Bank of America 2014 Annual Report Download - page 50

48 Bank of America 2014
Consolidated Financial Statements and Item 1A. Risk Factors of
our 2014 Annual Report on Form 10-K.
Unresolved Repurchase Claims
Unresolved representations and warranties repurchase claims
represent the notional amount of repurchase claims made by
counterparties, typically the outstanding principal balance or the
unpaid principal balance at the time of default. In the case of first-
lien mortgages, the claim amount is often significantly greater than
the expected loss amount due to the benefit of collateral and, in
some cases, MI or mortgage guarantee payments. Claims received
from a counterparty remain outstanding until the underlying loan
is repurchased, the claim is rescinded by the counterparty or the
representations and warranties claims with respect to the
applicable trust are settled, and fully and finally released. When
a claim is denied and the Corporation does not receive a response
from the counterparty, the claim remains in the unresolved
repurchase claims balance until resolution.
At December 31, 2014, we had $22.4 billion of unresolved
repurchase claims, net of duplicate claims, compared to $18.7
billion at December 31, 2013. These repurchase claims relate
primarily to private-label securitizations and include claims in the
amount of $4.7 billion, net of duplicate claims, where we believe
the statute of limitations has expired under current law. For
additional information, see Note 7 – Representations and
Warranties Obligations and Corporate Guarantees to the
Consolidated Financial Statements.
The continued increase in the notional amount of unresolved
repurchase claims during 2014 is primarily due to: (1) continued
submission of claims by private-label securitization trustees, (2)
the level of detail, support and analysis accompanying such claims,
which impact overall claim quality and, therefore, claims resolution,
(3) the lack of an established process to resolve disputes related
to these claims, (4) the submission of claims where we believe
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 unresolved repurchase claims, we have received
notifications pertaining to loans for which we have not received a
repurchase request from sponsors of third-party securitizations
with whom we engaged in whole-loan transactions and that we may
owe indemnity obligations. These notifications totaled $2.0 billion
and $737 million at December 31, 2014 and 2013.
We also from time to time receive correspondence purporting
to raise representations and warranties breach issues from
entities that do not have contractual standing or ability to bring
such claims. We believe such communications to be procedurally
and/or substantively invalid, and generally do 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 our estimated
liability for obligations under representations and warranties and
the corresponding estimated range of possible loss.
Representations and Warranties Liability
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. For more information on the representations
and warranties liability and the corresponding estimated range of
possible loss, see Off-Balance Sheet Arrangements and
Contractual Obligations – Estimated Range of Possible Loss on
page 50.
At December 31, 2014 and 2013, the liability for
representations and warranties was $12.1 billion and $13.3
billion. For 2014, the representations and warranties provision
was $683 million compared to $840 million for 2013.
Our estimated liability at December 31, 2014 for obligations
under representations and warranties is necessarily dependent
on, and limited by a number of factors including for private-label
securitizations the implied repurchase experience based on the
BNY Mellon Settlement, as well as certain other assumptions and
judgmental factors. Accordingly, future provisions associated with
obligations under representations and warranties may be
materially impacted if actual experiences are different from
historical experience or our understandings, interpretations or
assumptions. Although we have not recorded any representations
and warranties liability for certain potential private-label
securitization and whole-loan exposures where we have had little
to no claim activity, or where the applicable statute of limitations
has expired under current law, these exposures are included in
the estimated range of possible loss.
Experience with Government-sponsored Enterprises
As a result of various settlements with the GSEs, we have resolved
substantially all outstanding and potential representations and
warranties repurchase claims on whole loans sold by legacy Bank
of America and Countrywide to Fannie Mae (FNMA) and Freddie
Mac (FHLMC) through June 30, 2012 and December 31, 2009,
respectively. For additional information, see Note 7 –
Representations and Warranties Obligations and Corporate
Guarantees to the Consolidated Financial Statements.
Experience with Investors Other than Government-
sponsored Enterprises
In prior years, legacy companies and certain subsidiaries sold
pools of first-lien residential mortgage loans and home equity loans
as private-label securitizations or in the form of whole loans to
investors other than GSEs (although the GSEs are investors in
certain private-label securitizations). Such loans originated from
2004 through 2008 had an original principal balance of $970
billion, including $786 billion sold to private-label and whole-loan
investors without monoline insurance and $185 billion with
monoline insurance. Of the $970 billion, $574 billion in principal
has been paid, $201 billion in principal has defaulted, $44 billion
in principal was severely delinquent, and $151 billion in principal
was current or less than 180 days past due at December 31, 2014
as summarized in Table 12. Of the original principal balance of
$716 billion for Countrywide, $409 billion is included in the BNY
Mellon Settlement and, of this amount, $109 billion was defaulted
or severely delinquent at December 31, 2014.