Full opinion text
FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER JED S. RAKOFF, District Judge. Plaintiff Assured Guaranty Municipal Corporation (“Assured”) alleges that defendants Flagstar Bank, FSB; Flagstar Capital Markets Corporation; and Flags-tar ABS, LLC (collectively, “Flagstar”) breached a series of contracts that provided financial guaranty insurance against certain defaults affecting two Flagstar securitizations backed by home equity loans. In particular, Assured alleges that the loans underlying the securities were either materially fraudulent or were the product of material underwriting defects, in breach of Flagstar’s express representations and warranties. Because Flagstar refused to cure the defects or substitute eligible loans, Assured claims that it is entitled to be reimbursed for its payment of insurance claims that arose when many of the underlying loans defaulted. Assured filed its complaint on April 7, 2011. Following discovery and motion practice that eliminated certain claims and remedies and clarified others, see Order, ECF No. 22 (July 7, 2011); Am. Mem., ECF No. 56 (Oct. 27, 2011); Order, ECF No. 84 (Feb. 29, 2012); Mem., ECF No. 100 (Sept. 25, 2012), the Court held a bench trial over twelve days between October 10 and November 12, 2012. The Court received into evidence 130 exhibits, including Flagstar’s voluminous underwriting guidelines, as well as portions of the depositions of Matthew Roslin, Flagstar’s former general counsel; Jean Garrick, Flags-tar’s head of quality control; George Stiehl, a former vice president in FSA’s Residential Mortgage Group; David Beard, a former director of FSA’s Corporate Finance Group; and David Williams, a former managing director in FSA’s Residential Mortgage Group. The Court also heard live testimony from nine witnesses: Russell Brewer, Assured’s Chief Surveillance Officer; Stanley Jursek, Flagstar Bank’s Executive Vice President and Treasurer and the head of Flagstar Capital Markets Corp.; Marni Scott, Flagstar’s Executive Vice President' of Mortgage Credit Operations; Dr. Nelson Lipshutz, Assured’s expert in statistical sampling; Rebecca Walzak, Assured’s expert in mortgage underwriting and origination; Dr. Joseph Masón, Assured’s damages expert; Jeffrey Nielsen, Flagstar’s expert on the design and implementation of underwriting and due diligence reviews; Ann Rutledge, Flagstar’s valuation expert; and John Griggs, Flagstar’s expert in mortgage underwriting and origination. After the trial concluded, the Court received post-trial briefs from the parties on the issue of costs and expenses. BASIC FACTS Based on the evidence presented at trial, the facts stipulated to in the Joint Proposed Pretrial Order (“JPPO”), and the Court’s assessment of the credibility and demeanor of the witnesses and the inferences reasonably to be drawn therefrom and from the evidence as a whole, the Court first makes the following findings of facts that set the stage for the central dispute in this case, the war of experts. Flagstar Bank, a federally chartered savings bank located primarily in Michigan, provides residential mortgage loan origination services to its customers, including the origination of home equity lines of credit (HELOCs) and second-lien mortgages. JPPO ¶¶ A. 4, 7-8. Assured is a financial guaranty insurance company that provides bond insurance for, among other things, residential mortgage backed securities (“RMBS”). Trial Tr. 39:6-12. Flagstar contracted with Assured in 2005 and 2006 to provide insurance on two securitizations of HELOCs, known as the “2005-1” and “2006-2” Trusts. JPPO ¶A. 16. The 2005-1 Trust was collateralized by approximately 10,000 individual' HE-LOC loans, totaling about $600 million, while the 2006-2 Trust was backed by over 5,000 HELOC loans, totaling about $300 million. JPPO 1MIA. 11; Trial Tr. 267:25-268:8; PI. Ex. 76 at 75. All of the loans were either originated by Flagstar through its home lending group or purchased by Flagstar from mortgage loan brokers and correspondents throughout the United States. Either way, Flagstar represented to Assured that all of the loans were, at the time of origination, in compliance with Flagstar’s underwriting guidelines. JPPO 1H1A. 14-15. Investors in such trusts, known as bondholders, receive both monthly interest payments and an eventual return of principal. As a bond insurer, Assured guarantees timely payment of interest and principal to such bondholders, which raises the credit rating on the securitized loans and thus makes them more salable or salable at lower interest rates. Roslin Dep. Tr. 194:12-195:21. Here, Assured’s participation in the 2005-1 and 2006-2 transactions raised the rating of the securitizations from an underlying rating of BBB, which effectively had no market, to a rating of AAA, which allowed Flagstar to sell the securitizations and pay lower interest rates to the bondholders. Trial Tr. 39:9-40:10; Roslin Dep. Tr. 196:4-23. The parties’ agreements relating to the Trusts were memorialized in a set of three, simultaneously-executed contracts: the Sale and Servicing Agreements (“SSAs”), see PI. Ex. 198; Def. Ex. AAI, the Mortgage Loan Purchasing Agreements (“MLPAs”), see PI. Ex. 451; Def. Ex. AAA, and the Insurance and Indemnity Agreements (“I & Is”), see PI. Ex. 90; Def. Ex. AAO, (collectively, the “Transaction Documents”). The relevant terms of the 2005 and 2006 versions of these documents were materially identical to one another and will be so treated herein. See Trial Tr. 51:16, 56:25, 64:7-9. Flagstar served as the sponsor, servicer, depositor, and originator of the loans underlying both Trusts. JPPO ¶ A. 17. After originating the loans, Flagstar Bank sold the loan pools to Flagstar ABS LLC, a subsidiary, through the MLPAs. Trial Tr. 47:24-48:4; PI. Ex. 451. The SSAs describe the sale of the assets to the securitization Trusts and establish Flagstar’s ongoing servicing responsibilities. Trial Tr. 52:1-3; PI. Ex. 198. The I & Is set out the terms upon which Assured would provide insurance for the transactions and establish a direct contractual relationship between Assured and Flagstar Bank. Trial Tr. 60:19-21; PI. Ex. 90. Included in the MLPAs are approximately 75 representations and warranties relating to the loans underlying the pools. See PI. Ex. 451 § 3.02(a). At trial, the parties relied primarily on two such representations as relevant to the dispute at hand: (1) “Each Mortgage Loan was originated in good faith and in accordance with [Flagstar’s] underwriting guidelines”; and (2) “No error, omission, misrepresentation, negligence, fraud or similar occurrence with respect to a Mortgage Loan has taken place on the part of any person, including, without limitation, the Mortgagor, any appraiser, any builder or developer, or any other party involved in the origination of the Mortgage Loan or in the application of any insurance in relation to such Mortgage Loan.” PI. Ex. 451 § 3.02(a)(36), (65). The SSAs incorporated Flagstar’s representations and warranties from the MPLAs. See PI. Ex. 198 § 2.04(a). Although Assured is not a party to the MLPAs or the SSAs, sections 7.08 of the MLPAs and 8.06 of the SSAs designate Assured, as the note insurer, as a third-party beneficiary of those agreements. See PI. Exs. 198 § 8.06; 451 § 7.08. The I & Is also expressly incorporate the representations and warranties made by Flags-tar in the SSAs and MLPAs. See PL Ex. 90 § 2.03(h). Flagstar further represented in the I & Is