. The defendants obviously had their eyes shut and their hands out. This loan should never have been made because it appears clear to me that two people would have an extremely difficult time existing on a combined income of only $812.00/mo.

8.