Bank of America 2015 Annual Report Download - page 190

188 Bank of America 2015
The Corporation’s representations and warranties liability and
the corresponding estimated range of possible loss at
December 31, 2015 considers, among other things, implied
repurchase experience based on the BNY Mellon Settlement,
adjusted to reflect differences between the trusts covered by the
settlement and the remainder of the population of private-label
securitizations where the statute of limitations for representations
and warranties claims has not expired. Since the securitization
trusts that were included in the BNY Mellon Settlement differ from
those that were not included in the BNY Mellon Settlement, the
Corporation adjusted the repurchase experience implied in the
settlement in order to determine the representations and
warranties liability and the corresponding estimated range of
possible loss.
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) 2015 2014
Liability for representations and warranties and
corporate guarantees, January 1 $ 12,081 $ 13,282
Additions for new sales 68
Net reductions (722) (1,892)
Provision (benefit) (39) 683
Liability for representations and warranties and
corporate guarantees, December 31 (1) $ 11,326 $ 12,081
(1) In February 2016, the Corporation made an $8.5 billion settlement payment to BNY Mellon as
part of the BNY Mellon Settlement.
The representations and warranties liability represents the
Corporation’s estimate of probable incurred losses as of
December 31, 2015. However, it is reasonably possible that future
representations and warranties losses may occur in excess of the
amounts recorded for these exposures.
Estimated Range of Possible Loss
The Corporation currently estimates that the range of possible
loss for representations and warranties exposures could be up to
$2 billion over existing accruals at December 31, 2015. The
Corporation treats claims that are time-barred as resolved and
does not consider such claims in the estimated range of possible
loss. The estimated range of possible loss reflects principally
exposures related to loans in private-label securitization trusts. 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.
The liability for representations and warranties exposures and
the corresponding estimated range of possible loss do not
consider certain losses related to servicing (except as such losses
are included as potential costs of the BNY Mellon Settlement),
including foreclosure and related costs, fraud, indemnity, or claims
(including for RMBS) related to securities law or monoline
insurance litigation. Losses with respect to one or more of these
matters could be material to the Corporation’s results of
operations or liquidity for any particular reporting period.
Future provisions and/or ranges of possible loss for
representations and warranties may be significantly impacted if
actual experiences are different from the Corporation’s
assumptions in predictive models, including, without limitation,
the actual repurchase rates on loans in trusts not settled as part
of the BNY Mellon settlement which may be different than the
implied repurchase experience, estimated MI rescission rates,
economic conditions, estimated home prices, consumer and
counterparty behavior, the applicable statute of limitations,
potential indemnity obligations to third parties to whom the
Corporation has sold loans subject to representations and
warranties and a variety of other judgmental factors. Adverse
developments with respect to one or more of the assumptions
underlying the liability for representations and warranties and the
corresponding estimated range of possible loss could result in
significant increases to future provisions and/or the estimated
range of possible loss.
Cash Payments
During 2015 and 2014, excluding amounts paid in bulk
settlements, the Corporation made loan repurchases and
indemnification payments totaling $229 million and $496 million,
respectively for first-lien and home equity loan repurchases and
indemnification payments to reimburse investors or securitization
trusts. The payments resulted in realized losses of $128 million
and $334 million in 2015 and 2014 on unpaid principal amounts
of $587 million and $857 million, respectively.
In February 2016, the Corporation made an $8.5 billion
settlement payment to BNY Mellon as part of the BNY Mellon
Settlement.