that “[e]ach of the representations and warranties of [Flagstar] ... contained in the Transaction Documents is true and correct in all material respects and [Flagstar] ... hereby makes each such representation and warranty to, and for the benefit of, [Assured] as if the same were set forth in full herein.” Pl. Ex. 90 § 2.02(h). Flagstar further agreed in the I & Is that as a “Condition Precedent to the Issuance of the Policy,” Flagstar’s “representations and warranties ... in this Agreement shall be true and correct in all material respects as of the Date of Issuance.” Id. at App. A at 42. The SSAs make Flagstar liable for any material breach of the representations and warranties contained in the MLPAs, regardless of whether or not Flagstar knew that “[its] substance ... was inaccurate at the time [it] was made.” See PI. Ex. 198 § 2.04(b). The SSAs further require that if any party to the transactions “discovers a breach of any of the foregoing representations and warranties ... that materially and adversely affects the interests of the Trust, the Indenture Trustee under the Indenture, the Noteholders, or the Note Insurer in the Mortgage Loan, the party discovering the breach shall give prompt notice to the other parties and the Note Insurer.” PI. Ex. 198 § 2.04(c). The SSAs also require that Flagstar “use all reasonable efforts to cure in all material respects any breach ... within 90 days of becoming aware of it.” Id. § 2.04(d). Should Flagstar breach the representations and warranties and fail to cure such a breach, the MLPAs provide that: The sole remedy of ... [Assured] ... against Flagstar for the breach of a representation or warranty with respect to a Mortgage Loan ... is [Flagstar’s] obligation, subject to certain cure periods, to accept a transfer of a Mortgage Loan as to which a breach has occurred and is continuing ... or to substitute an Eligible Substitute Mortgage Loan [for the defective loan]. PL Ex. 451 § 3.02(c). Like the MLPAs, the SSAs specify that “[Assured’s] sole remedy against [Flagstar] for the breach of a representation or warranty with respect to a Mortgage Loan ... is [Flags-tar’s] obligation ... to accept a transfer of a Mortgage Loan as to which a breach has occurred ... or to substitute an Eligible Substitute Mortgage Loan.” Pl. Ex. 198 § 2.04(e). Once each Trust was created, bondholders then purchased shares of the Trust and were entitled to payments of principal and interest from the mortgage payments that flowed into the Trust. The Trusts were “over-collateralized,” meaning that there were more loans in the Trusts (and thus greater payments were intended to flow into the Trusts) than were required to meet the payments of the bondholders, so that the Trusts had some excess funding in the event that some borrowers defaulted on their loans. Trial Tr. 807:9-12. Should this cushion fail, Assured guaranteed payments to the bondholders of both the 2005-1 and 2006-2 Trusts in exchange for receiving a premium from such cash flows as might be generated by the underlying loans. JPPO ¶ A. 16. Flagstar originated the loans underlying these transactions through retail, broker, and correspondent channels. Trial Tr. 871:21-25. Loans originated through the “retail” channel were originated by a Flagstar loan officer. Id. at 872:17-18. Where a real estate broker originated the loan, Flagstar funded the loan prior to closing. Id. at 872:18-20. Loans originated through a “correspondent” were originated by entities, such as credit unions, using their own funds, but even then were subject to Flagstar oversight before being included in the Trust pools. Id. at 872:21-24. As Marni Scott, Flagstar’s Executive Vice President of Mortgage Credit Operations, testified, even when loans were not originated by Flagstar loan officers, Flags-tar conducted due diligence on the brokers and correspondents through which it obtained loans, including site visits and reviews of the entities’ licensing credentials and financial statements. Id. at 874:1-15. Regardless of the source of the loans, Flagstar underwrote all of the loans in the Trusts to its own guidelines. Trial Tr. 873:4-21. Mortgage underwriting is the process of evaluating against guidelines established by a lender the collateral underlying a loan as well as a borrower’s income, assets, and credit. Id. at 300:4-9. Mortgage underwriting guidelines control risk by requiring the collection of documentation to support a borrower’s ability to repay the loan and setting limitations on various factors relevant to a borrower’s risk of default. Id. at 300:11, 306:18-25. According to Scott, Flagstar employed approximately fifty underwriters who underwrote HELOCs at the relevant time. Trial Tr. 877:1-3. Flagstar’s underwriters had an average of eight or nine years’ experience, with a minimum of three years’ experience. Id. at 878:7-13. Flagstar provided its underwriters with training on, inter alia, appraisals, fraud detection, and qualifying income, and provided a number of tools for fraud detection and income verification. Id. at 906:4-908:24; 911:10— 912:6. Within the loan pools for the 2005-1 and 2006-2 Trusts were four different types of loans. The 2006-2 Trust consisted of: 43%, full-documentation loans; 0.2%, alternative-documentation loans, in which the borrower provided supporting documentation, rather than the underwriter seeking verification from a third party; 49%, stated-income/verified-asset loans, in which only the borrower’s assets were subject to full verification; and 8%, stated-income/stated-asset loans (or “other limited documentation” loans), in which only limited verification was made of the borrower’s claimed income and assets. See Trial Tr. 1241:16-1244:12; Def. Ex. AAJ, Annex I-9. The 2005-1 Trust consisted of: 65%, full- or alternative-documentation loans; 34%, stated-income/verified-asset loans, and 0.7%, stated-income/stated-asset loans. See Trial Tr. 1245:1-17; Def. Ex. AAK, Annex 1-8. Flagstar’s underwriting guidelines, PI. Ex. 96, applied differently to these four types of loans, and also were different in different time periods. Trial Tr. 519:13-520:20. However, many of the basic principles of Flagstar’s underwriting guidelines were constant. Flagstar’s guidelines measured a borrower’s capacity to repay a loan by looking at the borrower’s debt-to-income ratio (“DTI”), which it calculated by adding a borrower’s new mortgage payment to the borrower’s already existing recurring debt payments and then dividing that total amount by the borrower’s income. Trial Tr. 307:21-24. Flagstar’s guidelines set the upper limit for approvable DTI at around 40-50% of the borrower’s pretax monthly income. Id. at 308:2^1. In the case of stated-income loans, Flagstar’s guidelines further required the underwriter to determine whether the borrower’s income is reasonable. Id. at 321:17-24. Thus, Flagstar’s product description for HELOC loans provided: Income must be reasonable for the [borrower’s] profession as determined solely by the underwriter. Underwriter will use outside sources to determine reasonable income. One of these sources may be but will not be limited to salary.com. PI. Ex. 96, Doc. No. 5557 at 7. Salary.com is an online salary engine that provides salary figures for individuals in a given position in a particular geographic region. See Trial Tr. 338:12-21. Flagstar’s guidelines also require that, for stated-income loans, the underwriter need not verify the borrower’s claimed income against