Bank of America 2012 Annual Report Download - page 213

Bank of America 2012 211
party securitization sponsors, and $295 million submitted by
monolines. During 2012, $6.6 billion in claims were resolved,
primarily with the GSEs and through the Syncora Settlement. Of
the resolved claims, $4.6 billion were resolved through rescissions
and $2.0 billion were resolved through mortgage repurchases and
make-whole payments.
The notional amount of unresolved GSE repurchase claims
totaled $13.5 billion at December 31, 2012 compared to $6.2
billion at December 31, 2011. As a result of the FNMA Settlement,
$12.2 billion of GSE repurchase claims outstanding at
December 31, 2012 were resolved in January 2013. For further
discussion of the Corporation’s experience with the GSEs, see
Government-sponsored Enterprises Experience in this Note.
The notional amount of unresolved monoline repurchase
claims totaled $2.4 billion at December 31, 2012 compared to
$3.1 billion at December 31, 2011. The decrease in unresolved
repurchase claims was driven by resolution of claims through the
Syncora Settlement. The Corporation has had limited loan-level
repurchase claims experience with monoline insurers due to
ongoing litigation. The Corporation has reviewed and declined to
repurchase substantially all of the unresolved repurchase claims
at December 31, 2012 based on an assessment of whether a
breach exists that materially and adversely affected the insurer’s
interest in the mortgage loan. Further, 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. Substantially all of the
unresolved monoline claims pertain to second-lien loans and are
currently the subject of litigation. For further discussion of the
Corporation’s practices regarding litigation accruals and range of
possible loss for litigation and regulatory matters, which includes
the status of its monoline litigation, see Estimated Range of
Possible Loss in this Note.
The notional amount of unresolved repurchase claims from
private-label securitization trustees, third-party securitization
sponsors, whole-loan investors and others increased to $12.3
billion at December 31, 2012 compared to $3.3 billion at
December 31, 2011. The increase in the notional amount of
unresolved repurchase claims is primarily due to increases in the
submission of claims by private-label securitization trustees and
a third-party securitization sponsor; the level of detail, support and
analysis which impacts overall claim quality and, therefore, claims
resolution; and the lack of an established process to resolve
disputes related to these claims. The Corporation anticipated an
increase in aggregate non-GSE claims at the time of the BNY Mellon
Settlement in June 2011, and such increase in aggregate non-
GSE claims was taken into consideration in developing the
increase in the Corporation’s representations and warranties
liability at that time. The Corporation expects unresolved
repurchase claims related to private-label securitizations to
continue to increase as claims continue to be submitted by private-
label securitization trustees and third-party securitization
sponsors, and there is not an established process for the ultimate
resolution of claims on which there is a disagreement. For further
discussion of the Corporation’s experience with whole loans and
private-label securitizations, see Whole Loan Sales and Private-
label Securitizations Experience in this Note.
In addition to the total unresolved repurchase claims, the
Corporation has received repurchase demands from private-label
securitization investors and a master servicer where it believes
the claimants have not satisfied the contractual thresholds to
direct the securitization trustee to take action and/or that these
demands are otherwise procedurally or substantively invalid. The
total amounts outstanding of such demands were $1.6 billion and
$1.7 billion at December 31, 2012 and 2011. At December 31,
2011, the $1.7 billion of demands outstanding were related to
Covered Trusts in the BNY Mellon Settlement of which $1.4 billion
were subsequently resolved through the July 2012 dismissal of a
lawsuit brought by Walnut Place (11 entities with the common
name Walnut Place, including Walnut Place LLC, and Walnut Place
II LLC through Walnut Place XI LLC). Additional demands totaling
$1.3 billion were received during 2012. The Corporation does not
believe that the $1.6 billion in demands outstanding at
December 31, 2012 are valid repurchase claims, and therefore it
is not possible to predict the resolution with respect to such
demands.
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 number of such notices has remained elevated.
By way of background, MI compensates lenders or investors for
certain losses resulting from borrower default on a mortgage loan.
When there is disagreement with the mortgage insurer as to the
resolution of a MI rescission notice, meaningful dialogue and
negotiation between the mortgage insurance company and the
Corporation are generally necessary to reach a resolution on an
individual notice. The level of engagement of the mortgage
insurance companies varies and ongoing 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), when
the Corporation receives a MI rescission notice from a mortgage
insurance company, it may give rise to a claim for breach of the
applicable representations and warranties from the GSEs or
private-label securitization trusts, depending on the governing
sales contracts. In those cases where the governing contract
contains MI-related representations and warranties, 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. See below for a
discussion of the impact of the FNMA Settlement. In addition,
mortgage insurance companies have in some cases asserted the
ability to curtail MI payments as a result of alleged foreclosure
delays, which if successful, would reduce the MI proceeds available
to reduce the loss on the loan.
At December 31, 2012, the Corporation had approximately
110,000 open MI rescission notices compared to 90,000 at
December 31, 2011, including 49,000 pertaining principally to
first-lien mortgages serviced for others, 11,000 pertaining to loans
held-for-investment, and 50,000 pertaining to ongoing litigation
for second-lien mortgages. Approximately 27,000 of the open MI
rescission notices pertaining to first-lien mortgages serviced for
others are related to loans sold to FNMA. As of December 31,
2012, 32 percent of the MI rescission notices received have been
resolved. Of those resolved, 20 percent were resolved through the
Corporation’s acceptance of the MI rescission, 58 percent were
resolved through reinstatement of coverage or payment of the
claim by the mortgage insurance company, and 22 percent were
resolved on an aggregate basis through settlement, policy