Bank of America 2011 Annual Report Download - page 208

206 Bank of America 2011
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 believes a valid defect has not been identified which
would constitute an actionable breach of representations and
warranties decreased during 2011 as a result of the Assured
Guaranty Settlement. Through December 31, 2011, approximately
30 percent of monoline claims that the Corporation initially denied
have subsequently been resolved through the Assured Guaranty
Settlement, 10 percent through repurchase or make-whole
payments and one percent 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.
To the extent there are repurchase claims based on valid
identified loan defects and for repurchase claims that are in the
process of review, a liability for representations and warranties is
established. For repurchase claims in the process of review, the
liability is based on historical repurchase experience with specific
monoline insurers to the extent such experience provides a
reasonable basis on which to estimate incurred losses from
repurchase activity. In prior periods, a liability was established for
Assured Guaranty related to repurchase claims subject to
negotiation and unasserted claims to repurchase current and
future defaulted loans. The Assured Guaranty Settlement resolved
this representations and warranties liability with the liability for
the related loss sharing reinsurance arrangement being recorded
in other accrued liabilities. With respect to the other monoline
insurers, the Corporation has had limited experience in the
repurchase process as these monoline insurers have instituted
litigation against legacy Countrywide and Bank of America, which
limits the Corporation’s ability to enter into constructive dialogue
with these monolines to resolve the open claims. For these
monolines, in view of the inherent difficulty of predicting the
outcome of those repurchase claims where a valid defect has not
been identified or in predicting future claim requests and the
related outcome in the case of unasserted claims 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 through the repurchase
process. In addition, the timing of the ultimate resolution or the
eventual loss through the repurchase process, if any, related to
those repurchase claims cannot be reasonably estimated. Thus,
with respect to these monolines, a liability for representations and
warranties has not been established related to repurchase claims
where a valid defect has not been identified, or in the case of any
unasserted claims to repurchase loans from the securitization
trusts in which such monolines have insured all or some of the
related bonds. For additional information related to the monolines,
see Note 14 – Commitments and Contingencies.
Monoline Outstanding Claims
At December 31, 2011, for loans originated between 2004 and
2008, the unpaid principal balance of loans related to unresolved
monoline repurchase claims was $3.1 billion, substantially all of
which the Corporation has reviewed and declined to repurchase
based on an assessment of whether a material breach exists. As
noted above, a portion of the repurchase claims that are initially
denied are ultimately resolved through bulk settlement,
repurchase or make-whole payments, after additional dialogue and
negotiation with the monoline insurer. At December 31, 2011, the
unpaid principal balance of loans in these vintages for which the
monolines had requested loan files for review but for which no
repurchase claim had been received was $6.1 billion, excluding
loans that had been paid in full and file requests for loans included
in the trusts settled with Assured Guaranty. There will likely be
additional requests for loan files in the future leading to repurchase
claims. Such claims may relate to loans that are currently in
securitization trusts or loans that have defaulted and are no longer
included in the unpaid principal balance of the loans in the trusts.
However, it is unlikely that a repurchase claim will be received for
every loan in a securitization or every file requested or that a valid
defect exists for every loan repurchase claim. In addition, amounts
paid on repurchase claims from a monoline are paid to the
securitization trust and are applied in accordance with the terms
of the governing securitization documents which may include use
by the securitization trust to repay any outstanding monoline
advances or reduce future advances from the monolines. To the
extent that a monoline has not advanced funds or does not
anticipate that it will be required to advance funds to the
securitization trust, the likelihood of receiving a repurchase claim
from a monoline may be reduced as the monoline would receive
limited or no benefit from the payment of repurchase claims.
Moreover, some monolines are not currently performing their
obligations under the financial guaranty policies they issued which
may, in certain circumstances, impact their ability to present
repurchase claims, although in those circumstances, investors
may be able to bring claims if contractual thresholds are met.
Whole Loan Sales and Private-label Securitizations
Experience
The majority of the repurchase claims that the Corporation has
received outside of those from the GSEs and monolines are from
third-party whole-loan investors. In connection with these
transactions, the Corporation provided representations and
warranties and the whole-loan investors may retain those rights
even when the loans were aggregated with other collateral into
private-label securitizations sponsored by the whole-loan
investors. The Corporation reviews properly presented repurchase
claims for these whole loans on a loan-by-loan basis. If, after the
Corporation’s review, it does not believe a claim is valid, it will deny
the claim and generally indicate a reason for the denial. When the
counterparty agrees with the Corporation’s denial of the claim, the
counterparty may rescind the claim. When there is disagreement
as to the resolution of the claim, meaningful dialogue and
negotiation between the parties is generally necessary to reach
conclusion on an individual claim. Generally, a whole-loan sale
claimant is engaged in the repurchase process and the Corporation
and the claimant reach resolution, either through loan-by-loan
negotiation or at times, through a bulk settlement. Through
December 31, 2011, 25 percent of the whole-loan claims that the
Corporation initially denied have subsequently been resolved
through repurchase or make-whole payments and 50 percent have
been resolved through rescission or repayment in full by the
borrower. Although the timeline for resolution varies, once an
actionable breach is identified on a given loan, settlement is
generally reached as to that loan within 60 to 90 days. When a
claim has been denied and the Corporation does not have
communication with the counterparty for six months, the
Corporation views these claims as inactive; however, they remain
in the outstanding claims balance until resolution.
In private-label securitizations, certain presentation thresholds