Capital One 2010 Annual Report Download - page 196

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED STATEMENTS
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having an aggregate original principal balance of approximately $1.8 billion to a purchaser that ultimately transferred most of these
mortgage loans to a securitization trust. Some of the securities issued by the trust were insured by two of the plaintiffs. Plaintiffs have
alleged breaches of representations and warranties with respect to a limited number of specific mortgage loans. Plaintiffs seek
unspecified damages and an order compelling GreenPoint to repurchase the entire portfolio of 30,000 mortgage loans based on alleged
breaches of representations and warranties relating to a limited sampling of loans in the portfolio, or, alternatively, the repurchase of
specific mortgage loans to which the alleged breaches of representations and warranties relate. On March 3, 2010, the Court granted
GreenPoint’s motion to dismiss with respect to plaintiffs Syncora and CIFG and denied the motion with respect to U.S. Bank. In
March 2010, GreenPoint answered the complaint with respect to U.S. Bank, denying the allegations, and filed a counterclaim against
U.S. Bank alleging breach of covenant of good faith and fair dealing. In April 2010, plaintiffs U.S. Bank, Syncora, and CIFG filed an
amended complaint seeking, among other things, the repurchase remedies described above and indemnification for losses suffered by
Syncora and CIFG. GreenPoint filed a motion to dismiss the amended complaint. On January 6, 2011, the Court instructed plaintiffs to
seek leave of court to file an amended complaint supported by an evidentiary showing of merit. As noted above, GreenPoint has
established reserves with respect to its probable and reasonably estimable legal liability from the U.S. Bank Lawsuit, which reserves
are included within the overall representation and warranty reserve. Also as noted above, GreenPoint has exposure to loss in excess of
the amount established within the overall representation and warranty reserve because GreenPoint has not established reserves with
respect to the portfolio-wide repurchase claim on the basis that the claim is not considered probable and reasonably estimable. In the
event GreenPoint is obligated to repurchase all 30,000 mortgage loans under the portfolio-wide repurchase claim, GreenPoint would
incur the current and future economic losses inherent in the portfolio. With respect to the mortgage loan portfolio at issue in the U.S.
Bank Litigation, we believe approximately $745 million of losses have been realized and approximately $437 million in mortgage
loans are still outstanding, of which approximately $36 million are more than 90 days delinquent, including foreclosures and REO.
In September 2010, DB Structured Products, Inc. (“DBSP”) named GreenPoint in a third-party complaint, filed in the New York
County Supreme Court, alleging breach of contract and seeking indemnification (the “DBSP Litigation”). In the underlying suit,
Assured Guaranty Municipal Corp. (“AGM”) sued DBSP for alleged breaches of representations and warranties made by DBSP with
respect to certain residential mortgage loans that collateralize a securitization insured by AGM and sponsored by DBSP (the
“Underlying Lawsuit”). DBSP purchased the HELOC loans from GreenPoint in 2006. The entire securitization is comprised of about
6,200 mortgage loans with an aggregate original principal balance of approximately $353 million. DBSP asserts that any liability it
faces lies with GreenPoint, alleging that DBSP’s representations and warranties to AGM are substantially similar to the
representations and warranties made by GreenPoint to DBSP. GreenPoint filed a motion to dismiss the complaint in October, 2010,
which motion is pending before the court. The parties are currently engaged in discovery. As noted above, GreenPoint has established
reserves with respect to its estimated probable and reasonable estimable legal liability from the DBSP Litigation, which reserves are
included within the overall representation and warranty reserve. Also as noted above, GreenPoint has not established a reserve with
respect to any portfolio-wide repurchase claim, but in the event GreenPoint is obligated to indemnify for DBSP for the repurchase of
all 6,200 mortgage loans, GreenPoint would incur the current and future economic losses inherent in the securitization. With respect to
these loans, we believe approximately $128 million of losses have been realized and approximately $75 million in mortgage loans are
still outstanding, of which approximately $4 million are more than 90 days delinquent, including foreclosures and REO.
Since July 2009, we have been providing documents and information in response to an inquiry by the Staff of the SEC. In the first quarter
of 2010, the SEC issued a formal order of investigation with respect to this inquiry. Although the order, as is generally customary,
authorizes a broader inquiry by the Staff, we believe that the investigation is focused largely on our method of determining the loan loss
reserves for our auto finance business for certain quarterly periods in 2007. We are cooperating fully with the Staff’s investigation.
In May 2010, Capital One Financial Corporation and COBNA were named as defendants in a putative class action named Steen v.
Capital One Financial Corporation, et al., filed in the U.S. District Court for the Eastern District of Louisiana. Plaintiff challenges our
practices relating to fees for overdraft and non-sufficient funds fees on consumer checking accounts. Plaintiff alleges that our
methodology for posting transactions to customer accounts is designed to maximize the generation of overdraft fees, supporting claims
for breach of contract, breach of the covenant of good faith and fair dealing, unconscionability, conversion, unjust enrichment and
violations of state unfair trade practices laws. Plaintiff seeks a range of remedies, including restitution, disgorgement, injunctive relief,
punitive damages and attorneys’ fees. In May, 2010, the case was transferred to the Southern District of Florida for coordinated pre-
trial proceedings as part of a multi-district litigation (MDL) involving numerous defendant banks, In re Checking Account Overdraft
Litigation. In January 2011, plaintiffs filed a second amended complaint against CONA in the MDL court. In February 2011,
CONA filed a motion to dismiss the second amended complaint.
On September 21, 2009, the Tax Court issued as decision in the case Capital One Financial Corporation and Subsidiaries v.
Commissioner covering tax years 1995-1999, with both parties prevailing on certain issues. On July 6, 2010, we filed a motion to
appeal certain issues upon which the IRS prevailed. The IRS chose not to appeal the issues upon which we prevailed resulting in a
final resolution of those issues favorable to us. Although the final resolution of the remaining issues in the case is uncertain and