Bank of America 2013 Annual Report Download - page 54

52 Bank of America 2013
securitization trustees prior the expiration of the statute of
limitations.
We have resolved $8.0 billion of the $25.9 billion of claims
received from whole-loan and private-label securitization
counterparties with losses of $1.9 billion. The majority of these
resolved claims were from third-party whole-loan investors.
Approximately $3.3 billion of these claims were resolved through
repurchase or indemnification and $4.7 billion were rescinded by
the investor. At December 31, 2013, for loans originated between
2004 and 2008, the notional amount of unresolved repurchase
claims submitted by private-label securitization trustees, whole-
loan investors and a financial guarantee provider was $17.9 billion.
We have performed an initial review with respect to $14.6 billion
of these claims and do not believe a valid basis for repurchase
has been established by the claimant and are still in the process
of reviewing the remaining $3.3 billion of these claims. Until we
receive a repurchase claim, we generally do not review loan files
related to private-label securitizations sponsored by third-party
whole-loan investors (and are not required by the governing
documents to do so).
Certain whole-loan investors have engaged with us in a
consistent repurchase process and we have used that and other
experience to record a liability related to existing and future claims
from such counterparties. The BNY Mellon Settlement and
subsequent activity with certain counterparties led to the
determination that we had sufficient experience to record a liability
related to our exposure on certain private-label securitizations,
including certain private-label securitizations sponsored by third-
party whole-loan investors, however, it did not provide sufficient
experience to record a liability related to other private-label
securitizations sponsored by third-party whole-loan investors. As
it relates to the other private-label securitizations sponsored by
third-party whole-loan investors and certain other whole-loan sales,
it is not possible to determine whether a loss has occurred or is
probable and, therefore, no representations and warranties liability
has been recorded in connection with these transactions. As
discussed below, our estimated range of possible loss related to
representations and warranties exposures as of December 31,
2013 included possible losses related to these whole-loan sales
and private-label securitizations sponsored by third-party whole-
loan investors.
The representations and warranties, as governed by the private-
label securitization agreements, generally require that
counterparties have the ability to both assert a claim and actually
prove that a loan has an actionable defect under the applicable
contracts. While the Corporation believes the agreements for
private-label securitizations generally contain less rigorous
representations and warranties and place higher burdens on
claimants seeking repurchases than the express provisions of
comparable agreements with the GSEs, without regard to any
variations that may have arisen as a result of dealings with the
GSEs, the agreements generally include a representation that
underwriting practices were prudent and customary. In the case
of private-label securitization trustees and third-party sponsors,
there is currently no established process in place for the parties
to reach a conclusion on an individual loan if there is a
disagreement on the resolution of the claim. Private-label
securitization investors generally do not have the contractual right
to demand repurchase of loans directly or the right to access loan
files.
Experience with Monoline Insurers
Legacy companies sold $184.5 billion of loans originated between
2004 and 2008 into monoline-insured securitizations, which are
included in Table 13. At December 31, 2013, for loans originated
between 2004 and 2008, the unpaid principal balance of loans
related to unresolved monoline repurchase claims was $1.5 billion
compared to $2.4 billion at December 31, 2012. The decrease in
unresolved monoline repurchase claims was driven by the
resolution of claims through the MBIA Settlement.
During 2013, there was minimal repurchase claim activity with
the monolines and the monolines did not request any loan files
for review through the representations and warranties process.
However, there may be additional claims or file requests in the
future.
The MBIA Settlement in 2013 resolved outstanding and
potential claims between the parties to the settlement involving
31 first- and 17 second-lien RMBS trusts for which MBIA provided
financial guarantee insurance, including $945 million of monoline
repurchase claims outstanding at December 31, 2012. For more
information on the MBIA Settlement, see Note 7 – Representations
and Warranties Obligations and Corporate Guarantees to the
Consolidated Financial Statements.
Open Mortgage Insurance Rescission Notices
In addition to repurchase claims, we receive notices from mortgage
insurance companies of claim denials, cancellations or coverage
rescission (collectively, MI rescission notices). Although the
number of such open notices has remained elevated, they have
decreased over the last several quarters as the resolution of open
notices exceeded new notices.
At December 31, 2013, we had approximately 101,000 open
MI rescission notices compared to 110,000 at December 31,
2012. Open MI rescission notices at December 31, 2013 included
39,000 pertaining principally to first-lien mortgages serviced for
others, 10,000 pertaining to loans held-for-investment (HFI) and
52,000 pertaining to ongoing litigation for second-lien mortgages.
For more information on open mortgage insurance rescission
notices, see Note 7 – Representations and Warranties Obligations
and Corporate Guarantees to the Consolidated Financial
Statements.
Estimated Range of Possible Loss
We currently estimate that the range of possible loss for
representations and warranties exposures could be up to $4 billion
over existing accruals at December 31, 2013. The estimated range
of possible loss reflects principally non-GSE exposures. It
represents a reasonably possible loss, but does not represent a
probable loss, and is based on currently available information,
significant judgment and a number of assumptions that are subject
to change.
The liability for representations and warranties exposures and
the corresponding estimated range of possible loss do not
consider any losses related to litigation matters, including RMBS
litigation or litigation brought by monoline insurers, nor do they
include any separate foreclosure costs and related costs,
assessments and compensatory fees or any other possible losses
related to potential claims for breaches of performance of servicing
obligations, except as such losses are included as potential costs
of the BNY Mellon Settlement, potential securities law or fraud
claims or potential indemnity or other claims against us, including
claims related to loans insured by the FHA. We are not able to