Capital One 2009 Annual Report Download - page 80

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representations and warranties. In the event of a repurchase, GreenPoint is typically required to pay the then unpaid principal balance
of the loan together with interest and certain expenses (including, in certain cases, legal costs incurred by the purchaser and/or others),
and GreenPoint recovers the underlying collateral. GreenPoint is exposed to any losses on the repurchased loans after giving effect to
recoveries on the collateral. GreenPoint may also be required to indemnify certain purchasers and others against losses they incur in
the event of breaches of representations and warranties and in various other circumstances, and the amount of such losses could
exceed the repurchase amount of the related loans.
Most of the recent repurchase and indemnification requests received by GreenPoint and the lawsuit against it (see below) relate to
mortgage loans sold between 2005 and 2007. During this period, GreenPoint sold an aggregate of approximately $97.8 billion original
principal balance of mortgage loans, some of which have been repaid, but a significant amount of which remains outstanding. CONA
guaranteed certain of GreenPoint’s obligations with respect to certain mortgage loans sold beginning in December 2006 having an
original principal balance of approximately $3.9 billion.
At December 31, 2009, GreenPoint had open repurchase requests relating to approximately $943 million original principal balance of
mortgage loans (up from $639 million at December 31, 2008). The Company considers open requests to be requests with respect to
specific mortgage loans received within the past 24 months that are in the process of being paid, are under review or have been denied
by GreenPoint but not rescinded by the party requesting repurchase. Most of the open requests fall in this last category. In addition to
the foregoing open repurchase requests, GreenPoint is also a defendant in a lawsuit seeking, among other things, to require it to
repurchase an entire portfolio of approximately 30,000 mortgage loans within a certain securitization trust based on alleged breaches
of representations and warranties relating to a limited sampling of loans in the portfolio. See “Note 21—Commitments Contingencies
and Guarantees” for a discussion of the U.S. Bank litigation. GreenPoint has also received requests for indemnification in connection
with a number of lawsuits in which GreenPoint is not a party, including both representation and warranty litigation and securities class
actions brought on behalf of investors in securitization trusts that in the aggregate hold a significant principal balance of mortgage
loans for which GreenPoint was identified as the originator. The Company believes that a significant number of mortgage loans at
issue in the litigations referred to above as well as a significant number of mortgage loans sold by GreenPoint as to which no
repurchase or indemnification requests have been received are currently delinquent or already foreclosed on.
The Company has established a reserve in its consolidated financial statements for potential losses that are considered to be both
probable and reasonably estimable related to the mortgage loans sold by GreenPoint. The adequacy of the reserve is evaluated on a
quarterly basis and changes in the reserve are reported in discontinued operations. Factors considered in the evaluation process include
the amount of open repurchase requests, including any repurchase requests for specifically identified loans subject to representation
and warranty litigation against GreenPoint or against others demanding indemnification, the estimated amount of additional
repurchase requests to be received over the next 12 months (beyond which the Company does not believe that a reasonable assessment
can be made) based on the historical relationship between mortgage loan performance and repurchase requests and the estimated level
of future mortgage loan performance, the estimated success rate of claimants in pursuing requests, and the estimated recoveries by
GreenPoint on the underlying collateral. The Company expects that over the next 12 months both the delinquency rates on
GreenPoint-originated mortgage loans and the severity of losses on collateral recoveries will continue to be high. The reserve does not
include amounts for the portfolio-wide repurchase claim relating to 30,000 loans with an aggregate original principal balance of $1.8
billion at issue in the U.S. Bank litigation (see “Note 21—Commitments Contingencies and Guarantees” for a discussion of the U.S.
Bank litigation) or for the indemnification requests with respect to securities class actions, in each case as referred to above because
neither is sufficiently probable and estimable. As noted, the reserve does include amounts for repurchase requests for specifically
identified loans(other than the portfolio-wide repurchase claim) at issue in the U.S. Bank litigation and for repurchase requests for
specifically identified loans at issue in other representation and warranty litigation for which GreenPoint indemnification is sought.
The adequacy of the reserve and the ultimate amount of losses incurred will depend on, among other things, the actual future mortgage
loan performance, the actual level of future repurchase and indemnification requests, the actual success rates of claimants,
developments in litigation against GreenPoint and others, GreenPoint’s actual recoveries on the collateral, and macroeconomic
conditions (including unemployment levels and housing prices).