pay stubs or tax forms, as might be required for a full-documentation loan. Id. at 881:22-882:1. Instead, the underwriter must call each borrower’s employer to obtain a verbal verification of employment (“WOE”) from the borrower’s employer, confirming not the borrower’s income, but that he is in fact employed at that location and in the position stated in the application. Id. at 322:11-19, 882:19-25. Scott testified that Flagstar did not always require that underwriters document in the loan file all the verifications conducted in reviewing a loan application, including WOE forms. Trial Tr. 918:19-919:5. Nor were underwriters required to reverify a borrower’s income where the income was clearly reasonable for the stated employment. Id. at 935:9-17. However, Scott acknowledged that any documentation that the guidelines required an underwriter to obtain should have been kept in the loan file. Id. at 939:5-11. Flagstar’s guidelines evaluated a borrower’s credit and payment history by looking at the borrower’s Fair Isaac Corporation (“FICO”) score, which provides a numerical summary of the credit history information on a borrower’s credit report. Trial Tr. 308:13-17. Beyond the borrower’s credit history, a credit report also provides information about the borrower’s address, employment history, and any recent credit inquiries conducted by third parties. Id. at 353:7-13. Flagstar’s guidelines required a borrower to have a credit score in the range of 620-700 to qualify for a HELOC loan. Id. at 308:19. For borrowers with scores in the range of 620-660, Scott testified that Flagstar’s guidelines required that the combined loan-to-value ratio on the mortgaged property, discussed below, be lower than would be required of borrowers in the 660-700 range. Id. at 869:15-21. Flagstar’s guidelines provided for the evaluation of the value of the mortgaged collateral in two steps: First, the guidelines required that the value of the property be determined through an appraisal, except where state law allowed certain documentation to be used instead to determine the value of the property. Trial Tr. 309:5-9; 382:17-24. In both Flagstar’s original underwriting of the loans and the re-underwriting undertaken in connection with this litigation (see below), the underwriters used Automated Valuation Models (“AVMs”): programs that provide real estate property valuations using a mathematical model and data on property values in a given geographic area. Flagstar also employed field appraisal reviews from outside appraisers, which were reviewed by Flagstar’s staff appraisers and were verified against an AVM. Id. at 909:7-910:7. Second, Flagstar’s guidelines determined the riskiness of the loan by looking at, with respect to HELOCs, the combined loan-to-value ratio (“CLTV”), calculated by adding the amounts of the first and second lien and comparing that total to the value of the collateral. Trial Tr. 309:1-4. For a loan to be eligible to be securitized by the government-sponsored entities that guarantee mortgages, notably Fannie Mae and Freddie Mae, loan-to value ratio was generally required to be no more than 80%. Roslin Dep. Tr. 26:3-8. However, Flags-tar’s guidelines permitted a higher CLTV for the HELOCs that were included in the 2005-1 and 2006-2 Trusts. See id. at 27:2-28:10. Flagstar’s guidelines also required that borrowers have cash reserves of sufficient amount so that, in the case of unforeseen circumstances, the borrowers would be able to cover their monthly mortgage payments for a certain number of months after closing. Trial Tr. 309:15-16, 324:24-325:4. Finally, Flagstar’s guidelines allowed for the consideration of compensating factors: that is, where there was evidence in a loan file that the borrower had certain particularly creditworthy characteristics, such as substantial equity in the property (and thus a low CLTV ratio), a particularly high FICO score, or extensive liquid assets, a failure to meet Flagstar’s guidelines on another factor might be forgiven. Trial Tr. 916:10-917:2. Flagstar’s line underwriters had discretion to consider compensating factors to a certain extent, but substantial exceptions required the approval of a manager or senior leader. Id. at 917:3-21. At trial, Assured introduced the deposition testimony of Jean Garrick, the head of quality control at Flagstar, who testified that in 2005-2007 Flagstar hired Wetzel Trott, Inc., a third-party auditor, to review samples of Flagstar’s approved mortgage loan files for, inter alia, compliance with Flagstar’s underwriting guidelines. Garrick Dep. Tr. 9:21-25, 20:3-5. Although it is unclear how many of the loans that Wetzel Trott reviewed were HELOC loans, memoranda from Garrick and others indicate that Wetzel Trott concluded that a fair number of the loan files reviewed had “significant findings” (a euphemism for significant problems). Id. at 59:11-20; see also PI. Ex. 132 (concluding that “[o]f the 1,209 Conforming, HELOCs-Seconds and SISA loans” reviewed from the third quarter of 2006, “there were 75 loans that had a significant finding for a total of 6.2%,” including 34 loans with underwriting-related significant findings); PI. Ex. 133 (concluding that 25 of “the 762 Conforming, HELOCs-Seconds and SISA loans” reviewed from the fourth quarter of 2006 contained significant findings related to underwriting). Stanley Jursek, Flagstar Bank’s Executive Vice President and Treasurer and the head of Flagstar Capital Markets Corp., testified at trial that Flagstar’s core business is “agency” mortgage loan origination, i.e., underwriting mortgages that conform to the guidelines set forth by Fannie Mae and Freddie Mac. Trial Tr. 800:11-12, 803:2-15. The 2005-1 Trust was Flags-tar’s first non-agency securitization, and so Flagstar brought in JPMorgan Securities to advise them on the transaction. Id. at 805:24-806:9. Jursek also testified that Flagstar deemed loans inappropriate for securitization if they had a history of delinquency or were not underwritten using Flagstar’s automated underwriting system. Id. at 821:23-822:5. Assured, for its part, analyzed each of the Trusts before deciding to insure the securitizations to determine what risks Assured might face. Trial Tr. 70:23-25. Assured evaluated Flagstar’s lending and servicing operations and engaged in a due diligence review of the loans underlying each transaction. Assured’s operational review included on-site visits and meetings with Flagstar senior management responsible for loan origination and servicing, in order to assess the quality of Flagstar’s controls and thus how confident Assured should be in its loss predictions. Id. at 125:17-25,127:1-4,128:1-5. Assured’s due diligence process consisted of both a file review of a sample of the loans underlying each pool and a review of each pool’s loan data tape, which lists key data points about each loan to be included in the pool (e.g., borrower name, address, income, assets and credit score, collateral value, LTV, and DTI ratios). Trial Tr. 823:13-824:3. George Stiehl, former-Vice President in FSA’s Residential Mortgage Group (the unit responsible for RMBS at the time), testified at his deposition that Assured engaged in the due diligence process in order to be able to predict and plan for expected losses on the two transactions. Stiehl Dep. Tr. 12:10,15:11, 109:10-13. However, even after conducting its diligence review, Assured insisted on obtaining, and did obtain, the contractual representations and warranties