Bank of America 2011 Annual Report Download - page 202

200 Bank of America 2011
on the Corporation’s results of operations for any particular period.
Given that these factors vary by counterparty, the Corporation
analyzes representations and warranties obligations based on the
specific counterparty, or type of counterparty, with whom the sale
was made. Generally the volume of unresolved repurchase claims
from the FHA and VA for loans in GNMA-guaranteed securities is
not significant because the requests are limited in number and
are typically resolved quickly.
Settlement Actions
The Corporation has vigorously contested any request for
repurchase when it has concluded that a valid basis for repurchase
does not exist and will continue to do so in the future. However,
in an effort to resolve these legacy mortgage-related issues, the
Corporation has reached bulk settlements, or agreements for bulk
settlements, including settlement amounts which have been
material, with counterparties in lieu of a loan-by-loan review
process. The Corporation may reach other settlements in the future
if opportunities arise on terms it believes to be advantageous to
the Corporation. The following provides a summary of the larger
bulk settlement actions beginning in the fourth quarter of 2010
followed by details of the Corporation’s representations and
warranties liability, including claims status.
Settlement with the Bank of New York Mellon, as
Trustee
On June 28, 2011, the Corporation, BAC Home Loans Servicing,
LP (BAC HLS, which was subsequently merged with and into BANA
in July 2011), and its legacy Countrywide affiliates entered into a
settlement agreement with the Bank of New York Mellon (BNY
Mellon), as trustee (the Trustee), to resolve all outstanding and
potential claims related to alleged representations and warranties
breaches (including repurchase claims), substantially all historical
loan servicing claims and certain other historical claims with
respect to 525 legacy Countrywide first-lien and five second-lien
non-GSE residential mortgage-backed securitization trusts (the
Covered Trusts) containing loans principally originated between
2004 and 2008 for which BNY Mellon acts as trustee or indenture
trustee (the BNY Mellon Settlement). The Covered Trusts had an
original principal balance of approximately $424 billion, of which
$409 billion was originated between 2004 and 2008, and total
outstanding principal and unpaid principal balance of loans that
had defaulted (collectively unpaid principal balance) of
approximately $220 billion at June 28, 2011, of which $217 billion
was originated between 2004 and 2008. The BNY Mellon
Settlement is supported by a group of 22 institutional investors
(the Investor Group) and is subject to final court approval and
certain other conditions.
The BNY Mellon Settlement provides for a cash payment of
$8.5 billion (the Settlement Payment) to the Trustee for distribution
to the Covered Trusts after final court approval of the BNY Mellon
Settlement. In addition to the Settlement Payment, the Corporation
is obligated to pay attorneys’ fees and costs to the Investor Group’s
counsel as well as all fees and expenses incurred by the Trustee
related to obtaining final court approval of the BNY Mellon
Settlement and certain tax rulings, which are currently estimated
at $100 million.
The BNY Mellon Settlement does not cover a small number of
legacy Countrywide-issued first-lien non-GSE RMBS transactions
with loans originated principally between 2004 and 2008 for
various reasons, including for example, six legacy Countrywide-
issued first-lien non-GSE RMBS transactions in which BNY Mellon
is not the trustee. The BNY Mellon Settlement also does not cover
legacy Countrywide-issued second-lien securitization transactions
in which a monoline insurer or other financial guarantor provides
financial guaranty insurance. In addition, because the settlement
is with the Trustee on behalf of the Covered Trusts and releases
rights under the governing agreements for the Covered Trusts, the
settlement does not release investors’ securities law or fraud
claims based upon disclosures made in connection with their
decision to purchase, sell or hold securities issued by the Covered
Trusts. To date, various investors, including certain members of
the Investor Group, are pursuing securities law or fraud claims
related to one or more of the Covered Trusts. The Corporation is
not able to determine whether any additional securities law or fraud
claims will be made by investors in the Covered Trusts. For
information about mortgage-related securities law or fraud claims,
see Litigation and Regulatory Matters in Note 14 – Commitments
and Contingencies. For those Covered Trusts where a monoline
insurer or other financial guarantor has an independent right to
assert repurchase claims directly, the BNY Mellon Settlement does
not release such insurer’s or guarantor’s repurchase claims.
Under an order entered by the court in connection with the BNY
Mellon Settlement, potentially interested persons had the
opportunity to give notice of intent to object to the settlement
(including on the basis that more information was needed) until
August 30, 2011. Approximately 44 groups or entities appeared
prior to the deadline; two of those groups or entities have
subsequently withdrawn from the proceeding and one motion to
intervene was denied. Certain of these groups or entities filed
notices of intent to object, made motions to intervene, or both
filed notices of intent to object and made motions to intervene.
The parties filing motions to intervene include the Attorneys
General of the states of New York and Delaware, whose motions
to intervene were granted. Parties who filed notices stating that
they wished to obtain more information about the settlement
include the Federal Deposit Insurance Corporation (FDIC) and the
Federal Housing Finance Agency (FHFA). Bank of America is not a
party to the proceeding.
Certain of the motions to intervene and/or notices of intent to
object allege various purported bases for opposition to the
settlement, including challenges to the nature of the court
proceeding and the lack of an opt-out mechanism, alleged conflicts
of interest on the part of the Investor Group and/or the Trustee,
the inadequacy of the settlement amount and the method of
allocating the settlement amount among the Covered Trusts, while
other motions do not make substantive objections but state that
they need more information about the settlement. An investor
opposed to the settlement removed the proceeding to federal
court. On October 19, 2011, the federal court denied BNY Mellon’s
motion to remand the proceeding to state court. BNY Mellon, as
well as the investors that have intervened in support of the BNY
Mellon Settlement, petitioned to appeal the denial of this motion.
On November 4, 2011, the district court entered a written order
setting a discovery schedule, and discovery is ongoing. On
December 27, 2011, the U.S. Court of Appeals for the Second
Circuit accepted the appeal and stated in an amended scheduling
order that, pursuant to statute, it would rule on the appeal by
February 27, 2012.
It is not currently possible to predict how many of the parties
who have appeared in the court proceeding will ultimately object
to the BNY Mellon Settlement, whether the objections will prevent
receipt of final court approval or the ultimate outcome of the court