Bank of America 2015 Annual Report Download - page 47

Bank of America 2015 45
resolve legacy mortgage-related issues, we have reached
settlements, certain of which have been for significant amounts,
in lieu of a loan-by-loan review process, including with the GSEs,
four monoline insurers and BNY Mellon, as trustee for certain
securitization trusts.
For more information on accounting for representations and
warranties, repurchase claims and exposures, see Note 7 –
Representations and Warranties Obligations and Corporate
Guarantees and Note 12 – Commitments and Contingencies to the
Consolidated Financial Statements and Item 1A. Risk Factors of
our 2015 Annual Report on Form 10-K.
Settlement with the Bank of New York Mellon, as Trustee
On April 22, 2015, the New York County Supreme Court entered
final judgment approving the BNY Mellon Settlement. In October
2015, BNY Mellon obtained certain state tax opinions and an IRS
private letter ruling confirming that the settlement will not impact
the real estate mortgage investment conduit tax status of the
trusts. The final conditions of the settlement have been satisfied
and, accordingly, the Corporation made the settlement payment
to BNY Mellon of $8.5 billion in February 2016. Pursuant to the
settlement agreement, allocation and distribution of the $8.5
billion settlement payment is the responsibility of the RMBS
trustee, BNY Mellon. On February 5, 2016, BNY Mellon filed an
Article 77 proceeding in the New York County Supreme Court
asking the court for instruction with respect to certain issues
concerning the distribution of each trust’s allocable share of the
settlement payment and asking that the settlement payment be
ordered to be held in escrow pending the outcome of this Article
77 proceeding. The Corporation is not a party to this proceeding.
New York Court Decision on Statute of Limitations
On June 11, 2015, the New York Court of Appeals, New York’s
highest appellate court, issued its opinion on the statute of
limitations applicable to representations and warranties claims in
ACE Securities Corp. v. DB Structured Products, Inc. (ACE). The Court
of Appeals held that, under New York law, a claim for breach of
contractual representations and warranties begins to run at the
time the representations and warranties are made, and rejected
the argument that the six-year statute of limitations does not begin
to run until the time repurchase is refused. The Court of Appeals
also held that compliance with the contractual notice and cure
period was a pre-condition to filing suit, and claims that did not
comply with such contractual requirements prior to the expiration
of the statute of limitations period were invalid. While no entity
affiliated with the Corporation was a party to this litigation, the
vast majority of the private-label RMBS trusts into which entities
affiliated with the Corporation sold loans and made
representations and warranties are governed by New York law.
While the Corporation treats claims where the statute of limitations
has expired, as determined in accordance with the ACE decision,
as time-barred and therefore resolved and no longer outstanding,
investors or trustees have sought to distinguish certain aspects
of the ACE decision or to assert other claims against RMBS
counterparties seeking to avoid or circumvent the impact of the
ACE decision. For example, a recent ruling by a New York
intermediate appellate court allowed a counterparty to pursue
litigation on loans in the entire trust even though only some of the
loans complied with the condition precedent of timely pre-suit
notice and opportunity to cure or repurchase. The potential impact
on the Corporation, if any, of judicial limitations on the ACE decision,
or claims seeking to distinguish or avoid the ACE decision is unclear
at this time. For additional information, see Note 7 –
Representations and Warranties Obligations and Corporate
Guarantees to the Consolidated Financial Statements.
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, we
determine that the applicable statute of limitations has expired,
or representations and warranties claims with respect to the
applicable trust are settled, and fully and finally released. When
a claim is denied and we do not receive a response from the
counterparty, the claim remains in the unresolved repurchase
claims balance until resolution in one of the ways described above.
At December 31, 2015, we had $18.4 billion of unresolved
repurchase claims, net of duplicate claims, compared to $22.8
billion at December 31, 2014. These repurchase claims primarily
relate to private-label securitizations and exclude claims in the
amount of $7.4 billion at December 31, 2015 where the statute
of limitations has expired without litigation being commenced. At
December 31, 2014, time-barred claims of $5.2 billion were
included in unresolved repurchase claims. The notional amount
of unresolved repurchase claims at both December 31, 2015 and
2014 includes $3.5 billion of claims related to loans in specific
private-label securitization groups or tranches where we own
substantially all of the outstanding securities. For additional
information, see Note 7 – Representations and Warranties
Obligations and Corporate Guarantees to the Consolidated
Financial Statements.
The overall decrease in the notional amount of outstanding
unresolved repurchase claims in 2015 is primarily due to the
impact of time-barred claims under the ACE decision, partially
offset by new claims from private-label securitization trustees.
Outstanding repurchase claims remain unresolved primarily due
to (1) the level of detail, support and analysis accompanying such
claims, which impact overall claim quality and, therefore, claims
resolution and (2) the lack of an established process to resolve
disputes related to these claims.
As a result of various bulk 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 Financial
Corporation (Countrywide) to FNMA and FHLMC through June 30,
2012 and December 31, 2009, respectively. At December 31,
2015, the notional amount of unresolved repurchase claims
submitted by the GSEs was $14 million for loans originated prior
to 2009. For more information on the monolines and experience
with the GSEs, see Note 7 – Representations and Warranties
Obligations and Corporate Guarantees to the Consolidated
Financial Statements.
During 2015 and 2014, we had limited loan-level
representations and warranties repurchase claims experience with
the monoline insurers due to bulk settlements in prior years and
ongoing litigation with a single monoline insurer. For additional