WILLIAMS v. FANNIE MAE — Entry #33: MOTION for Summary Judgment by FANNIE MAE, RICHARD LAWCH, GRACE HUERSCHER

Case 1:05-cv-01483-JDB Document 33-19 Filed 06/21/2007 Page 1 of 17

EXHIBIT Q


Case 1:05-cv-01463-JDB Document33-19 Filed 06/21/2007 Page 2 of 17

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

MARIALICE BATHRUS WILLIAMS,

Plaintiff,
Civil Action No. 1:05CV01483

VS.
Judge John D. Bates

FEDERAL NATIONAL MORTGAGE

ASSOCIATION, et al. |
DECLARATION OF KATHRYN

Defendants. WESTOVER

I, Kathryn “Kate” Westover, hereby declare as follows:

1, I am not a party to the above-captioned action. I am over eighteen years of age,
and the statements made herein are based on my personal knowledge. I refreshed my
recollection through the review of the documents attached hereto at Tab A.

2. In or about August 2001, plaintiff Marialice Williams and I had a meeting with
representatives from Fannie Mae’s Multifamily Division to discuss the possible use of captive
insurance companies by Fannie Mae. I do not remember any additional meetings with
representatives from Fannie Mae on this or any other subject, although there may have been a

telephone phone conference call before or after the meeting on this subject.

I declare under penalty of perjury that the foregoing is true and correct. Executed on

(DATE) at Colchester, Vermont.
3f/e7 fikr A Se lovee

Kathryn Westover


Case 1:05-cv-01463-JDB Document 33-19 Filed G6/21/2007 Page dof?


Case 1:05-cv-01483-JDB Documentac-19 Filed 06/21/2007 Page 4oafi7
/ Animemaindceeneon con ; Q ot a . a : - | 7 ~ kaye! _ ; t

etn "Subject: J A few w questions 2 and an update from RMS, Co a

pe "Date: Wed, 23 May 2001 10:16:10-0400 oe five
we “From: "Marialice Williams" <marlalice@worldnet. attnet> - | ; 7 |

a - To: <thoda:s_newman@fanniemae.com>, <grace._ uebscher@fanniemae. coms bE" shat pmo,
7 é 7 CG <bhartsfield@risk-intgation com> . 4 A

i: Update fom RMS a

‘First the good news--we have the interest af three i insurance companies, two ‘of whom are domestic Alle are erated At and above.
‘ However, Wwe need | to ‘know a conple of things to facilitate c our discussions with them:

7 4, is there 2 any. interest on Fannie: Mae's part in insuring her portion of the 5-20% mezzanine level of risk on the DUS Spot? a
oe (This ¢ could fead toa lower premium for the lenders). . . ’

en 2. Does Fannie Mae have: any ny objection to the DUS lenders slaying off all or past of thee first.loss 5 obligation on the DUS joans to a- .
ae "AA" or better rated credit enhancer? ©
4, Is is there any j possibilty of obtaining data from Fannie Mae regarding the underwriting and performance of the DUS portfolio?
’ The Keen interest is in what percentage of the mortgage loans originated meet the various.tiers of the DUS program and has there
: been a distinction in the’ performance based upon those tiers of Loans? .

' Sorry that we were unable to get Kate Westover i in to see you in June, We only need about. and hour. and a half. Isthereatimein
July th that will work? Also, if yous find that there is room because of a cancellation | in June we would te happy to Bilin. SS

. We. don't need all of ‘the answers to our questions. at one time. As soon as you have some idea about each question, tet us know.
Thanks, Marialice ,

wine DUS portivi”

Hanrand Be ire

‘oh —_ ; | - Fe | _ — 10496 ‘53/01 9:53 AN.

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‘ wo
ot ot

Case 1:05-cv-01483-JDB Document 33-19 Filed 06/21/2007, Page 5 of 17

to

“> plvd: Captive Insurance, Cosnpany Update}

» Siibjects [Fra Captive Insurance Companty Update],
_Daté: Wed,-06 Jun 2001 12:21:05-0500
iE rom: Bob Jones <bobjones@cam-fi nancial.com>
Tor Awgroves@bellsouth net, chockrumsey eam financial. com

: Bob. Jones weoke:"

1 ‘advised’ ‘Marialice to copy both Red ‘capital and Lend Lease on ‘this. :

‘“ .message to Richard and Grace, . just as if she never saw the Fannie. Mae.

email. régarding Craig: Ott.

“This reversal by IRS now offers Fannie Mae and/or each bUS Lender to ,

.. > form their’ own captive under the same "economic family” for balance:

sheet ‘treatment: with the captive first loss premium now’ tax deductible, ao .