from Flagstar. As Russell Brewer, Assured’s Chief Surveillance Officer and one of the members of the Management Review Committee that approved Assured’s participation in the Flagstar transactions, testified, Assured would not have insured the securitizations had it not received the representations and warranties in the Transaction Documents. Trial Tr. 63:19-24. This was material to Assured because, in ter alia, Assured would have been unable to appropriately price the transaction’s risk level if it could not rely on the quality of the underwriting of the underlying loans. Id. at 45:2-10, 49:21-25, 51:4-7. Put another way, Assured’s due diligence review was limited in important respects. It consisted of selecting samples of the loans to be included in the transactions, which were then re-underwritten to Flagstar’s underwriting guidelines and graded to Assured’s internal guidelines. Stiehl Dep. Tr. 64:13, 68:6,172:16-22. The Clayton Group (“Clayton”), a third-party due diligence provider, performed the loan file due diligence review on the adverse and random samples selected from the 2005-1 loan pool, and the Bohan Group (“Bohan”), another third-party provider, performed the loan file review on the random sample selected from the 2006-2 pool. Trial Tr. 71:1-7, 77:23-25. The due diligence reviews did not look for evidence of fraud, nor did Clayton and Bohan utilize any third-party fraud detection tools, and Clayton and Bohan were only expected to flag issues if something in the loan files appeared “ridiculous.” Trial Tr. 224:10-13, 1108:17-21; Stiehl Dep. Tr. 77:23-24; see also Def. Ex. BAN ¶ 59 & tbl. 4 (citing no fraud-related findings). In comparing the loan files against Flagstar’s guidelines, Clayton and Bohan graded the loans according to a coding system: loans were classified as Event Level 1, Event Level 2, or Event Level 3, with Event Level 3 being the most problematic. See PI. Ex. 99 at 3 (defining Event Levels). The Event Level 1 classification covered loans that met the stated underwriting criteria and were in compliance with all federal and local lending laws. Id. Loans classified as Event Level 2 presented an exception to the underwriting guidelines, but the reviewer identified adequate compensating factors to justify the exception, making it immaterial. Id. Loans coded as Event Level 3, effectively those that were deemed to be materially noncompliant, see Trial Tr. 1037:1-8, presented one of four issues: the loan failed to meet Flagstar’s guidelines, and acceptable compensating factors were not present; the property was unacceptable; the loan was not made in compliance with federal and local lending requirements; or the facts and circumstances of the loan would lead the underwriter to believe the borrower’s situation would not improve with the loan. PL Ex. 99 at 3. Over the course of their reviews, Clayton and Bohan engaged in iterative processes with Flagstar and Assured, in which they were able to seek additional documentation and address compensating factors within the loan files. See Stiehl Dep. Tr. 96:4-16. This “clearing” process affected the grades given to the loans in the samples, as the due diligence providers were able to clarify issues with Flagstar and obtain documentation that might not have been located in the HELOC loan file (e.g., documentation was located in the file for a first-lien mortgage when Flagstar granted the borrower a first-lien and a HELOC loan contemporaneously). See Trial Tr. 1035:15-1036:8. By this process, nearly all of the loans originally coded as Event Level 3 were cleared of material issues. See id. at 1032:7-1033:2; 1035:19-1036:8. After the due diligence reviews concluded, Assured’s Residential Mortgage Group prepared executive summaries for each transaction and its Management Review Committee approved the transactions based on those summaries. Trial Tr. 74:20-75:17; Pl. Exs. 99, 100. The executive summary for the 2005-1 Trust reported that “[o]f the 125 loans that were reviewed, 0 loans were coded as Event Level 3 for [a] reason other than the TILA violation [a regulatory violation of no relevance to this case]. Clayton is in the process of clearing credit and compliance exceptions.” PI. Ex. 99 at 3. A related memorandum on Clayton’s loan file due diligence reported that “[t]he file review of the Original Random Sample show these loans to be excellent credit.” Id. (Mem. dated Nov. 21, 2005 at 1). Similarly, the executive summary for the 2006-2 Trust reported that “[o]f the 250 loans that were reviewed, 6 were coded as Event Level 3 due to trailing document and [right of rescission] issues. These loans are in the process of being cleared. It is Flagstar’s belief that all of the loans will be cleared prior to the closing of the transaction.” PI. Ex. 100 at 3. In grading the loans against Assured’s internal guidelines, Clayton and Bohan scored the sample of loans on credit, ability to pay, and collateral quality. Trial Tr. 129:1-12. The credit grade was based on reported delinquencies in a borrower’s credit report; ability to pay, on the borrower’s DTI ratio and liquid assets; and collateral, on the property’s LTV ratio and the kind of occupancy of the property. Stiehl Dep. Tr. 72:24-74:6. The Residential Mortgage Group’s executive summaries for the two securitized pools reported grades for both random samples of “A+” for credit quality, “A — ” for ability to pay, and “C” for collateral. PI. Exs. 99 at 3; 100 at 2; Trial Tr. 156:16-23, 181:18-182:10. Brewer testified at trial that the collateral underlying the loans was given the grade of “C” because HELOCs tend to have high CLTV ratios as second-lien products. Trial Tr. 159:9-15. In the loan tape reviews, Clayton and Bohan verified the integrity of the tape by checking the data reported on the loan tape against the information in the loan files included in the due diligence re-underwriting sample. Trial Tr. 123:1-124:6. Assured then used the data from the loan tape and the results of the due diligence review to model its expected losses on the transactions and determine thereby whether the transactions would be appropriate for Assured to insure.' Stiehl Dep. Tr. 12:17-13:13. In this case, Assured entered the data into a few different models that looked at different loan characteristics and decided to average the outputs of those' models, deriving an average expected loss rate of around four percent. See id. at 12:17-13:13, 124:6-10; Beard Dep. Tr. 238:13-20; Williams Dep. Tr. 226:25. At the time of approving the transactions, Assured also understood that there were a variety of additional risk factors that could affect the performance of the securitizations. For example, Assured’s Management Review Committee discussed the risk of a real estate “bubble,” which, if it burst, could mean that housing prices might drop in the future. Trial Tr. 116:18; Def. Ex. AYQ. Second, Assured discussed risks associated with the fact that the underlying loans were ten-year “bullet loans,” i.e., loans that were interest-only for ten years, at which point the entirety of the principal would become due, a risk that would occur at the same time for many of the loans in these transactions. Trial Tr. 44:2-9; see also PI. Exs. 99 at 2; 100 at 1. Third, Assured recognized that HELOCs, as second-lien products, are subordinated to first-lien mortgages; should a homeowner default as property values fell, a holder of a second lien would likely be unable to recover on any of the collateral underlying the mortgage, as the first lien would have to be satisfied in its entirety before a second lienor could receive any value from the collateral. Trial Tr. 159:9-15. Finally, Brewer testified that Assured generally looks at the geographic concentration of borrowers as a risk factor for a securitization, since regional economic downturns may have a disproportionate effect on the performance of the security. Trial Tr. 163:12-164:14. In the 2005-1 Trust, over fifty percent of the loans were on properties located in California, Michigan, or Florida, although it is contested whether this qualifies as geographically concentrated. Id. at 163:20-21,199:25. Assured has paid about $14.7 million in claims arising from the 2005-1 Trust and approximately $75.4 million in claims arising from the 2006-2 Trust. PI. Exs. 458 at 4. 