Capital One 2010 Annual Report Download - page 191

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED STATEMENTS
171
Each of these subsidiaries may be required to repurchase mortgage loans in the event of certain breaches of these representations and
warranties. In the event of a repurchase, the subsidiary 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). The
subsidiary then recovers the loan or, if the loan has been foreclosed, the underlying collateral. The subsidiary is exposed to any losses
on the repurchased loans after giving effect to any recoveries on the collateral. In some instances, rather than repurchase the loans, a
subsidiary may agree to make a cash payment to make an investor whole on losses or to settle repurchase claims. In addition, our
subsidiaries may be required to indemnify certain purchasers and others against losses they incur as a result of certain breaches of
representations and warranties. In some cases, the amount of such losses could exceed the repurchase amount of the related loans.
These subsidiaries, in total, originated and sold to non-affiliates approximately $111 billion original principal balance of mortgage
loans between 2005 and 2008, which are the years (or “vintages”) with respect to which our subsidiaries have received the vast
majority of the repurchase requests and other related claims.
The following table sets forth the original principal balance of mortgage loan originations by vintage for the three general categories
of purchasers of mortgage loans:
Original Principal Balance of Mortgage Loans Originated and Sold to Third Parties Based on Category of Purchaser
(Dollars in billions) 2005 2006 2007 2008 Total
Government sponsored enterprises (“GSEs”)(1) ...
.
$ 3 $ 3 $ 4 $ 1 $ 11
Insured Securitizations .........................
.
9 8 1 0 18
Uninsured Securitizations and Other .............
.
33 30 16 3 82
Total ........................................
.
$ 45 $ 41 $ 21 $ 4 $ 111
________________________
(1) GSEs include Fannie Mae and Freddie Mac.
Between 2005 and 2008, our subsidiaries sold an aggregate amount of $11 billion in original principal balance mortgage loans to the GSEs.
Of the $18 billion in original principal balance of mortgage loans sold directly by our subsidiaries to private-label purchasers who
placed the loans into securitizations supported by bond insurance (“Insured Securitizations), approximately $13 billion original
principal balance was placed in securitizations as to which the monoline bond insurers have made repurchase requests or loan file
requests to one of our subsidiaries (“Active Insured Securitizations”), and the remaining approximately $5 billion original
principal balance was placed in securitizations as to which the monoline bond insurers have not made repurchase requests or loan file
requests to one of our subsidiaries (“Inactive Insured Securitizations”). Insured Securitizations often allow the monoline bond insurer
to act independently of the investors. Bond insurers typically have indemnity agreements directly with both the mortgage originators
and the securitizers, and they often have super-majority rights within the trust documentation that allow them to direct trustees to
pursue mortgage repurchase requests without coordination with other investors.
Because we do not service most of the loans our subsidiaries sold to others, we do not have complete information about the current
ownership of the $82 billion in original principal balance of mortgage loans not sold directly to GSEs or placed in Insured Securitizations.
We have determined from third-party databases that about $39 billion original principal balance of these mortgage loans are currently
held by private-label publicly issued securitizations not supported by bond insurance (“Uninsured Securitizations”). In contrast with the
bond insurers in Insured Securitizations, investors in Uninsured Securitizations often face a number of legal and logistical hurdles before
they can direct a securitization trustee to pursue mortgage repurchases, including the need to coordinate with a certain percentage of
investors holding the securities and to indemnify the trustee for any litigation it undertakes. An additional approximately $30 billion
original principal balance of mortgage loans were initially sold to private investors as whole loans. Of this amount, we believe
approximately $10 billion original principal balance of mortgage loans were ultimately purchased by GSEs. For purposes of our reserves-
setting process, we consider these loans to be private-label loans rather than GSE loans. We do not have information about the current
holders or disposition of the remaining $13 billion original principal balance mortgage loans in this category.
With respect to the $111 billion in original principal balance of mortgage loans originated and sold to others between 2005 and 2008,
we estimate that approximately $45 billion in unpaid principal balance remains outstanding, approximately $12 billion in losses have
been realized, and approximately $13 billion in unpaid principal balance is at least 90 days delinquent. Because we do not service
most of the loans we sold to others, we do not have complete information about the underlying credit performance levels of these
mortgage loans, but these amounts reflect our best estimates based on available data, including extrapolated estimates for the $13
billion original principal balance of mortgage loans about which we do not have information about the current holders. These
estimates could change as we get additional data or refine our analysis.