Bank of America 2014 Annual Report Download - page 202

200 Bank of America 2014
investigate loan files or demand the repurchase of loans if security
holders hold a specified percentage, for example, 25 percent, of
the voting rights of each tranche of the outstanding securities.
However, in certain circumstances the Corporation believes that
trustees have presented repurchase claims without requiring
investors to meet contractual voting rights thresholds. The
population of private-label securitizations included in the BNY
Mellon Settlement encompasses almost all Countrywide first-lien
private-label securitizations including loans originated principally
between 2004 and 2008. For the remainder of the population of
private-label securitizations, claimants have come forward on
certain securitizations and the Corporation believes it is probable
that other claimants may continue to come forward with claims
that meet the contractual requirements of other securitizations.
Although the Corporation has not recorded any representations
and warranties liability for certain potential private-label
securitization and whole-loan exposures where the Corporation
has had little to no claim activity, or where the applicable statute
of limitations has expired, these exposures are included in the
estimated range of possible loss. For more information on the
representations and warranties liability and the corresponding
estimated range of possible loss, see Estimated Range of Possible
Loss in this Note.
The table below presents a rollforward of the liability for
representations and warranties and corporate guarantees.
Representations and Warranties and Corporate
Guarantees
(Dollars in millions) 2014 2013
Liability for representations and warranties and
corporate guarantees, January 1 $ 13,282 $ 19,021
Additions for new sales 836
Net reductions (1,892) (6,615)
Provision 683 840
Liability for representations and warranties and
corporate guarantees, December 31 $ 12,081 $ 13,282
The representations and warranties liability represents the
Corporation’s best estimate of probable incurred losses as of
December 31, 2014. However, it is reasonably possible that future
representations and warranties losses may occur in excess of the
amounts recorded for these exposures. Although the Corporation
has not recorded any representations and warranties liability for
certain potential private-label securitization and whole-loan
exposures where it has had little to no claim activity or where the
applicable statute of limitations has expired, these exposures are
included in the estimated range of possible loss.
Government-sponsored Enterprises Experience
Settlements with the GSEs have resolved substantially all
outstanding and potential mortgage repurchase and make-whole
claims relating to the origination, sale and delivery of residential
mortgage loans that were sold directly to FNMA through June 30,
2012 and to FHLMC through December 31, 2009, subject to
certain exclusions, which the Corporation does not expect will be
material.
Private-label Securitizations and Whole-loan Sales
Experience
In private-label securitizations, the applicable contracts contain
provisions that investors meet certain presentation thresholds to
direct a trustee to assert repurchase claims. However, in certain
circumstances, the Corporation believes that trustees have
presented repurchase claims without requiring investors to meet
contractual voting rights thresholds. Continued high levels of new
private-label claims are primarily the result of repurchase requests
received from trustees for private-label securitization transactions
not included in the BNY Mellon Settlement.
A December 2013 decision by the New York intermediate
appellate court held that, under New York law, which governs many
RMBS trusts, the six-year statute of limitations starts to run at the
time the representations and warranties are made, not the date
when the repurchase demand was denied. That decision has been
applied by the state and federal courts in several RMBS lawsuits
in which the Corporation is not a party, resulting in the dismissal
as untimely of claims involving representations and warranties
made more than six years prior to the initiation of the lawsuit.
Unless overturned by New York’s highest appellate court, which
has taken the case for review, this decision would apply to
representations and warranties claims and lawsuits brought
against the Corporation where New York law governs. A significant
amount of representations and warranties claims and/or lawsuits
the Corporation has received or may receive involve
representations and warranties claims where the statute of
limitations has expired under this ruling and has not been tolled
by agreement and which the Corporation therefore believes would
be untimely. The Corporation believes this ruling may have had an
influence on requests for tolling agreements and the pace of
lawsuits filed by private-label securitization trustees prior to the
expiration of the statute of limitations. In addition, it is possible
that in response to the statute of limitations rulings, parties
seeking to pursue representations and warranties claims and/or
lawsuits with respect to trusts where the statute of limitations for
representations and warranties claims against the sponsor and/
or issuer has run, may pursue alternate legal theories of recovery
and/or assert claims against other contractual parties. For
example, in 2014, institutional investors filed lawsuits against
trustees alleging failure to pursue representations and warranties
claims and servicer defaults based upon alleged contractual,
statutory and tort theories of liability. The impact on the
Corporation, if any, of such alternative legal theories or assertions
is unclear.
The private-label securitization agreements generally require
that counterparties have the ability to both assert a
representations and warranties claim and to 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