Bank of America 2011 Annual Report Download - page 204

202 Bank of America 2011
Outstanding Claims by Counterparty and Product
(Dollars in millions)
By counterparty (1)
GSEs
Monolines
Whole loan and private-label securitization investors
and other (2)
Total outstanding claims by counterparty
By product type (1)
Prime loans
Alt-A
Home equity
Pay option
Subprime
Other
Total outstanding claims by product type
December 31
2011
$ 6,258
3,082
4,912
$ 14,252
$ 3,928
2,333
2,872
3,588
891
640
$ 14,252
2010
$ 2,821
4,678
3,188
$ 10,687
$ 2,040
1,190
3,658
2,889
734
176
$ 10,687
(1) Excludes certain MI rescission notices. However, includes $1.2 billion of repurchase requests
received from the GSEs that have resulted solely from MI rescission notices. For additional
information, see Mortgage Insurance Rescission Notices in this Note.
(2) Amounts for December 31, 2011 and 2010 included $1.7 billion in demands contained in
correspondence from private-label securitizations investors in the Covered Trusts that do not
have the right to demand repurchase of loans directly or the right to access loan files. For
additional information, see Settlement with Bank of New York Mellon, as Trustee in this Note.
The number of repurchase claims as a percentage of the
number of loans purchased arising from loans sourced from
brokers or purchased from third-party sellers is relatively
consistent with the number of repurchase claims as a percentage
of the number of loans originated by the Corporation or its
subsidiaries or legacy companies.
Mortgage Insurance Rescission Notices
In addition to repurchase claims, the Corporation receives notices
from mortgage insurance companies of claim denials,
cancellations, or coverage rescission (collectively, MI rescission
notices) and the amount of such notices have remained elevated.
When there is disagreement with the mortgage insurer as to the
resolution of a MI rescission notice, meaningful dialogue and
negotiation are generally necessary between the parties to reach
a conclusion on an individual notice. The level of engagement of
the mortgage insurance companies varies and on-going litigation
involving some of the mortgage insurance companies over
individual and bulk rescissions or claims for rescission limits the
ability of the Corporation to engage in constructive dialogue leading
to resolution. For loans sold to GSEs or private-label securitization
trusts (including those wrapped by the monoline bond insurers),
a MI rescission may give rise to a claim for breach of the applicable
representations and warranties, depending on the governing sales
contracts. In those cases where the governing contract contains
a MI-related representation and warranty which upon rescission
requires the Corporation to repurchase the affected loan or
indemnify the investor for the related loss, the Corporation realizes
the loss without the benefit of MI. If the Corporation is required
to repurchase a loan or indemnify the investor as a result of a
different breach of representations and warranties and there has
been a MI rescission, or if the Corporation holds the loan for
investment, it realizes the loss without the benefit of MI. In addition,
mortgage insurance companies have in some cases asserted the
ability to curtail MI payments, which in these cases would reduce
the MI proceeds available to reduce the loss on the loan. While a
legitimate MI rescission may constitute a valid basis for
repurchase or other remedies under the GSE agreements and a
small number of private-label MBS securitizations, and a MI
rescission notice may result in a repurchase request, the
Corporation believes MI rescission notices in and of themselves
are not valid repurchase requests.
On June 30, 2011, FNMA issued an announcement requiring
servicers to report, effective October 1, 2011, all MI rescissions,
cancellations and claim denials (together, rescissions) with
respect to loans sold to FNMA. The announcement also confirmed
FNMA’s view of its position that a mortgage insurance company’s
issuance of a MI rescission notice constitutes a breach of the
lender’s representations and warranties and permits FNMA to
require the lender to repurchase the mortgage loan or promptly
remit a make-whole payment covering FNMA’s loss even if the
lender is contesting the MI rescission notice. A related
announcement included a ban on bulk settlements with mortgage
insurers that provide for loss sharing in lieu of rescission.
According to FNMA’s announcement, through June 30, 2012,
lenders have 90 days to appeal FNMA’s repurchase request and
30 days (or such other time frame specified by FNMA) to appeal
after that date. According to FNMA’s announcement, in order to be
successful in its appeal, a lender must provide documentation
confirming reinstatement or continuation of coverage. This
announcement could result in more repurchase requests from
FNMA than the assumptions in the Corporation’s estimated liability
contemplate. The Corporation also expects that in many cases
(particularly in the context of individual or bulk rescissions being
contested through litigation), it will not be able to resolve MI
rescission notices with the mortgage insurance companies before
the expiration of the appeal period prescribed by the FNMA
announcement. The Corporation has informed FNMA that it does
not believe that the new policy is valid under its contracts with
FNMA, and that it does not intend to repurchase loans under the
terms set forth in the new policy. The Corporation’s pipeline of
outstanding repurchase claims from the GSEs resulting solely on
MI rescission notices has increased during 2011 by $935 million
to $1.2 billion at December 31, 2011. If it is required to abide by
the terms of the new FNMA policy, the Corporation’s
representations and warranties liability will likely increase.
At December 31, 2011, the Corporation had approximately
90,000 open MI rescission notices compared to 72,000 at
December 31, 2010. Through December 31, 2011, 26 percent of
the MI rescission notices received have been resolved. Of those
resolved, 24 percent were resolved through the Corporation’s
acceptance of the MI rescission, 46 percent were resolved through
reinstatement of coverage or payment of the claim by the mortgage
insurance company, and 30 percent were resolved on an aggregate
basis through settlement, policy commutation or similar
arrangement. As of December 31, 2011, 74 percent of the MI
rescission notices the Corporation has received have not yet been
resolved. Of those not yet resolved, 48 percent are implicated by
ongoing litigation where no loan-level review is currently
contemplated (nor required to preserve the Corporation’s legal
rights). In this litigation, the litigating mortgage insurance
companies are also seeking bulk rescission of certain policies,
separate and apart from loan-by-loan denials or rescissions. The
Corporation is in the process of reviewing 11 percent of the
remaining open MI rescission notices, and the Corporation has
reviewed and is contesting the MI rescission with respect to 89
percent of these remaining open MI rescission notices. Of the
remaining open MI rescission notices, 29 percent are also the