Bank of America 2015 Annual Report Download - page 48

46 Bank of America 2015
information, see Note 12 – Commitments and Contingencies to the
Consolidated Financial Statements.
In addition to unresolved repurchase claims, we have received
notifications from sponsors of third-party securitizations with
whom we engaged in whole-loan transactions indicating that we
may have indemnity obligations with respect to loans for which we
have not received a repurchase request. These outstanding
notifications totaled $1.4 billion and $2.0 billion at December 31,
2015 and 2014.
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.
The presence of repurchase claims on a given trust, receipt of
notices of indemnification obligations and receipt of other
communications, as discussed above, are all factors that inform
our liability for 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 47 and Note 7 – Representations and Warranties Obligations
and Corporate Guarantees to the Consolidated Financial
Statements.
At December 31, 2015 and 2014, the liability for
representations and warranties was $11.3 billion and $12.1
billion, which included $8.5 billion related to the BNY Mellon
Settlement. The representations and warranties benefit was $39
million for 2015 compared to a provision of $683 million for 2014.
The benefit in the provision for representations and warranties for
2015 compared to a provision in 2014 was primarily driven by the
impact of the ACE decision.
Our liability for 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. Where relevant, we also
consider more recent experience, such as claim activity,
notification of potential indemnification obligations, our experience
with various counterparties, the ACE decision, other recent court
decisions related to the statute of limitations, and other facts and
circumstances, such as bulk settlements, as we believe
appropriate. Accordingly, future provisions associated with
obligations under representations and warranties may be
materially impacted if future experiences are different from
historical experience or our understandings, interpretations or
assumptions.
Experience with Investors Other than Government-
sponsored Enterprises
Prior to 2009, 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 the GSEs (although the GSEs are investors
in certain private-label securitizations). The majority of the loans
sold were included in private-label securitizations, including third-
party sponsored transactions. We provided representations and
warranties to the whole-loan investors and these investors may
retain those rights even when the whole loans were aggregated
with other collateral into private-label securitizations sponsored
by the whole-loan investors. 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. Taking into account settlements and
the application of the statute of limitations for repurchase claims
for these trusts, we believe the remaining open exposure for
repurchase claims exists on loans with an original principal
balance of $102 billion. Of the $102 billion, $45 billion has been
paid in full and $42 billion has defaulted or was severely delinquent
at December 31, 2015. At least 25 payments have been made on
approximately 62 percent of these defaulted and severely
delinquent loans. These remaining loans with open exposure
predominantly relate to legacy Countrywide and First Franklin
Financial Corporation originations of pay option and subprime first
mortgages.
As it relates to private-label securitizations, a contractual
liability to repurchase mortgage loans generally arises if there is
a breach of representations and warranties that materially and
adversely affects the interest of the investor or all the investors
in a securitization trust or of the monoline insurer or other financial
guarantor (as applicable).
We have received approximately $32.7 billion of
representations and warranties repurchase claims related to loans
originated between 2004 and 2008 including $23.7 billion from
private-label securitization trustees and a financial guarantee
provider, $8.2 billion from whole-loan investors and $816 million
from one private-label securitization counterparty. New private-
label claims are primarily related to repurchase requests received
from trustees for private-label securitization transactions not
included in the BNY Mellon Settlement. Of the $32.7 billion in
claims, we have resolved $16.0 billion of these claims with losses
of $1.9 billion. Approximately $3.6 billion of these claims were
resolved through repurchase or indemnification, $4.7 billion were
rescinded by the investor, $325 million were resolved through
settlements and $7.4 billion are time-barred under the applicable
statute of limitations and are therefore considered resolved.
At December 31, 2015, for these vintages, the notional amount
of unresolved repurchase claims submitted by private-label
securitization trustees, whole-loan investors, including third-party
securitization sponsors and others was $16.7 billion. We have
performed an initial review with respect to substantially all of these
claims and although we do not believe a valid basis for repurchase
has been established by the claimant, we consider such claims
activity in the computation of our liability for representations and
warranties. Until we receive a repurchase claim, we generally do
not review loan files related to private-label securitizations and
believe we are not required by the governing documents to do so,
unless particular facts suggest we should review an individual loan
file.