GE 2013 Annual Report Download - page 88

86 GE 2013 ANNUAL REPORT
    
claims payments of $361 million and the effects of a strength-
ening U.S. dollar against the Japanese yen of $148 million. Our
reserve at December 31, 2013 represents the estimated required
reimbursements for refund claims through March 31, 2014 in
accordance with the 2008 sale agreement and the amount pro-
vided for under the 2014 agreement with the buyer.
GE Money Japan earnings (loss) from discontinued operations,
net of taxes, were $(1,636) million, $(649) million and $(238) million
in 2013, 2012 and 2011, respectively.
WMC
During the fourth quarter of 2007, we completed the sale of WMC,
our U.S. mortgage business. WMC substantially discontinued all
new loan originations by the second quarter of 2007, and is not a
loan servicer. In connection with the sale, WMC retained certain
representation and warranty obligations related to loans sold to
third parties prior to the disposal of the business and contractual
obligations to repurchase previously sold loans as to which there
was an early payment default. All claims received by WMC for
early payment default have either been resolved or are no longer
being pursued.
Pending repurchase claims based upon representations and
warranties made in connection with loan sales were $5,643 mil-
lion at December 31, 2013, $5,357 million at December 31, 2012
and $705 million at December 31, 2011. Pending claims represent
those active repurchase claims that identify the specifi c loans
tendered for repurchase and, for each loan, the alleged breach
of a representation or warranty. As such, they do not include
unspecifi ed repurchase claims, such as the Litigation Claims dis-
cussed below, or claims relating to breaches of representations
that were made more than six years before WMC was notifi ed
of the claim. WMC believes that these repurchase claims do not
meet the substantive and procedural requirements for tender
under the governing agreements, would be disallowed in legal
proceedings under applicable statutes of limitations or are oth-
erwise invalid. The amounts reported in pending claims refl ect
the purchase price or unpaid principal balances of the loans
at the time of purchase and do not give effect to pay downs,
accrued interest or fees, or potential recoveries based upon the
underlying collateral. In the fourth quarter of 2013, WMC entered
into settlements that reduce its exposure on claims asserted
in certain securitizations. Pending claim and Litigation Claim
amounts reported herein refl ect the impact of these settlements.
Historically, a small percentage of the total loans WMC origi-
nated and sold have been treated as “validly tendered,” meaning
the loan was subject to repurchase because there was a breach
of a representation and warranty that materially and adversely
affected the value of the loan, and the demanding party met all
other procedural and substantive requirements for repurchase.
Reserves related to WMC pending and estimated future loan
repurchase claims were $800 million at December 31, 2013,
refl ecting a net increase to reserves in the year ended December
31, 2013 of $167 million due to incremental claim activity and
updates to WMC’s estimate of future losses. The amount of the
reserve is based upon pending loan repurchase requests, WMC’s
historical loss experience and evaluation of claim activity on
loans tendered for repurchase.
The following table provides a roll forward of the reserve and
pending repurchase claims.
Reserve
(In millions) 2013 2012
Balance at January 1 $ 633 $ 143
Provision 354 500
Claim resolutions/rescissions (187) (10)
Balance at December 31 $ 800 $ 633
Pending claims
(In millions) 2013 2012
Balance at January 1 $ 5,357 $ 705
New claims 1,259 4,838
Claim resolutions/rescissions (973) (186)
Balance at December 31 $ 5,643 $ 5,357
Given the signifi cant recent activity in pending claims and related
litigation fi led in connection with such claims, it is diffi cult to
assess whether future losses will be consistent with WMC’s past
experience. Adverse changes to WMC’s assumptions supporting
the reserve for pending and estimated future loan repurchase
claims may result in an increase to these reserves. For example, a
100% increase in the estimated loss rate on loans tendered (and
assuming settlements at current demands), would result in an
increase to the reserves of approximately $525 million.
As of December 31, 2013, there were 17 lawsuits involving
claims made against WMC arising from alleged breaches of rep-
resentations and warranties on mortgage loans included in 15
securitizations. Subsequent to December 31, 2013, three of these
lawsuits were dismissed leaving 14 lawsuits remaining. WMC
initiated one of the cases as the plaintiff; in the other cases WMC
is a defendant. The adverse parties in these cases are securitiza-
tion trustees or parties claiming to act on their behalf. In 12 of
these lawsuits, the adverse parties seek compensatory or other
relief for mortgage loans beyond those included in WMC’s previ-
ously discussed pending claims at December 31, 2013 (Litigation
Claims). These Litigation Claims consist of sampling-based
claims in two cases on approximately $600 million of mortgage
loans and, in the other 10 cases, claims for repurchase or dam-
ages based on the alleged failure to provide notice of defective
loans, breach of a corporate representation and warranty, and/
or non-specifi c claims for rescissionary damages on approxi-
mately $6,200 million of mortgage loans at December 31, 2013.