Bank of America 2010 Annual Report Download - page 190

the liability for representations and warranties is a function of the represen-
tations and warranties given and considers a variety of factors, which include,
depending on the counterparty, actual defaults, estimated future defaults,
historical loss experience, estimated home prices, probability that a repur-
chase request will be received, number of payments made by the borrower
prior to default and probability that a loan will be required to be repurchased.
Historical experience also considers recent events such as the agreements
with the GSEs on December 31, 2010, as discussed below. Changes to any
one of these factors could significantly impact the estimate of the
Corporation’s liability.
Although the timing and volume has varied, repurchase and similar re-
quests have increased in recent periods from buyers and insurers, including
monolines. The Corporation expects that efforts to attempt to assert repur-
chase requests by monolines, whole-loan investors and private-label securi-
tization investors may increase in the future. A loan-by-loan review of all
properly presented repurchase requests is performed and demands have
been and will continue to be contested to the extent not considered valid. In
addition, the Corporation may reach a bulk settlement with a counterparty (in
lieu of the loan-by-loan review process), on terms determined to be advanta-
geous to the Corporation.
On December 31, 2010, the Corporation reached agreements with the
GSEs under which the Corporation paid $2.8 billion to resolve repurchase
claims involving certain residential mortgage loans sold directly to the GSEs
by entities related to legacy Countrywide. The agreements with FHLMC for
$1.28 billion extinguishes all outstanding and potential mortgage repurchase
and make-whole claims arising out of any alleged breaches of selling repre-
sentations and warranties related to loans sold directly by legacy Countrywide
to FHLMC through 2008, subject to certain exceptions the Corporation does
not believe to be material. The agreement with FNMA for $1.52 billion sub-
stantially resolves the existing pipeline of repurchase and make-whole claims
outstanding as of September 20, 2010 arising out of alleged breaches of
selling representations and warranties related to loans sold directly by legacy
Countrywide to FNMA. These agreements with the GSEs do not cover legacy
Bank of America first-lien residential mortgage loans sold directly to the GSEs,
other loans sold to the GSEs other than described above, loan servicing
obligations, other contractual obligations or loans contained in private-label
securitizations.
Overall, repurchase requests and disputes with buyers and insurers
regarding representations and warranties have increased in recent periods
which has resulted in an increase in unresolved repurchase requests for
monolines and other non-GSE counterparties. Generally the volume of unre-
solved repurchase requests from the FHA and VA for loans in GNMA-guaran-
teed securities is not significant because the requests are limited in number
and are typically resolved quickly. The volume of repurchase claims as a
percentage of the volume of loans purchased arising from loans sourced from
brokers or purchased from third-party sellers is relatively consistent with the
volume of repurchase claims as a percentage of the volume of loans origi-
nated by the Corporation or its subsidiaries or legacy companies.
The table below presents outstanding claims by counterparty and product
type at December 31, 2010 and 2009. The information for 2010 reflects the
impact of the recent agreements with the GSEs.
Outstanding Claims by Counterparty and Product
(Dollars in millions) 2010 2009
December 31
By counterparty
GSEs $2,821 $3,284
Monolines
4,799 2,944
Whole loan and private-label securitization investors and
other
(1)
3,067 1,372
Total outstanding claims by counterparty $10,687 $7,600
By product type
Prime loans $2,040 $1,778
Alt-A
1,190 1,629
Home equity
3,658 2,223
Pay option
2,889 1,122
Subprime
734 540
Other
176 308
Total outstanding claims by product type $10,687 $7,600
(1)
December 31, 2010 includes $1.7 billion in claims contained in correspondence from private-label securitiza-
tions investors that do not have the right todemand repurchase of loans directly or the right to access loan files.
The inclusion of these claims in the amounts noted does not mean that the Corporation believes these claims
have satisfied the contractual thresholds to direct the securitization trustee to take action or are otherwise
procedurally or substantively valid.
As presented in the table on page 189, during 2010 and 2009, the
Corporation paid $5.2 billion and $2.6 billion to resolve $6.6 billion and
$3.0 billion of repurchase claims through repurchase or reimbursement to the
investor or securitization trust for losses they incurred, resulting in a loss on
the related loans at the time of repurchase or reimbursement of $3.5 billion
and $1.6 billion. The amount of loss for loan repurchases is reduced by the
fair value of the underlying loan collateral. The repurchase of loans and
indemnification payments related to first-lien and home equity repurchase
claims generally resulted from material breaches of representations and
warranties related to the loans’ material compliance with the applicable
underwriting standards, including borrower misrepresentation, credit excep-
tions without sufficient compensating factors and non-compliance with un-
derwriting procedures, although the actual representations made in a sales
transaction and the resulting repurchase and indemnification activity can vary
by transaction or investor. A direct relationship between the type of defect that
causes the breach of representations and warranties and the severity of the
realized loss has not been observed. Transactions to repurchase or indem-
nification payments related to first-lien residential mortgages primarily in-
volved the GSEs while transactions to repurchase or indemnification pay-
ments for home equity loans primarily involved the monolines.
188 Bank of America 2010