“The IRS ruling also acknowledges. the shift of captive first loss from

-* the the policy holder to the. insurer for risk transfer. Our copyrigtited ;

“MCRI policy is acceptable for risk transfer and. could be used by AIG, ©

oe Gen Star. or Zurich to front the: captive. coverage.

oc

7 “Subject: Captive h Insirance Conipany Upaate

Date: Wed, 6 Jun 2001 12:13:44 -0400 -
From: "Marialice Williams” <marialice@worldnet att. net>
To: <prace_ huebscher@fanniemae. com>, <richard_s. _laweh@fanniemae.c com>
_- CC: <mebeisler@redcapitalgroup.com>, <jklarson@lendleaserei. comp,
| <rhoda_ e _newman@fanniemae. com>, > <bhartsfield@risk-mitigation. com> |

. On June 4, 2001, the IRS issued 3 ‘ling that has the i insurance world reeling. The Jong standing pe position that premiuins 0s paid to

captives are e not deductible under + the So-called." economic family” theory has been reversed.

- The IRS, in 1977, took the f position that "in the case of related- -party risks, if such. risks are insured of reinsuréd by arelated
_ insurance cosnmpany—one in the same ‘economic family, ‘the premiums involved cannot be deducted from federal taxes because risk --

'. :has not shifted from the. policyholder to, the insurer."
: "Accordingly, the IRS will no longer invoke the economic family theory with respect to captive insurance transactions. ”
‘After this new ruling, iti is clear that the captive! is an ideal way to Jay off the first loss obligation of assetholders entering into ©
_*: secondary market transactions. This ruling can-enable Fannie Mae to set UP its own credit enhancement facility. Andi in light of
Fannié ¢ Mae’ s credit, the capitalization costs would be minimal. =~ .

The DUS lenders could set up such a fond with their DUS reserve accounts and obtain substantial economic benefit as well a as”

reducing I Fannié Mae's exposure to the risk associated with this portfolio, That's because any policy issued by a DUS lender's

lof2-

captive insurance compariy: would be wrapped or fronted bya rated remsurer.

oy My associate and I serve on the Captive Advisory Committee for the District of Columbia's Depariment of Insurance and Securities
_ Regulation. Our new law was pattemed after the Vermont statute which is considered the best domestic jurisdiction in which to
_ form a captive: Just one. captive has applied for and been approved | to operated i in D.C. This could have all kinds of positive -
- ramifications for Fannie Mae. . .

re a

_ Our associate, Kate Westover, i in Vermont, is assisting us with our customers. She will be consulting with Larry Mirrel,

the Commissioner for. DISR on 1 June 14 while you guys at F annie Mae will be out of town, We had hope to bring. her by.

7 Meanwhile, my aisociate, Harvey } Hartsfield continues to work with Rhoda on a time ‘for Kate. to make a presentation to Fannie
‘Mae. 7

10514 6/6/01 12:33 PM |

FENMA.MBW. 008054
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Case 1 O5-Cv-01483-JD8 _ Document 33-19 Filed 06/21/2007 . Page 6 Oba7

*ppoude Captive Insurance Company Update] © = 2

Ry: Feél free to call if you have questions. . Marialice uo

i

2of2 © _ oO | . oe 7 oo a 10515 6/6/01 12:31 PM

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Case 1:05-ov-01483-JD8 Document 3o-19 Filed 06/21/2007 Page 7 of 17
* apiive ins unis : 7 7 7

ae | Subject: Captive Tasurance Companies.

7 Se a) Date: Mon, 18 Jun 2001 16:29:30 -0400 ©

UL Byoim: "Risk-Mit" <marialice@risk-mitigation.com>._ —

“Tor <dgoodman@redcapitalgroup. com>, incbeisler@redcapitalgroup. com> : :
OG ‘<bhartsfield@risk-mitigation.c com>, "Bob I ones” <bobjones@cam-fnancal com> -

my “ Harvey and Is saw ‘the quoies ‘from Davidi in an attidle in ithe Multi-Housing ‘News for June 2001. Giad tos see that you guys a are - mo
i. ‘anticipating another successful year in refinancing apartment b bullding mortgages. ee _

a We just ‘wanted to reinind you that 0 our captive insuranite company concept has just been given 2 boost by the new ‘Revenue Ruling
| from IRS: Our associate, Kate Westover gave an excellent: Presentation at at the Department of Ir Insurance and. Securities Regulation
_ last week, Several off our clients were in attendance. :

“* Rate was able to confirm for Larry, Mire, the head of DISR that the new Reyeme Raiting by the IRS, 2001 31, provides for the’
-. deductibility of premiums paid to captive insurance comipanies by captive insurance company owners. And further bolsters the .
-. ° ‘concept, that captive insurance companies, owned by a related company or parent, are true insurance companies, Therefore, oncéa
- _ captive issues a policy to cover the risk ona portfolio of assets there is a true risk transfer from the related or parent company to
: ‘the captive. Therefore, our clients who are concemed about risk-based capital i issués can now form a captive insurance company,
: "transfer the risk of Joss of their loan n portfolio to the- captive. insurancé - company and get t the accounting and balance sheet relief that ,
_— they need. © a . s . _

_ And, if used j in connection with securitization, the captive insurance company policy is the credit enhancement necessary to . .
eliminate the need to ISSUE SUBORDINATE SECURITIES.

