Bank of America 2014 Annual Report Download - page 52

50 Bank of America 2014
Experience with Monoline Insurers
During 2014, we had limited loan-level representations and
warranties repurchase claims experience with the monoline
insurers due to settlements and ongoing litigation with a single
monoline insurer. For more information related to the monolines,
see Note 7 – Representations and Warranties Obligations and
Corporate Guarantees and Note 12 – Commitments and
Contingencies to the Consolidated Financial Statements.
Estimated Range of Possible Loss
We currently estimate that the range of possible loss for
representations and warranties exposures could be up to $4 billion
over existing accruals at December 31, 2014. The estimated range
of possible loss reflects principally non-GSE exposures. It
represents a reasonably possible loss, but does not represent a
probable loss, and is based on currently available information,
significant judgment and a number of assumptions that are subject
to change.
For more information on the methodology used to estimate the
representations and warranties liability, the corresponding
estimated range of possible loss and the types of losses not
considered in such estimates, see Item 1A. Risk Factors of our
2014 Annual Report on Form 10-K and Note 7 – Representations
and Warranties Obligations and Corporate Guarantees to the
Consolidated Financial Statements and, for more information
related to the sensitivity of the assumptions used to estimate our
liability for obligations under representations and warranties, see
Complex Accounting Estimates – Representations and Warranties
Liability on page 110.
Department of Justice Settlement
On August 20, 2014, we reached a comprehensive settlement with
the DoJ and certain federal and state agencies (DoJ Settlement).
The DoJ Settlement included releases for securitization,
origination, sale and other specified conduct relating to RMBS and
collateralized debt obligations (CDOs), and an origination release
on specified populations of residential mortgage loans sold to
GSEs and private-label RMBS trusts. The DoJ Settlement resolved
certain actual and potential civil claims by the DoJ, the Securities
and Exchange Commission and State Attorneys General from six
states, the FHA and GNMA, as well as all pending RMBS claims
against Bank of America entities brought by the FDIC. For FHA-
insured loans originated on or after May 1, 2009, we also received
a release of origination liability for loans only if an insurance claim
had been submitted to the FHA prior to January 1, 2014. If a claim
had not been submitted by that date, we did not receive a release
and we may be exposed to losses on such loans. For more
information on FHA-insured loans originated on or before April 30,
2009, see Off-Balance Sheet Arrangements and Contractual
Obligations – National Mortgage Settlement on page 51.
As part of the DoJ Settlement, we paid civil monetary penalties
and compensatory remediation payments totaling $9.65 billion in
2014 and agreed to provide $7.0 billion worth of creditable
consumer relief activities primarily in the form of mortgage
modifications, including first-lien principal forgiveness and
forbearance modifications and second- and junior-lien
extinguishments, low- to moderate-income mortgage originations,
and community reinvestment and neighborhood stabilization
efforts, with initiatives focused on communities experiencing, or
at risk of, blight. In addition, we recorded $400 million of provision
for credit losses for additional costs associated with the consumer
relief portion of the settlement. Also, we will support the expansion
of available affordable rental housing. We have committed to
complete delivery of the consumer relief by no later than August
31, 2018. The consumer relief requirements are subject to
oversight by an independent monitor.
Servicing, Foreclosure and Other Mortgage Matters
We service a large portion of the loans we or our subsidiaries have
securitized and also service loans on behalf of third-party
securitization vehicles and other investors. Our servicing
obligations are set forth in servicing agreements with the
applicable counterparty. These obligations may include, but are
not limited to, loan repurchase requirements in certain
circumstances, indemnifications, payment of fees, advances for
foreclosure costs that are not reimbursable, or responsibility for
losses in excess of partial guarantees for VA loans.
Servicing agreements with the GSEs generally provide the GSEs
with broader rights relative to the servicer than are found in
servicing agreements with private investors. For example, the
GSEs claim that they have the contractual right to demand
indemnification or loan repurchase for certain servicing breaches.
In addition, the GSEs’ first-lien mortgage seller/servicer guides
provide timelines to resolve delinquent loans through workout
efforts or liquidation, if necessary, and purport to require the
imposition of compensatory fees if those deadlines are not
satisfied except for reasons beyond the control of the servicer. In
addition, many non-agency RMBS and whole-loan servicing
agreements state that the servicer may be liable for failure to
perform its servicing obligations in keeping with industry standards
or for acts or omissions that involve willful malfeasance, bad faith
or gross negligence in the performance of, or reckless disregard
of, the servicer’s duties.
It is not possible to reasonably estimate our liability with
respect to certain potential servicing-related claims. While we have
recorded certain accruals for servicing-related claims, the amount
of potential liability in excess of existing accruals could be material
to the Corporation’s results of operations or cash flows for any
particular reporting period.
2013 IFR Acceleration Agreement
On January 7, 2013, we and other mortgage servicing institutions
entered into an agreement in principle with the Office of the
Comptroller of the Currency (OCC) and the Federal Reserve to
cease the Independent Foreclosure Review (IFR) that had
commenced pursuant to consent orders entered into by Bank of
America with the Federal Reserve (2011 FRB Consent Order) and
the 2011 OCC Consent Order entered into between BANA and the
OCC and replaced it with an accelerated remediation process
(2013 IFR Acceleration Agreement). The 2013 IFR Acceleration
Agreement requires us to provide $1.8 billion of borrower
assistance in the form of loan modifications and other foreclosure
prevention actions, and in addition, we made a cash payment of
$1.1 billion into a qualified settlement fund in 2013. The borrower
assistance program is not expected to result in any incremental
credit provision, as we believe that the existing allowance for credit
losses is adequate to absorb any costs that have not already been
recorded as charge-offs.