Bank of America 2014 Annual Report Download - page 53

Bank of America 2014 51
National Mortgage Settlement
In March 2012, we entered into settlement agreements
(collectively, the National Mortgage Settlement) with the U.S.
Department of Justice, 49 State Attorneys General and certain
federal agencies. The National Mortgage Settlement provided for
the establishment of certain uniform servicing standards, upfront
cash payments of approximately $1.9 billion to the state and
federal governments and for borrower restitution, an upfront cash
payment of $500 million to settle certain claims related to FHA-
insured loans, approximately $7.6 billion worth of borrower
assistance in the form of credits earned for, among other things,
principal reduction, and approximately $1.0 billion of credits
earned for interest rate reduction modifications. The resulting
interest rate reductions, which were not accounted for as troubled
debt restructurings, resulted in an estimated decrease in fair value
of the modified loans of approximately $740 million and a
reduction in annual interest income of approximately $120 million.
The parties to the National Mortgage Settlement agreed to
release us from further liability for certain alleged residential
mortgage origination, servicing and foreclosure deficiencies. For
FHA-guaranteed loans originated on or before April 30, 2009, we
also received (1) a release of origination liability for loans where
an insurance claim had been submitted to the FHA prior to January
1, 2012 and (2) a release of multiple damages and penalties, but
not administrative indemnification claims for single damages, for
loans where no insurance claim had been submitted by January
1, 2012.
The independent monitor appointed as a result of the National
Mortgage Settlement to review and certify compliance with its
provisions has confirmed that we have substantially fulfilled all
commitments for borrower assistance, including principal
reductions, and interest rate reductions.
Mortgage Electronic Registration Systems, Inc.
We are subject to certain legal and contractual requirements for
how we hold, transfer, use or enforce promissory notes, security
instruments and other documents for residential mortgage loans
that we service. In recent years, challenges have been raised to
whether we have adhered to these requirements, and whether, as
a result in some instances, the loans can be enforced as local law
otherwise would permit. Additionally, we currently use the MERS
system for approximately half of the residential mortgage loans
that remain in our servicing portfolio, but individuals and certain
local governments have contended that the use of MERS is
improper or otherwise adversely affects the security interest. If
documentation requirements were not met, or if the use of MERS
or the MERS system is found not valid or effective, we could be
obligated to, or choose to, take remedial actions and may be
subject to additional costs or losses.
Impact of Foreclosure Delays
Foreclosure delays that impact our default-related servicing costs,
which include mortgage-related assessments, waivers and similar
costs, peaked in mid-2013 and have declined throughout 2014
as delinquencies declined. However, unexpected foreclosure
delays could impact the rate of decline. In 2014, we recorded $14
million of mortgage-related assessments, waivers and similar
costs related to foreclosure delays compared to $514 million in
2013.
Other Mortgage-related Matters
We continue to be subject to additional borrower and non-borrower
litigation and governmental and regulatory scrutiny related to our
past and current origination, servicing, transfer of servicing and
servicing rights, and foreclosure activities, including those claims
not covered by the National Mortgage Settlement or the DoJ
Settlement. This scrutiny may extend beyond our pending
foreclosure matters to issues arising out of alleged irregularities
with respect to previously completed foreclosure activities. The
ongoing environment of additional regulation, increased regulatory
compliance obligations, and enhanced regulatory enforcement,
combined with ongoing uncertainty related to the continuing
evolution of the regulatory environment, has resulted in operational
and compliance costs and may limit our ability to continue providing
certain products and services. For more information on
management’s estimate of the aggregate range of possible loss
and on regulatory investigations, see Note 12 – Commitments and
Contingencies to the Consolidated Financial Statements.
Mortgage-related Settlements – Servicing Matters
In connection with the BNY Mellon Settlement, BANA has agreed
to implement certain servicing changes related to loss mitigation
activities. BANA also agreed to transfer the servicing rights related
to certain high-risk loans to qualified subservicers on a schedule
that began with the signing of the BNY Mellon Settlement. This
servicing transfer protocol has reduced the servicing fees payable
to BANA. Upon final court approval of the BNY Mellon Settlement,
failure to meet the established benchmarking standards for loans
not in subservicing arrangements can trigger payment of agreed-
upon fees. Additionally, we and Countrywide have agreed to work
to resolve with the Trustee certain mortgage documentation issues
related to the enforceability of mortgages in foreclosure and to
reimburse the related Covered Trust for any loss if BANA is unable
to foreclose on the mortgage and the Covered Trust is not made
whole by a title policy because of these issues. These agreements
will terminate if final court approval of the BNY Mellon Settlement
is not obtained, although we could still have exposure under the
pooling and servicing agreements related to the mortgages in the
Covered Trusts for these issues.
BANA has agreed to implement uniform servicing standards
established under the National Mortgage Settlement. These
standards are intended to strengthen procedural safeguards and
documentation requirements associated with foreclosure,
bankruptcy and loss mitigation activities, as well as addressing
the imposition of fees and the integrity of documentation, with a
goal of ensuring greater transparency for borrowers. These uniform
servicing standards also obligate us to implement compliance
processes reasonably designed to provide assurance of the
achievement of these objectives. Compliance with the uniform
servicing standards is subject to ongoing review by the
independent monitor. Implementation of these uniform servicing
standards has contributed to elevated costs associated with the
servicing process, but is not expected to result in material delays
or dislocation in the performance of our mortgage servicing
obligations, including the completion of foreclosures.