459 at 5. At this point, Flagstar has reimbursed Assured only for about $950,000 of the claims Assured paid to bondholders, see Trial Tr. 446:20-447:24, and Assured may be responsible for additional claim payments in the future. Id. at 43:19-25. By two letters dated January 13, 2009 and two letters dated July 9, 2010, Assured made formal repurchase demands on both the 2005-1 and 2006-2 transactions. JPPO HA. 34-35; PL Exs. 464, 465. To date, however, Flagstar has repurchased only five loans from the 2005-1 Trust, not in response to a particular demand, and two loans from the 2006-2 Trust after discovering evidence of fraud in those loans. Trial Tr. 928:12-929:12, 930:2; see also Pl. Ex. 407 (listing Flagstar’s repurchases). THE WAR OF EXPERTS Given the aforementioned facts, this case essentially reduces to resolution of conflicting expert testimony. The expert testimony is summarized as follows: Dr. Nelson Lipshutz, Assured’s expert on statistical sampling, created a random sample of 400 loans from each of the two securitization pools, for a total of 800 loans. Trial Tr. 253:8-15. In determining the size of the random samples for the two Trusts, Dr. Lipshutz applied a formula that took into account the characteristics of the overall loan pools, the purpose for which the sample would be used, and the objective that “the estimate derived from the sample has a 95% chance of being within ... plus or minus five percentage points of the actual population proportion,” a standard measure for a high level of statistical confidence. Id. at 259:16-260:2. In particular, Dr. Lipshutz designed the samples with the understanding that they would be used “to make a binary decision on each loan,” that is, whether the loan file conforms to the representations and warranties made in the Transaction Documents, or not. Id. at 257:8-12. Here, the chosen sample size of 400 loans per loan pool was slightly larger than the minimum number of loans that Dr. Lipshutz determined would be necessary to obtain a representative sample for each pool — 371 loans for the 2005-1 pool, and 358 for the 2006-2 pool. Trial Tr. 254:3-19. Dr. Lipshutz then confirmed the representativeness of the samples by testing the distribution in the sample of seven relevant variables (provided by Rebecca Walzak, Assured’s mortgage underwriting and origination expert) against their distribution in the overall populations to ensure that there were no statistically significant differences in distribution. Id. at 260:11-21, 275:21. He did not, however, test the representativeness of the sample as to loan payment status (i.e., whether the borrower was delinquent on payments) and original principal balance of the loans. See id. at 261:2-8. Dr. Lipshutz concluded that the random samples are representative of the total loan populations in both the 2005-1 and 2006-2 loan pools. See id. at 261:22-262:6. Assured’s mortgage origination and underwriting expert, Rebecca Walzak, reviewed the loan files for the 800 loans in Dr. Lipshutz’s random sample in order “to determine if the loans in these securities complied with the representations and warranties” in the Transaction Documents. Trial Tr. 304:9-22, 305:7-306:4. Walzak testified that she was instructed by plaintiffs counsel that the standard for considering a loan to be “defective” was whether, at the time the loan closed, there was a breach of the contractual representations and warranties — specifically, whether there was either a failure to follow Flags-tar’s underwriting guidelines or fraud or misrepresentation in connection with the loan — that materially increased the risk of loss to Assured. Id. at 305:13-15. Walzak concluded that 606 of the 800 loans in the sample contained material breaches of Flagstar’s representations and warranties. Although Walzak originally found four additional loans from the 2006-2 transaction to be materially defective, in reviewing the loans for trial she determined that, while these loans breached the representations and warranties in the Transaction Documents, those breaches were not severe enough to deem the loans materially defective. See id. at 315:7-10. As broken down between the two transactions, Walzak found that 340 loans in the 2005-1 sample (85%) were defective, and 266 (originally 270) loans in the 2006-2 sample (66.5%) were defective. Id. at 315:2-4. Walzak also found evidence of fraud in 14% of the loans in the 2005-1 sample and 19.75% of the loans in the 2006-2 sample. Id. at 316:22-24, 533:5-11. Walzak created summary spreadsheets for each of the 800 loans in the sample, which presented her core findings on each loan. See PL Exs. 189 (2005-1 analysis); 190 (2006-2 analysis). The spreadsheets include 106 yes/no questions in nine different areas of underwriting, some of which addressed compliance with Flagstar’s guidelines, while others addressed the execution of the loan underwriting process itself. Trial Tr. 315:19-22, 392:22-393:2. While some of the questions could be answered on a yes/no basis — e.g., whether required documentation was included in the file — others required a determination of reasonableness — e.g., whether a borrower’s stated income was reasonable for his position. Trial Tr. 395:1-9. The final three questions were designed to be summary questions. Question U-124 read: “Was all the documentation and/or explanations required by the underwriter obtained?” See PL Ex. 189. Question U-125 read: “Did the loan comply with the appropriate underwriting guidelines?” Id. The final question, U-126, was awkwardly worded. It asked: “Did the identified defects in the loan file not materially and adversely affect Assured’s interests in the loan?” Id.; Trial Tr. 498:16-19. Walzak testified that the question was worded for counting convenience, so that here, as elsewhere, a “No” answer corresponded to an underwriting problem. Trial Tr. 498:20-23, 553:17-18. Walzak further testified that, in any case, she was the one who ultimately made the materiality- decision based on all the findings she received. Id. at 554:5, 557:24-558:1. As to Walzak’s process, she was assisted in her review of the loan samples by two separate groups: a team of eight experienced underwriters and a supervising underwriter, who conducted the initial review of the 800 loan files, and third-party consultants, Digital Risk, LLC, and Clear Capital, Inc., which looked for fraud and misrepresentations in the loan files and appraisals. Trial Tr. 306:7-11, 379:11. As for the underwriting team, Walzak instructed the underwriters to review the loan files (provided by Flagstar) to determine if they complied with Flagstar’s underwriting guidelines, which