Also, D. C. has approved the first captive insurance ¢ company wy under the new D. C. captive insurancé law. We are on the captive
_ _| “advisory committee for D.C, and are more committed than ever to bringing this innovative risk transfer concept to our customers.
- - We are happy to be able to provide this innovative tool to our F customers ona local basis. ‘The off-shore jurisdictions have.
dominated this busiriess for the past 30 years. - .

oo Let'us know if you would like to see the documentation on the revenue e ruling or want to disess the use of the captive insurance as
“18 Fisk-transfer credit enhancement facility i in your day to day operations, , noah ite are

- - Marialice Williams

were “Riki dhobe, shes 4

) ES RHE Gombiate d

cE WO OUP CuSstorhgiy

* ibe WES
bof} 10519 6/18/01 4:45 PM,

FNMA.MBW.008054 -
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ete

Case 1:05-cv-01480-JD8 Document 3o-19 Filed OG/e1/2007 Page of 17

oP eeONU Ue reese ta.
a . * oe ‘iT :

ee

~ Subj j ect: Presentation on + August aa

Date: Mon, 6 Aug 2001 12:49:18 0400. ‘
“From: "mail risk-mitigation.com" “marialioe@ristomitigation com>
-. To: "Rhoda E Newman” <thoda: e _hewman@fanniemae, com>,
 <grace_ huebscher@fanniemae. com>...

CC: <bhartsfi fe lO@aiskemmitigation.com> :

| Sy We’ are’ looking fo forward to inectirig with you of Athe 21st of ‘August ‘However, we want to make certain that Kate ison

'. ! “4arget-with her presentation. Gould you please let us. know if you are looking at the captive as a potential 6 credit
os “enhancement tool for Fannie Mae or. as a tool that the DUS lenders could use.

fr

~ J met with LendLease’ Chief Crédit Officer and the CFOi in Dallas last week. There. appears {fo be ir interest on their
-.” part in using a captive insurance company as a risk transfer and credit enhancement vehicle but they were -
. = concerned about Fannie Mae's reaction to the concept of captive. insurance companies. . Also, it appeared to

“ LendLease that the captive could be-very effective if they could also lay off their 5% first loss obligation under the .

, DUS program to the captive i insurance company. This, question was 5 raised i in my: e-ail to you back on: May 30.

tof!

, : Finally. could we spend a little time discussing the other iwo questions from the insurance companies that we 2 posed .
to you at the end of May? .

i My partner, Harvey Harsh eld will be working with Kate on her presentation sO pleat s@ 6C him. on your response.

. Thanks. Marialice _

wea sib Uner the
oo on May oo

ene 2
Bp lita ae peer

10522 seo 12:00 PM

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Page 9 of 17

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Case 1:05-cv-01483-JD2 Document 30-19 Filed 06/21/2007 — Page 17 of 17

” Washingdsi Muna Transaition ~
"Subjects ‘Washington Mutual Transaction: “
.. Date: Thu, 16 Aug 2001 09:45:56 -0500 =
From: Bob Jones <bobjones(@cant financial cori en ee
Bo: marialice@risk-mitigation. com,  dwgroves@bellsonth nt bobjones@ean-fin nancial com. |
Bob’ Jones wrote: 7 o Roars Seg eget ae a Wo ie

 Mardalice,; Karl ‘returned my cali.’ No.. insurance. . Fannie Mae required. a.. = ;
_ spread account that accrues ( no front end $ ) to” 50 bpts. plus first: . mo eT, em!
‘loss recourse of some number -(confidential) south of: 4%.-: Fannie Mae's” 0 te
initial recourse level was 6%.- _. The portfolio has 12 year- weighted
_ average seasoning: Fannie. Mae ‘wouldn't. ‘disclose. its CPR, ‘but. Karl used
a CPR of 4%. He was very happy with this deal. :

: He also told’ me the average. ‘recourse on a Fannie Mae ‘pis portfolio. swap’
“; ranges from 9 to 428. Real’ interesting.“ I hope, this information is -
- . helpful. ; mae ee es - =

Good luck: on the, captive presentation with Kate and. Fannie Mae next
_ week. - ; a oe! .

ae CORTE

. 40537 |. :
tof) | 8/16/01 9:49 AM

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