Bank of America 2010 Annual Report Download - page 191

The table below presents first-lien and home equity loan repurchases and indemnification payments for 2010 and 2009. These amounts include the
agreement that was reached with FNMA as discussed on page 188. These amounts do not include $1.3 billion paid related to the agreement with FHLMC due to
the global nature of the agreement and, specifically, the absence of a formal apportionment of the agreement amount between current and future claims.
Loan Repurchases and Indemnification Payments
(Dollars in millions)
Unpaid
Principal
Balance Cash Loss
Unpaid
Principal
Balance Cash Loss
2010 2009
December 31
First-lien
Repurchases $2,557 $2,799 $1,142 $1,461 $1,588 $ 583
Indemnification payments
3,785 2,173 2,173 1,267 730 730
Total first-lien 6,342 4,972 3,315 2,728 2,318 1,313
Home equity
Repurchases 78 86 44 116 128 110
Indemnification payments
149 146 146 142 141 141
Total home equity 227 232 190 258 269 251
Total first-lien and home equity $6,569 $5,204 $3,505 $2,986 $2,587 $1,564
Government-sponsored Enterprises
The Corporation and its subsidiaries have an established history of working
with the GSEs on repurchase requests. Generally, the Corporation first be-
comes aware that a GSE is evaluating a particular loan for repurchase when
the Corporation receives a request from a GSE to review the underlying loan
file (file request). Upon completing its review, the GSE may submit a repur-
chase claim to the Corporation. Historically, most file requests have not
resulted in a repurchase claim. As soon as practicable after receiving a
repurchase request from either of the GSEs, the Corporation evaluates the
request and takes appropriate action. Claim disputes are generally handled
through loan-level negotiations with the GSEs and the Corporation seeks to
resolve the repurchase request within 90 to 120 days of the receipt of the
request although tolerances exist for claims that remain open beyond this
timeframe. Experience with the GSEs continues to evolve and any disputes
are generally related to areas including reasonableness of stated income,
occupancy and undisclosed liabilities in the vintages with the highest default
rates.
Monoline Insurers
Unlike the repurchase protocols and experience established with GSEs,
experience with the monolines has been varied and the protocols and expe-
rience with these counterparties has not been as predictable as with the
GSEs. The timetable for the loan file request, the repurchase request, if any,
response and resolution varies by monoline. Where a breach of representa-
tions and warranties given by the Corporation or subsidiaries or legacy
companies is confirmed on a given loan, settlement is generally reached
as to that loan within 60 to 90 days.
Properly presented repurchase requests for the monolines are reviewed
on a loan-by-loan basis. As part of an ongoing claims process, if the Corpo-
ration does not believe a claim is valid, it will deny the claim and generally
indicate the reason for the denial to facilitate meaningful dialogue with the
counterparty although it is not contractually obligated to do so. When there is
disagreement as to the resolution of a claim, meaningful dialogue and
negotiation is generally necessary between the parties to reach conclusion
on an individual claim. Certain monolines have instituted litigation against
legacy Countrywide and the Corporation. When claims from these counter-
parties are denied, the Corporation does not indicate its reason for denial as it
is not contractually obligated to do so. In the Corporation’s experience, the
monolines have been generally unwilling to withdraw repurchase claims,
regardless of whether and what evidence was offered to refute a claim.
The pipeline of unresolved monoline claims where the Corporation be-
lieves a valid defect has not been identified which would constitute an
actionable breach of representations and warranties continued to grow in
2010. Through December 31, 2010, approximately 11 percent of monoline
claims that the Corporation initially denied have subsequently been resolved
through repurchase or make-whole payments and two percent have been
resolved through rescission. When a claim has been denied and there has not
been communication with the counterparty for six months, the Corporation
views these claims as inactive; however, they remain in the outstanding
claims balance until resolution.
A liability for representations and warranties has been established with
respect to all monolines for monoline repurchase requests based on valid
identified loan defects and for repurchase requests that are in the process of
review based on historical repurchase experience with a specific monoline to
the extent such experience provides a reasonable basis on which to estimate
incurred losses from repurchase activity. With respect to certain monolines
where the Corporation believes a more consistent purchase experience has
been established, a liability has also been established related to repurchase
requests subject to negotiation and unasserted requests to repurchase
current and future defaulted loans. The Corporation has had limited experi-
ence with most of the monoline insurers in the repurchase process, including
limited experience resolving disputed claims. Also, certain monoline insurers
have instituted litigation against legacy Countrywide and Bank of America,
which limits the Corporation’s relationship and ability to enter into construc-
tive dialogue with these monolines to resolve the open claims. For such
monolines and other monolines with whom the Corporation has limited
repurchase experience, in view of the inherent difficulty of predicting the
outcome of those repurchase requests where a valid defect has not been
identified or in predicting future claim requests and the related outcome in the
case of unasserted requests to repurchase loans from the securitization
trusts in which these monolines have insured all or some of the related bonds,
the Corporation cannot reasonably estimate the eventual outcome. In addi-
tion, the timing of the ultimate resolution or the eventual loss, if any, related to
those repurchase requests cannot be reasonably estimated. Thus, with
respect to these monolines, a liability for representations and warranties
has not been established related to repurchase requests where a valid defect
has not been identified, or in the case of any unasserted requests to repur-
chase loans from the securitization trusts in which such monolines have
insured all or some of the related bonds. However, certain monoline insurers
have engaged with the Corporation and legacy Countrywide in a consistent
Bank of America 2010 189