Bank of America 2012 Annual Report Download - page 54

52 Bank of America 2012
There can be no assurance that final court approval of the BNY
Mellon Settlement will be obtained, that all conditions to the BNY
Mellon Settlement will be satisfied or, if certain conditions to the
BNY Mellon Settlement permitting withdrawal are met, that we and
legacy Countrywide will not withdraw from the settlement. If final
court approval is not obtained or if we and legacy Countrywide
withdraw from the BNY Mellon Settlement in accordance with its
terms, our future representations and warranties losses could be
substantially different than existing accruals and the estimated
range of possible loss over existing accruals. For more information
about the risks associated with the BNY Mellon Settlement, see
Item 1A. Risk Factors of this Annual Report on Form 10-K.
Unresolved Claims Status
Unresolved Repurchase Claims
Prior to the FNMA Settlement on January 6, 2013, the total notional
amount of our unresolved representations and warranties
repurchase claims was approximately $28.3 billion at
December 31, 2012 compared to $12.6 billion at December 31,
2011. These repurchase claims do not include any repurchase
claims related to the Covered Trusts. Unresolved repurchase
claims represent the notional amount of repurchase claims made
by counterparties, typically the outstanding principal balance or
the unpaid principal balance at the time of default. In the case of
first-lien mortgages, the claim amount is often significantly greater
than the expected loss amount due to the benefit of collateral and,
in some cases, MI or mortgage guarantee payments. Claims
received from a counterparty remain outstanding until the
underlying loan is repurchased, the claim is rescinded by the
counterparty or the claim is otherwise resolved. When a claim is
denied and we do not receive a response from the counterparty,
the claim remains in the unresolved repurchase claims balance
until resolution.
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.
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. We have had limited loan-level repurchase
claims experience with monoline insurers due to ongoing litigation.
We have 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 our 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.
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. We 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 our representations and warranties liability at that time.
We expect 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.
During 2012, we received $22.4 billion in new repurchase
claims, including $10.3 billion submitted by FNMA and covered by
the FNMA Settlement, $2.3 billion submitted by the GSEs for both
legacy Countrywide and legacy Bank of America originations not
covered by the 2010 GSE Agreements or the FNMA Settlement,
$8.0 billion submitted by private-label securitization trustees, $1.5
billion from whole-loan investors, primarily third-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. For more information on repurchase claims received
from the GSEs, monoline insurers, private-label securitization
trustees, whole-loan investors and others, the resolution of such
claims and for a table of unresolved repurchase claims, see Note
8 – Representations and Warranties Obligations and Corporate
Guarantees to the Consolidated Financial Statements.
In addition to the total unresolved repurchase claims, we have
received repurchase demands from private-label securitization
investors and a master servicer where we believe 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. We do 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.