GE 2015 Annual Report Download - page 179

FINANCIAL STATEMENTS HELD FOR SALE & DISCONTINUED OPERATIONS
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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 that had an early payment default. All claims received by WMC for early payment
default have either been resolved or are no longer being pursued.
The remaining active claims have been brought by securitization trustees or administrators seeking recovery from WMC for alleged
breaches of representations and warranties on mortgage loans that serve as collateral for residential mortgage-backed securities
(RMBS). At December 31, 2015, such claims consisted of $2,887 million of individual claims generally submitted before the filing of a
lawsuit (compared to $3,694 million at December 31, 2014) and $8,047 million of additional claims asserted against WMC in litigation
without making a prior claim (Litigation Claims) (compared to $9,225 million at December 31, 2014). The total amount of these claims,
$10,934 million, reflects the purchase price or unpaid principal balances of the loans at the time of purchase and does not give effect to
pay downs or potential recoveries based upon the underlying collateral, which in many cases are substantial, nor to accrued interest or
fees. As of December 31, 2015, these amounts do not include approximately $112 million of repurchase claims relating to alleged
breaches of representations that are not in litigation and that are beyond the applicable statute of limitations. WMC believes that
repurchase claims brought based upon representations and warranties made more than six years before WMC was notified of the claim
would be disallowed in legal proceedings under applicable law and the June 11, 2015 decision of the New York Court of Appeals in
ACE Securities Corp. v. DB Structured Products, Inc., on the statute of limitations period governing such claims.
Reserves related to repurchase claims made against WMC were $875 million at December 31, 2015, reflecting a net increase to
reserves in the year December 31, 2015 of $66 million due to incremental provisions net of settlements. The reserve estimate takes into
account recent settlement activity and is based upon :0&¶V evaluation of the remaining exposures as a percentage of estimated
lifetime mortgage loan losses within the pool of loans supporting each securitization for which timely claims have been asserted in
litigation against WMC. Settlements in prior periods reduced :0&¶V exposure on claims asserted in certain securitizations and the
claim amounts reported above give effect to these settlements.
ROLLFORWARD OF THE RESERVE
December 31 (In millions) 2015 2014

Balance, beginning of period $ 809 $ 800
Provision 212
365
Claim resolutions / rescissions (146) (356)
Balance, end of period $ 875 $ 809
Given the significant litigation activity and :0&¶V continuing efforts to resolve the lawsuits involving claims made against WMC, it is
difficult to assess whether future losses will be consistent with :0&¶V past experience. Adverse changes to :0&¶V assumptions
supporting the reserve may result in an increase to these reserves. WMC estimates a range of reasonably possible loss from $0 to
approximately $500 million over its recorded reserve at December 31, 2015. This estimate involves significant judgment and may not
reflect the range of uncertainties and unpredictable outcomes inherent in litigation, including the matters discussed in Legal
Proceedings and potential changes in :0&¶V legal strategy. This estimate excludes any possible loss associated with an adverse court
decision on the applicable statute of limitations or an adverse outcome in the Financial Institutions Reform, Recovery, and Enforcement
Act of 1989 (FIRREA) investigation discussed in Legal Proceedings, as WMC is unable at this time to develop such a meaningful
estimate.
At December 31, 2015, there were 14 lawsuits involving claims made against WMC arising from alleged breaches of representations
and warranties on mortgage loans included in 13 securitizations. The adverse parties in these cases are securitization trustees or
parties claiming to act on their behalf. Although the alleged claims for relief vary from case to case, the complaints and counterclaims in
these actions generally assert claims for breach of contract, indemnification, and/or declaratory judgment, and seek specific
performance (repurchase of defective mortgage loan) and/or money damages. Adverse court decisions, including in cases not involving
WMC, could result in new claims and lawsuits on additional loans. However, WMC continues to believe that it has defenses to the
claims asserted in litigation, including, for example, based on causation and materiality requirements and applicable statutes of
limitations. It is not possible to predict the outcome or impact of these defenses and other factors, any of which could materially affect
the amount of any loss ultimately incurred by WMC on these claims.
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