Bank of America 2014 Annual Report Download - page 216

214 Bank of America 2014
estimable, the Corporation will establish an accrued liability with
respect to such loss contingency and record a corresponding
amount of litigation-related expense. The Corporation continues
to monitor the matter for further developments that could affect
the amount of the accrued liability that has been previously
established. Excluding expenses of internal or external legal
service providers, litigation-related expense of $16.4 billion was
recognized for 2014 compared to $6.1 billion for 2013.
For a limited number of the matters disclosed in this Note for
which a loss, whether in excess of a related accrued liability or
where there is no accrued liability, is reasonably possible in future
periods, the Corporation is able to estimate a range of possible
loss. In determining whether it is possible to estimate a range of
possible loss, the Corporation reviews and evaluates its material
litigation, regulatory and governmental matters on an ongoing
basis, in conjunction with any outside counsel handling the matter,
in light of potentially relevant factual and legal developments.
These may include information learned through the discovery
process, rulings on dispositive motions, settlement discussions,
and other rulings by courts, arbitrators or others. In cases in which
the Corporation possesses sufficient appropriate information to
estimate a range of possible loss, that estimate is aggregated and
disclosed below. There may be other disclosed matters for which
a loss is probable or reasonably possible but such an estimate of
the range of possible loss may not be possible. For those matters
where an estimate of the range of possible loss is possible,
management currently estimates the aggregate range of possible
loss is $0 to $2.7 billion in excess of the accrued liability (if any)
related to those matters. This estimated range of possible loss
is based upon currently available information and is subject to
significant judgment and a variety of assumptions, and known and
unknown uncertainties. The matters underlying the estimated
range will change from time to time, and actual results may vary
significantly from the current estimate. Those matters for which
an estimate is not possible are not included within this estimated
range. Therefore, this estimated range of possible loss represents
what the Corporation believes to be an estimate of possible loss
only for certain matters meeting these criteria. It does not
represent the Corporation’s maximum loss exposure.
Information is provided below regarding the nature of all of
these contingencies and, where specified, the amount of the claim
associated with these loss contingencies. Based on current
knowledge, management does not believe that loss contingencies
arising from pending matters, including the matters described
herein, will have a material adverse effect on the consolidated
financial position or liquidity of the Corporation. However, in light
of the inherent uncertainties involved in these matters, some of
which are beyond the Corporation’s control, and the very large or
indeterminate damages sought in some of these matters, an
adverse outcome in one or more of these matters could be material
to the Corporation’s results of operations or cash flows for any
particular reporting period.
Bond Insurance Litigation
Ambac Countrywide Litigation
The Corporation, Countrywide and other Countrywide entities are
named as defendants in an action filed on September 29, 2010
and as amended on May 28, 2013, by Ambac Assurance
Corporation and the Segregated Account of Ambac Assurance
Corporation (together, Ambac), entitled Ambac Assurance
Corporation and The Segregated Account of Ambac Assurance
Corporation v. Countrywide Home Loans, Inc., et al. This action,
currently pending in New York Supreme Court, New York County,
relates to bond insurance policies provided by Ambac on certain
securitized pools of second-lien (and in one pool, first-lien)
HELOCs, first-lien subprime home equity loans and fixed-rate
second-lien mortgage loans. Plaintiffs allege that they have paid
claims as a result of defaults in the underlying loans and assert
that the Countrywide defendants misrepresented the
characteristics of the underlying loans and breached certain
contractual representations and warranties regarding the
underwriting and servicing of the loans. Plaintiffs also allege that
the Corporation is liable based on successor liability theories.
Damages claimed by Ambac are in excess of $2.2 billion and
include the amount of payments for current and future claims it
has paid or claims it will be obligated to pay under the policies,
increasing over time as it pays claims under relevant policies, plus
unspecified punitive damages.
On December 30, 2014, Ambac filed a second complaint in
the same court against the same defendants, claiming fraudulent
inducement against Countrywide and successor and vicarious
liability against the Corporation relating to eight partially Ambac-
insured RMBS transactions that closed between 2005 and 2007,
all backed by negative amortization pay option adjustable-rate
mortgage (ARM) loans that were originated in whole or in part by
Countrywide. Seven of the eight securitizations were issued and
underwritten by non-parties to the litigation. Ambac claims
damages in excess of $600 million consisting of all alleged past
and future claims against its policies, plus other unspecified
compensatory and punitive damages.
Also on December 30, 2014, Ambac filed a third action in
Wisconsin Circuit Court, Dane County, against Countrywide Home
Loans, Inc., claiming that it was fraudulently induced to insure
portions of five securitizations issued and underwritten in 2005
by a non-party that included Countrywide originated first-lien
negative amortization pay option ARM loans. The complaint
claims damages in excess of $350 million for all alleged past and
future Ambac insured claims payment obligations plus other
unspecified compensatory and punitive damages.
Ambac First Franklin Litigation
On April 16, 2012, Ambac sued First Franklin Financial Corp., BANA,
MLPF&S, Merrill Lynch Mortgage Lending, Inc. (MLML), and Merrill
Lynch Mortgage Investors, Inc. in New York Supreme Court, New
York County. Plaintiffs’ claims relate to guaranty insurance Ambac
provided on a First Franklin securitization (Franklin Mortgage Loan
Trust, Series 2007-FFC). The securitization was sponsored by
MLML, and certain certificates in the securitization were insured
by Ambac. The complaint alleges that defendants breached
representations and warranties concerning the origination of the
underlying mortgage loans and asserts claims for fraudulent
inducement, breach of contract and indemnification. Plaintiffs also
assert breach of contract claims against BANA based upon its
servicing of the loans in the securitization. The complaint alleges
that Ambac has paid hundreds of millions of dollars in claims and
has accrued and continues to accrue tens of millions of dollars in
additional claims, and Ambac seeks as damages the total claims
it has paid and its projected claims payment obligations, as well
as specific performance of defendants’ contractual repurchase
obligations.