Bank of America 2014 Annual Report Download - page 201

Bank of America 2014 199
resolution, (3) the lack of an established process to resolve
disputes related to these claims, (4) the submission of claims
where the Corporation believes the statute of limitations has
expired under current law and (5) the submission of duplicate
claims, often in multiple submissions, on the same loan. For
example, claims submitted without individual file reviews generally
lack the level of detail and analysis of individual loans found in
other claims that is necessary to support a claim. Absent any
settlements, the Corporation expects unresolved repurchase
claims related to private-label securitizations to increase as such
claims continue to be submitted and there is not an established
process for the ultimate resolution of such claims on which there
is a disagreement.
In addition to the unresolved repurchase claims in the
Unresolved Repurchase Claims by Counterparty and Product Type
table, the Corporation has received notifications pertaining to
loans for which the Corporation has not received a repurchase
request from sponsors of third-party securitizations with whom the
Corporation engaged in whole-loan transactions and that the
Corporation may owe indemnity obligations. These notifications
totaled $2.0 billion and $737 million at December 31, 2014 and
2013.
The Corporation also from time to time receives
correspondence purporting to raise representations and
warranties breach issues from entities that do not have contractual
standing or ability to bring such claims. The Corporation believes
such communications to be procedurally and/or substantively
invalid, and generally does not respond to such correspondence.
The presence of repurchase claims on a given trust, receipt of
notices of indemnification obligations and other communication,
as discussed above, are all factors that inform the Corporation’s
estimated liability for obligations under representations and
warranties and the corresponding estimated range of possible
loss.
Legacy companies sold $184.5 billion of loans originated
between 2004 and 2008 into monoline-insured securitizations. At
December 31, 2014 and 2013, for loans originated between 2004
and 2008, the unpaid principal balance of loans related to
unresolved monoline repurchase claims was $1.1 billion and $1.5
billion. Substantially all of the remaining unresolved monoline
claims pertain to second-lien loans and are currently the subject
of litigation with a single monoline insurer. There may be additional
claims or file requests in the future.
As a result of various settlements with the GSEs, the
Corporation has resolved substantially all outstanding and
potential representations and warranties repurchase claims on
whole loans sold by legacy Bank of America and Countrywide to
FNMA and FHLMC through June 30, 2012 and December 31, 2009,
respectively. After these settlements, the Corporation’s exposure
to representations and warranties liability for loans originated prior
to 2009 and sold to the GSEs is limited to loans with an original
principal balance of $18.3 billion and loans with certain defects
excluded from the settlements that the Corporation does not
believe will be material, such as certain specified violations of the
GSEs’ charters, fraud and title defects. As of December 31, 2014,
of the $18.3 billion, approximately $15.8 billion in principal has
been paid and $956 million in principal has defaulted or was
severely delinquent. The notional amount of unresolved
repurchase claims submitted by the GSEs was $48 million related
to these vintages.
Liability for Representations and Warranties and
Corporate Guarantees
The liability for representations and warranties and corporate
guarantees is included in accrued expenses and other liabilities
on the Consolidated Balance Sheet and the related provision is
included in mortgage banking income in the Consolidated
Statement of Income. The liability for representations and
warranties is established when those obligations are both
probable and reasonably estimable.
The Corporation’s estimated liability at December 31, 2014 for
obligations under representations and warranties given to the
GSEs and the corresponding estimated range of possible loss
considers, and is necessarily dependent on, and limited by, a
number of factors, including the Corporation’s experience related
to actual defaults, projected future defaults, historical loss
experience, estimated home prices and other economic
conditions. The methodology also considers such factors as the
number of payments made by the borrower prior to default as well
as certain other assumptions and judgmental factors.
The Corporation’s estimate of the non-GSE representations and
warranties liability and the corresponding estimated range of
possible loss at December 31, 2014 considers, among other
things, implied repurchase experience based on the BNY Mellon
Settlement, adjusted to reflect differences between the Covered
Trusts and the remainder of the population of private-label
securitizations, and assumes that the conditions to the BNY Mellon
Settlement will be met. Since the non-GSE securitization trusts
that were included in the BNY Mellon Settlement differ from those
that were not included in the BNY Mellon Settlement, the
Corporation adjusted the repurchase experience implied in the
settlement in order to determine the estimated non-GSE
representations and warranties liability and the corresponding
estimated range of possible loss. The judgmental adjustments
made include consideration of the differences in the mix of
products in the subject securitizations, loan originator, likelihood
of claims expected, the differences in the number of payments
that the borrower has made prior to default and the sponsor of
the securitizations. Where relevant, the Corporation also takes
into account more recent experience, such as increased claim
activity, notification of potential indemnification obligations, its
experience with various counterparties, recent court decisions
related to the statute of limitations as summarized below and
other facts and circumstances, such as bulk settlements, as the
Corporation believes appropriate.
A factor that impacts the non-GSE representations and
warranties liability and the portion of the estimated range of
possible loss corresponding to non-GSE representations and
warranties exposures is the likelihood that claims will be
presented, which is impacted by a number of factors, including
contractual provisions that investors meet certain presentation
thresholds under the non-GSE securitization agreements. A
securitization trustee may investigate or demand repurchase on
its own action, and most agreements contain a presentation
threshold, for example 25 percent of the voting rights per trust,
that allows investors to declare a servicing event of default under
certain circumstances or to request certain action, such as
requesting loan files, that the trustee may choose to accept and
follow, exempt from liability, provided the trustee is acting in good
faith. If there is an uncured servicing event of default and the
trustee fails to bring suit during a 60-day period, then, under most
agreements, investors may file suit. In addition to this, most
agreements allow investors to direct the securitization trustee to