Bank of America 2014 Annual Report Download - page 198

196 Bank of America 2014
which may include the GSEs, with sufficient holdings to direct or
influence action by the securitization trustee. In the case of loans
sold to parties other than the GSEs or GNMA, the Corporation
believes the contractual liability to repurchase typically arises only
if there is a 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. Currently, the volume of unresolved
repurchase claims from the FHA and VA for loans in GNMA-
guaranteed securities is not significant because the claims 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, including various
settlements with the GSEs, 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. These bulk settlements generally did not
cover all transactions with the relevant counterparties or all
potential claims that may arise, including in some instances
securities law, fraud and servicing claims. The Corporation’s
liability in connection with the transactions and claims not covered
by these settlements could be material to the Corporation’s results
of operations or cash flows for any particular reporting period. The
following provides a summary of the larger bulk settlement actions
during the past few years.
FHFA Settlement
On March 25, 2014, the Corporation entered into a settlement
with the Federal Housing Finance Agency (FHFA) as conservator of
FNMA and Freddie Mac (FHLMC) to resolve (1) all outstanding
RMBS litigation between FHFA, FNMA and FHLMC, and the
Corporation and its affiliates, and (2) other legacy contract claims
related to representations and warranties (collectively, the FHFA
Settlement). In connection with the FHFA Settlement, on April 1,
2014, the Corporation paid FNMA and FHLMC, collectively $9.5
billion and received from them RMBS with a fair market value of
approximately $3.2 billion, for a net cost of $6.3 billion.
Freddie Mac Settlement
On November 27, 2013, the Corporation entered into an
agreement with FHLMC under which the Corporation paid FHLMC
a total of $391 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, subject to certain exceptions which the Corporation does
not expect to be material, and to compensate FHLMC for certain
past losses and potential future losses relating to denials,
rescissions and cancellations of MI.
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 related 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 Open 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.
Monoline Settlements
FGIC Settlement
On April 7, 2014, the Corporation entered into a settlement with
Financial Guaranty Insurance Company (FGIC) for certain second-
lien RMBS trusts for which FGIC provided financial guarantee
insurance. In addition, on April 11, 2014, separate settlements
were entered into with the Bank of New York Mellon (BNY Mellon)
as trustee with respect to seven of those trusts; settlements on
two additional trusts with BNY Mellon as trustee were entered into
on May 15, 2014 and May 28, 2014. The agreements resolved