Aurora Loan Services

ConfidentialAurora Loan ServicesInstitutional Risk ManagementA Lehman Brothers Company

FBI Statisticsw SAR’S (Suspicious Activity reports) In 2002, theactual number filed was 5623 and the number in2005 increased to 21,994w Number of case worked by the FBI The number in2003 was 436 and the number in 2005 increased to721w Dollars lost due to Fraud In 2002, the figure was$293 million and in 2005 that figure increased toover $1 billion dollars1

Major Riskw Financial Fraud- Air loans and double sold notes(loans in which there is no collateral), entire unpaidloan amount plus cost charged offw Severe Loan Level Fraud- “Flips”, BuilderBailouts” (loans in which the collateral has beenfalsely inflated)w Various Fraud and Material Misrepresentation-ID theft, foreclosure “scams”, straw buy’s, silentseconds, occupancy, low doc/no doc inflated income,undisclosed debt, title fraud, falsified FICO’s,affinity fraud and so on……..2

Quality Controlw National Client Relations-”know who you are doingbusiness with”w Pre-Funding Fraud Detectionw Special Investigationsw Exclusionary List and Suspicious Activity Reports“SAR”w Default Group-First Pay Default and Early PayDefault Review (2 X 30 in the first 6 months)w Branch Revieww Post Closing3

National Client Relationsw New applicants- brokers and correspondents havebackground research conducted which includescriminal and civil records check.w All annual re-certifications- background check onentity and principalsw Financials are reviewedw Credit bureaus of principals are obtained andreviewed4

Pre-Funding Fraud Detectionw Specific loans selected for revieww Borrower information is sent through system fordetection for “red flags”w Appraisal is sent through system for detection for“red flags”w Borrower “red flags” are addressed at underwritingand cleared prior to closingw Appraisal “red flags” could lead to field review5

Default Groupw Reviews every 1 st payment default and early paymentdefault every month.w Determines the reason for defaultw Conducts re-verifications of employment and depositw Orders review appraisalsw Verifies occupancyw Orders chain of titlew Reviews loans for program adherencew Report to upper management within 60 days6

Hot Spotsw Flips− Southern, OH− Kansas City, KS− NYC, NY− Minneapolis, MN− Atlanta, GA− Washington DCw Combo Platter− Las Vegas, NV− New Jersey− Texas− Colorado− Detroit, MI (Affinity)− Southern Florida(Affinity)9

Tools of the Tradew Autotrack (Choicepoint) individualsw Accurintw Lexis/Nexis- property records (flips) news, criminaland civil recordsw SearchSystems.net- all public record in the worldw Title searches, review schedules of bankruptcyrecords, 10 K filings, etc10

Branch Revieww Review sample of canceled/denied loansw Validate loans prior to funding High Cost Testw Ensure Compliance (right of rescission, TIL etc…)w Fraud Detectionw Clear material issues at time of underwriting ordiscoveryw Expanded audits11

Post Closingw Statistical Samplingw Review Underwriting decisionw Data integrityw Closing documentsw Compliance with TIL, High Cost, and RORw Review for material misrepresentationw Report to upper management within 60 days12