Walzak provided to them. Id. at 306:16-17; 518:14-15. The reviewers then re-underwrote each loan to the guidelines, filled out the 106-question spreadsheet, and entered comments on their most significant findings before sending the results of their review and the loan file back to Walzak. Id. at 310:10-12, 488:9; see also Pl. Exs. 189, 190. The reviewers returned their findings and the loan files to Walzak on a rolling basis as they completed batches of loans. Id. at 488:12-20. The underwriting review protocol Walzak provided to her reviewers described the standards to be applied in a half-page paragraph. See Def. Ex. AZP. At the outset, Walzak conducted a one-hour conference call, in which she and her underwriting team discussed the instructions— which covered multiple sets of underwriting guidelines and the 106 individual questions on the spreadsheet — and she answered any initial questions from the reviewers. Trial Tr. 523:1-8. The underwriting team was spread throughout the country, and Walzak primarily communicated with the reviewers only indirectly, through emails with the supervising underwriter, although she held weekly conference calls with the underwriters. Id. at 516:18, 517:23, 591:4-23. As discussed above, Flagstar’s underwriting guidelines allowed some discretion to the individual underwriter to determine whether certain borrower characteristics fell within the realm of “reasonableness.” In order to offer additional guidance to her underwriting team, Walzak provided them the results of a survey she had conducted in 2007, which polled twenty experienced underwriters to determine whether there were common industry standards as to what is considered reasonable with respect to a variety of underwriting factors. Trial Tr. 407:12-14, 505:3. The loan file review occurred over a four-week period in October and November 2011. Trial Tr. 583:19-584:10. Walzak testified that early in the process, she reviewed ten to fifteen percent of the loan files in their entirety to ensure that the underwriting team had a consistent understanding of what the guidelines required, so that she could address any disparities among reviewers’ understanding of the questions. Id. at 489:2-9. When, as the reviewers’ analyses came back, an underwriter indicated that there were no material issues in the file, Walzak put that file aside and conducted no further review of the loan. Id. at 310:21-25. For the loans in which a problem was indicated, Walzak made the ultimate determination of whether a loan was materially defective. Id. at 310:21-25. Although Walzak’s initial testimony as to the extent of this review was somewhat unclear, see id. at 493:4-7, the Court credits her ultimate testimony that she in fact reviewed each loan file in its entirety, see id. at 401:9, albeit within the confines of the four-week window in which her review needed to be conducted. As for the fraud review, Walzak relied on Digital Risk, a third-party vendor, to look for evidence of borrower fraud or misrepresentations, especially as to borrower income, debts, and occupancy status. Trial Tr. 306:10-11. Digital Risk reviewed the loans for fraud using public records, including DMV records and bankruptcy filings, online salary engines likesalary.com and payscale.com, the Work Number (an employment verification database), and information from the U.S. Department of Labor’s Bureau of Labor Statistics. Id. at 306:10-17. When Digital Risk discovered information that appeared inconsistent with that reported in the loan files, Walzak then examined the information personally to determine whether there was a significant enough discrepancy to find the loan defective. Id. at 311:24-312:2. Digital Risk in turn subcontracted to another third-party vendor, Clear Capital, to review the appropriateness of the appraisal values of the subject properties. Trial Tr. 379:11. Clear Capital used its proprietary AVM (Automated Valuation Model) to compare the subject property to similar properties in the same neighborhood (“comps”) that sold within a year of the subject property, in order to determine whether the value Flagstar assigned to the subject property was reasonable. Id. at 327:1-7, 381:8-11. Clear Capital worked solely through Digital Risk, providing their new appraisal results to Digital Risk directly, and Walzak never spoke directly with anyone at Clear Capital about their work on this assignment. Id. at 379:11-380:9. Walzak’s overall findings were as follows: first, 86 borrowers had undisclosed debts that were not reflected in the loan file or were not included in the Flagstar underwriter’s calculation of DTI, and which, when factored in, contributed to a DTI above the limit allowed by Flagstar’s guidelines. Trial Tr. 321:6-15. Walzak included in her findings undisclosed loans that closed within 30-60 days after the closing of the subject loan, which would have been discoverable by the original Flagstar underwriter through inquiries on the borrower’s credit report. Id. at 677:5-7. Walzak claimed that the Flagstar guidelines required a letter of explanation from the borrower to address such inquiries, id. at 314:10-16, although Marni Scott, Flagstar’s head of underwriting, testified that Flagstar’s guidelines did not require letters of explanation for HELOCs at the time that the loans in the securitizations were underwritten, nor did Flagstar require its underwriters to check for debts obtained after closing. Id. at 915:6, 916:4. Walzak separately counted 236 loan files in which there were unexplained recent credit inquiries on the borrower’s credit report. Id. at 323:22-324:11. Walzak found 131 instances of unreasonable borrower income as claimed in stated-income loans. Trial Tr. 322:4-10. To make this determination, Walzak instructed her reviewers to use an online salary engine, such as salary.com, salaryexpert.com, or payscale.com, to determine the range of income a borrower could be expected to make in his stated position and geographic area. Id. at 338:14-21. In order to give the benefit of the doubt to Flagstar, Walzak instructed her reviewers to assume that the borrower was in the top ten percent of earners in his position, and thus had them compare the borrower’s stated income against the ninetieth percentile reported for that area. Id. at 350:9-11. If the stated income exceeded the ninetieth percentile, Walzak treated the stated income as unreasonable. Walzak also had her reviewers use data provided by the U.S. Department of Labor’s Bureau of Labor Statistics when possible. Id. at 567:6-11. Walzak and later witnesses explained that, although online salary engines include information on a wider range of positions, they do not use historical data and thus risk understating 2004-2006 incomes given the economic decline of the intervening years, while the Bureau of Labor Statistics includes such historical information. Id. at 567:6-11. Walzak admitted that salary engines were used in the majority of cases, id. at 603:22, but testified that potentially higher salaries in 2004-2006 were not an issue because the discrepancies between the borrowers’ reported incomes and the reported ninetieth percentile were so large that it was apparent that the borrowers had inflated their income. Id. at 567:9-22. However, where Walzak was able to obtain information from the borrower’s employer or other documentation regarding the borrower’s actual salary, she made a finding of borrower fraud (an automatic breach of the representations