Bank of America 2013 Annual Report Download - page 206

204 Bank of America 2013
breach of the representations and warranties that materially and
adversely affects the interest of the investor, or investors, or of
the monoline insurer or other financial guarantor (as applicable)
in the loan. Contracts with the GSEs do not contain equivalent
language. 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 promptly. The Corporation believes that the
longer a loan performs prior to default, the less likely it is that an
alleged underwriting breach of representations and warranties
would have a material impact on the loan’s performance.
The estimate of the liability for representations and warranties
exposures and the corresponding estimated range of possible loss
is based upon currently available information, significant judgment,
and a number of factors and assumptions, including those
discussed in Liability for Representations and Warranties and
Corporate Guarantees in this Note, that are subject to change.
Changes to any one of these factors could significantly impact the
estimate of the liability and could have a material adverse impact
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.
Settlement Actions
The Corporation has vigorously contested any request for
repurchase when it concludes 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
significant, 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.
However, there can be no assurance that the Corporation will reach
future settlements or, if it does, that the terms of past settlements
can be relied upon to predict the terms of future settlements. The
following provides a summary of the larger bulk settlement actions
during the past few years.
Freddie Mac Settlement
On November 27, 2013, the Corporation entered into an
agreement with Freddie Mac (FHLMC) under which the Corporation
paid FHLMC a total of $404 million (less credits of $13 million)
to resolve all outstanding and potential mortgage repurchase and
make-whole claims arising out of any alleged breach of selling
representations and warranties related to loans that had been
sold directly to FHLMC by entities related to Bank of America, N.A.
from January 1, 2000 to December 31, 2009, and to compensate
FHLMC for certain past losses and potential future losses relating
to denials, rescissions and cancellations of mortgage insurance.
In 2010, the Corporation had entered into an agreement with
FHLMC to resolve all outstanding and potential representations
and warranties claims related to loans sold by Countrywide to
FHLMC through 2008.
With these agreements, combined with prior settlements with
Fannie Mae (FNMA), the Corporation has resolved substantially all
outstanding and potential representations and warranties claims
on whole loans sold by legacy Bank of America and Countrywide
to FNMA and FHLMC through 2008 and 2009, respectively, subject
to certain exceptions which the Corporation does not believe are
material. For further discussion of the settlements with the GSEs,
see Fannie Mae Settlement and Government-sponsored
Enterprises Experience in this Note.
Fannie Mae Settlement
On January 6, 2013, the Corporation entered into an agreement
with FNMA to resolve substantially all outstanding and potential
repurchase and certain other claims relating to the origination,
sale and delivery of residential mortgage loans originated from
January 1, 2000 through December 31, 2008 and sold directly to
FNMA by entities related to Countrywide and BANA.
This agreement covers loans with an aggregate original
principal balance of approximately $1.4 trillion and an aggregate
outstanding principal balance of approximately $300 billion.
Unresolved repurchase claims submitted by FNMA for alleged
breaches of selling representations and warranties with respect
to these loans totaled $12.2 billion of unpaid principal balance at
December 31, 2012. This agreement extinguished substantially
all of those unresolved repurchase claims, as well as any future
representations and warranties repurchase claims associated with
such loans, subject to certain exceptions which the Corporation
does not expect to be material.
In January 2013, the Corporation made a cash payment to
FNMA of $3.6 billion and also repurchased for $6.6 billion certain
residential mortgage loans that had previously been sold to FNMA,
which the Corporation has valued at less than the purchase price.
This agreement also clarified the parties’ obligations with
respect to MI including establishing timeframes for certain
payments and other actions, setting parameters for potential bulk
settlements and providing for cooperation in future dealings with
mortgage insurers. For additional information, see Mortgage
Insurance Rescission Notices in this Note.
In addition, pursuant to a separate agreement, the Corporation
settled substantially all of FNMA’s outstanding and future claims
for compensatory fees arising out of foreclosure delays through
December 31, 2012.
Collectively, these agreements are referred to herein as the
FNMA Settlement. The Corporation was fully reserved at December
31, 2012 for the FNMA Settlement.
Monoline Settlements
MBIA Settlement
On May 7, 2013, the Corporation entered into a comprehensive
settlement with MBIA Inc. and certain of its affiliates (the MBIA
Settlement) which resolved all outstanding litigation between the
parties, as well as other claims between the parties, including
outstanding and potential claims from MBIA related to alleged
representations and warranties breaches and other claims
involving certain first- and second-lien RMBS trusts for which MBIA
provided financial guarantee insurance, certain of which claims
were the subject of litigation. At the time of the settlement, the
mortgages (first- and second-lien) in RMBS trusts covered by the
MBIA Settlement had an original principal balance of $54.8 billion
and an unpaid principal balance of $19.1 billion.
Under the MBIA Settlement, all pending litigation between the
parties was dismissed and each party received a global release
of those claims. The Corporation made a settlement payment to
MBIA of $1.6 billion in cash and transferred to MBIA approximately
$95 million in fair market value of notes issued by MBIA and
previously held by the Corporation. In addition, MBIA issued to the