JACKSONVILLE, Fla. — A former auditor from Watterson Prime, now owned by Fidelity National Information Services, has charged her former employer with deliberately verifying subprime loans she had kicked back as being bad.

The allegation is one of the first times that an employee for an auditing firm involved in the production and marketing of mortgage-backed securities has stepped forward with an account of how some of the very bad mortgages were approved and added to the securities which were then sold with high bond ratings.

The story also quoted lawyers gearing up for litigation on behalf of investors in the wake of the mortgage debacle.

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Noted CU card processor Fidelity National Information Services purchased Watterson Prime in November 2006. A story on National Public Radio's May 26 "Morning Edition" program included statements from former Watterson auditor Tracy Warren.

"I'd see people who were hotel workers, saying that they made, in California, $15,000 a month so they could qualify for a $500,000 home. You know, if a hotel worker can make $15,000 a month changing sheets at the Days Inn, everyone would want to do it. It just really made no sense," Warren said in the broadcast.

Warren said that when she would kick back a loan with for example, credit scores below 580 and where the income could not be verified, her supervisors would overrule her and reverse her disapprovals.

The story said that Fidelity National has issued a statement that the company does not have any incentive to give loans passing reviews that fail underwriting criteria and that it uses additional criteria to double check loan quality.

In an e-mail reply, FIS said it was "disappointed by the unsubstantiated allegations" the story made.

FIS said that Warren was an independent contractor, not an employee and that she worked as a "front-line" underwriter, not as a quality control underwriter.

"Her role was to review loan files and flag those that did not satisfy the underwriting guidelines established by the seller and the prospective buyer. Watterson Prime was never engaged, and did not opine, on the propriety of a seller's lending practices," wrote FIS spokesman Michelle Kersch.

In other words, Watterson Prime only evaluated loans according to client specifications; if the client wanted to include such loans, that decision was up to them.

FIS did admit that the loan of the type that Warren described, would have been the sort that Watterson-Prime would have reviewed.

Kersch also wrote, "Watterson Prime was paid a fixed price on each loan, regardless of findings. There was no incentive or bonus for Watterson Prime to push 'bad' loans through. Watterson Prime was incented to weed out loans that failed to meet underwriting criteria so that its clients [the portfolio purchasers] did not overpay for loan pools."

"Watterson Prime's offerings are a part of the solutions offered by FIS' Applied Analytics group," she concluded.

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