and warranties), which occurred in 10 instances. Id. at 606:1-607:1. Walzak also counted 208 instances in which the loan files were missing a WOE form, and assumed, in the absence of any evidence to the contrary, that no such verification of employment occurred. Id. at 323:6-7. Where there was a material variance between a borrower’s income as stated in his loan application and the ninetieth percentile as reported by the salary engine, Walzak instructed the loan reviewers to recalculate the borrower’s DTI ratio. Id. at 604:16-18. Undisclosed debts, unreasonable stated income and revised DTI ratios exceeding Flagstar’s guidelines were treated as separate violations of Flagstar’s underwriting guidelines. Id. at 606:1-3. Walzak found 125 loans in which DTI was miscalculated (and in which her revised calculation exceeded Flagstar’s guidelines) based on a misstated income, undisclosed debt, or simply an error in the original calculation. Id. at 325:16-326:10. Based on the information provided by Clear Capital, Walzak determined that Flagstar’s appraisal underlying the stated value of the property was flawed for 24 loans. Trial Tr. 326:23-327:17. Upon revaluing the property, Walzak also recalculated the CLTV ratio. In 18 instances, the adjusted CLTV exceeded the guidelines limit for the relevant loan. Id. at 326:13-18. Walzak also determined that there were 17 instances in which the borrower misrepresented his occupancy of the property. Trial Tr. 328:15-16. A borrower who is taking a loan on her primary residence is regarded as presenting the least risk, as borrowers tend to protect their homes from foreclosure even under stress. Id. at 328:4-8. A second home, generally a vacation property, is riskier than a primary home from the lender’s standpoint, but it is less risky than an investment property, in which the borrower has no stake other than his investment. Id. at 327:20-328:16. Walzak found this to be a significant issue where the borrower’s actual use for the property (usually, as an investment property) indicated that the loan was riskier than Flagstar initially determined based on the borrower’s misrepresentation (usually, as a primary residence). See id. at 328:11-14. Finally, Walzak counted 49 instances in which the borrowers had insufficient cash reserves to meet Flagstar’s requirements. Trial Tr. 324:22-325:12. Walzak opined more broadly that Flags-tar’s underwriting process was uncontrolled and inconsistent, and the loans seemed “as if they were rubber-stamped just to get them through the process.” Trial Tr. 316:13-18. Walzak found that the Flagstar underwriters failed to address “red flags” and indicia of fraud or inconsistencies in 178 loan files, id. at 329:20-330:8; miscalculated the borrower’s income in 104 instances, id. at 331:12; failed to include all debts in the DTI calculation 70 times, id. at 331:14-20; and failed to include in the file required documentation, including asset documentation and signed loan application forms, 179 times, id. 331:22-332:4. Although the process-related issues that Walzak identified did not necessarily indicate that a loan was defective, Walzak suggested that such issues spoke to the pervasiveness of the underwriting defects in the loan pools. See id. at 332:7-16. At trial, Flagstar presented its own underwriting expert, John Griggs, who testified to his conclusions about the validity of Walzak’s loan-level allegations. Trial Tr. 1150:3-5. Griggs did not re-underwrite the loans, but rather reviewed Walzak’s determinations for both the validity of the claims and the materiality of the issues identified. Id. at 1150:7-11. Of the 606 loans identified by Walzak as defective, Griggs found that 484 had been repaid in full or were current in their payment status as of October 31, 2011, 2011 WL 5335566. Id. at 1151:25-1152:5. Since Assured seeks damages only as to loans that have defaulted or become delinquent — it is only on these loans that Assured has had to pay its insurance — -Griggs therefore focused the rest of his analysis on the remaining 126 loans in Walzak’s sample that were either in default or delinquent and that she found were defective in one or more of the ways previously discussed. Id. at 1163:1-2. Griggs opined that Walzak’s findings of material breach were supported for only three of the 126 loans, and, more generally, that her findings were without basis or identified only non-material defects. See id. at 1217:12-22. In structuring his review, Griggs hired a team of six underwriters and one manager, who reviewed the loan files from the Washington, D.C. offices of Navigant Consulting, Inc., a consulting firm hired by Flagstar in this case. Trial Tr. 1164:1-4, 1167:8-11. Relying on the loan files, servicing records, Flagstar’s underwriting guidelines, and Walzak’s work papers, Griggs’s team of underwriters evaluated Walzak’s 1280 allegations for the 126 loans to determine whether each allegation was accurate. Id. at 1165:15-22. The underwriters then created a summary for each loan with the results of the review on an allegation-by-allegation basis. See id. at 1165:24-1166:2; Def. Ex. BBD 1-126. Griggs himself reviewed the 126 summaries and examined a sample of approximately a dozen loan files in full. Trial Tr. 1265:8. Griggs scored each allegation within each loan, and then each loan was assigned a category corresponding to the most adverse rating received on any individual allegation for that loan. Trial Tr. 1169:7-1171:2, 1177:18-22. A score of 1 indicated that Walzak failed to establish an issue; in essence, Griggs judged that Walzak got the allegation wrong. A total of thirteen loans of the 126 reviewed received a highest allegation score of 1, four from the 2005-1 sample and nine in the 2006-2 sample. Id. at 1269:13-21. Examples cited by Griggs included: a loan as to which Walzak alleged that the borrower’s claimed assets were not supported, but documentation of those assets existed in the loan file, id. at 1186:1-3; a loan as to which Walzak alleged that there was no WOE form in the file, when no form was required by the guidelines because the borrower lived on social security and pension income, id. at 1186:13-18, 1216:10-13; and a loan as to which Walzak claimed that the income was unreasonable in comparison to the ninetieth percentile on salary.com, when other information in the file, such as credit lines and payment history, indicated that the claimed income might be reasonable, id. at 1187:23-1188:5. Allegations scored as a 2 were those in which Walzak correctly identified an issue, but that issue was either curable or was not material. Griggs classified a total of 67 loans (28 in the 2005-1 sample and 39 in the 2006-2 sample) as having a score of 2. Trial Tr. 1268:22-1269:2. Griggs’s findings of curable or non-material issues related primarily to two issues: First, Griggs treated as curable any allegations that required documentation was missing from the loan file, but for which the paperwork was later provided by Flagstar. Id. at 1214:21-22. Second, Griggs treated as not material allegations that the borrower had significantly misrepresented his income if the borrower successfully made payments on the loan for three years. Id. at 1304:2-15. However, Griggs acknowledged that if he removed this repayment filter, then a finding that a borrower had significantly misrepresented his income would rise to the level of a 3. Id. at 1307:9-16. Allegations rated 3 were deemed to be material deficiencies. Trial Tr. 1170:5-7. As mentioned above, Griggs determined that three loans were materially deficient, and he recommended their repurchased to Flagstar. Id. at 1246:2-16. Of these, two loans had undisclosed debts and therefore should not have qualified for a loan. Id. at 1246:18-21. In the third, a husband and wife had agreed to separate their debts upon divorce, in effect agreeing to dis-obligate the other from that debt, which is legally ineffective. Id. at 1247:1-13. Griggs created three additional categories. Over half of Walzak’s allegations were graded “D” for duplicative or derivative findings. Trial Tr. 1178:7-9. Griggs graded an allegation as a D when a “no” answer to one question necessarily resulted in a “no” to a similar question, and he always treated “no” answers to summary questions U-125 and U-126 as duplicative. Id. at 1170:8-413, 1189:4-7. Griggs graded allegations “NC” when he or his reviewers did not understand a question or did not know why an allegation was being made, and found 30 such allegations to be unclear. Id. at 1169:22-23. He further commented that only 206 comments on Walzak’s spreadsheets supported, clarified, or even related to the allegations in the preceding 106 questions. Id. at 1167:1-3, 1192:11-13. Finally, Griggs graded allegations “NR,” or not rated, when he deemed the loans as to which the allegations were made to be “life event” loans. According to Griggs, “life event” loan are those loans for which, from reviewing the servicing records, he or his reviewers found evidence that a life event unrelated to any underwriting deficiencies significantly changed the borrower’s circumstances, such as divorce, unexpected medical expenses, or loss of income. Id. at 1178:17-24, 1179:1-3. Once Griggs concluded that a loan was a life event loan, he did not evaluate the validity of any of Walzak’s allegations with respect to that loan. Id. at 1190:24-25. In total, Griggs determined that 43 of the 126 loans that he reviewed were life event loans, 12 in the 2005-1 sample and 31 in the 2006-2' sample. Id. at 1266:20-24. Griggs also criticized Walzak’s decisions more broadly. Griggs found that Walzak’s duplicative questions caused her to overstate the number of allegations on each loan, and further opined that Walzak alleged violations of Flagstar’s guidelines that were technically correct but were of no consequence to the potential risk of loss for that loan. Trial Tr. 1218:18-22, 1223:19-24. Griggs disapproved of what he saw as Walzak looking at each question in her spreadsheet as an independent event, thereby failing to take compensating factors into account in any of the comments he reviewed, id. at 1158:1-5, 1236:7-9, although, when pressed on cross-examination, Griggs acknowledged that Walzak’s questions explicitly referenced compensating factors (specifically, questions U-105 and U-lll). Id. at 1340:7-25. Finally, Griggs was critical of Walzak’s fraud and misrepresentation claims because they were based on information obtained from online salary engines like payscale.com and salary.com, AVMs, and Accurint, all of which he considered to be inherently unreliable. Id. at 1226:3-25, 1230:12-23, 1235:18-20. As to the salary engines specifically, Griggs testified that the data on which the numbers are based are incomplete, as they tend to contain only that information which companies choose to provide, and they contain no historical information. See id. at 1187:7-19. By contrast, Griggs concluded that he found nothing unusual about thé quality of the loans he reviewed, and his review indicated that Flagstar’s underwriting process was not uncontrolled, as Walzak testified. Id. at 1259:13-19. To the extent that Griggs opined that Walzak attempted to find as many allegations as possible without regard to materiality, see Trial Tr. 1219:14-19, 1222:25-1223:6, Griggs appears to have the opposite tendency, as he tended to discount issues in the loan files that Walzak treated as material. In one case in which Walzak found a borrower’s stated income to be unreasonable, Griggs discounted an entry in Flagstar’s servicing notes that implied that the borrower had lied about being employed at the time he applied for the loan because the borrower had made seventeen payments on the loan before defaulting. See' id. at 1317:21-1319:18. Griggs also assumed that where undisclosed debts appeared to be mortgages on investment properties, potential rental income should be taken into consideration in calculating the DTI ratio, even when there was no information in the loan file about any rental agreement or income. See id. at 1221:10-14,1288:16,1317:6-7. Both Walzak and Griggs testified regarding their findings on specific loan files included within the 606 that Walzak found to be defective. Since Griggs reviewed only the 126 defective loans that had already defaulted or were delinquent, his opinions extended only to those loans. In total, the witnesses testified to the details of over twenty loans, and the Court will highlight here about a dozen examples as illustrations. As to the loan ending in 9016, Walzak found that the borrower had misrepresented both his debt obligations and his income, leading to an incorrect DTI calculation by the Flagstar underwriter. Specifically, Digital Risk discovered through the Mortgage Electronic Registration System (“MERS”) that the borrower, prior to closing on the subject loan, had purchased other properties worth $480,000 and $270,000, on which he had taken out mortgages. As to income, the borrower claimed that he was a private investigator earning $30,000 per month, but the payscale.com report indicated that an income of approximately $15,000 per month (as the ninetieth percentile for the borrower’s geographic area) was more reasonable. Walzak’s team then recalculated the borrower’s DTI as 186.34%, which vastly exceeded Flagstar’s guidelines range of around 40-50%. See Trial Tr. 337:5-339:18. Griggs found that the misrepresentation of the borrower’s debt obligations was not material because Walzak’s recalculated DTI failed to account for potential rental income on the additional properties, as Griggs found it “reasonable to assume the properties in question were investment properties and that the borrowers would have received a rental offset.” Def. Ex. BBD 80 at 69. For the loan ending in 6077, Walzak again found that the borrower misrepresented both her debt obligations and her income, leading to an incorrect DTI calculation. The borrower stated that she was a curriculum coordinator at a private school earning $7,335 per month at age 24 and with no college degree, which is usually required for such a position. According to payscale.com, the ninetieth percentile for a curriculum coordinator in the borrower’s geographic area — a generous assumption given the borrower’s characteristics — was $5,108 per month. As to the debt obligation, the borrower closed on a $110,000 loan on the same property two weeks after closing on the subject loan, and Walzak claimed that Flagstar’s underwriter would have seen inquiries on the borrower’s credit report at the time of closing that were indicative of this new debt and should have required a letter of explanation. With both of these adjustments, Walzak’s team recalculated the DTI to be 108.84%, substantially above Flagstar’s guidelines range. See Trial Tr. 339:22-341:20. In response to Walzak’s findings, Griggs found that these concerns were not material: the borrower had a high F