Capital One 2010 Annual Report Download - page 85

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Table 25 sets forth information on pending repurchase requests by counterparty category and timing of initial repurchase request:
Table 25: Open Pipeline All Vintages (all entities)(1)
(Dollars in millions) (All amounts are Original
Principal Balance)
Open Claims
December 31,
2009
Gross New
Demands
Received in
2010
Loans
Repurchased/Made
Whole in 2010(2)
Demands
Rescinded
in 2010(2)
Open Claims
December 31,
2010
GSEs .................................... $ 61 $ 204 $ (52) $ (87) $ 126
Insured Securitizations .................... 366 645 (179) 0 832
Uninsured Securitizations and Others ....... 588 104 (5) (22) 665
Total .................................. $ 1,015 $ 953 $ (236) $ (109) $ 1,623
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(1) The open pipeline includes all repurchase requests ever received by our subsidiaries where either the requesting party has not formally rescinded the
repurchase request and where our subsidiary has not agreed to either repurchase the loan at issue or make the requesting party whole with respect to its
losses. Accordingly, repurchase requests denied by our subsidiaries and not pursued by the counterparty remain in the open pipeline. Moreover, repurchase
requests submitted by parties without contractual standing to pursue repurchase requests are included within the open pipeline unless the requesting party
has formally rescinded its repurchase request. Finally, the amounts reflected in this chart are original principal balance amounts and do not correspond to
the losses our subsidiary would incur upon the repurchase of these loans.
(2) Activity in 2010 relates to repurchase demands from all years.
We have established representation and warranty reserves for losses that we consider to be both probable and reasonably estimable associated
with the mortgage loans sold by each subsidiary, including both litigation and non-litigation liabilities. These reserves are reported in our
consolidated balance sheets as a component of other liabilities. The reserve-setting process relies heavily on estimates, which are inherently
uncertain, and requires the application of judgment. We evaluate these estimates on a quarterly basis. We build our representation and warranty
reserves through the provision for repurchase losses, which we report in our consolidated statements of income as a component of non-interest
income for loans originated and sold by Chevy Chase Bank and Capital One Home Loans and as a component of discontinued operations for
loans originated and sold by GreenPoint. In establishing the representation and warranty reserves, we consider a variety of factors depending on
the category of purchaser.
In establishing reserves for the $11 billion original principal balance of GSE loans, we rely on the historical relationship between GSE loan
losses and repurchase outcomes to estimate: (1) the percentage of current and future GSE loan defaults that we anticipate will result in
repurchase requests from the GSEs over the lifetime of the GSE loans; and (2) the percentage of those repurchase requests that we anticipate
will result in actual repurchases. We also rely on estimated collateral valuations and loss forecast models to estimate our lifetime liability on
GSE loans. This reserving approach to the GSE loans reflects the historical interaction with the GSEs around repurchase requests. The GSEs
have stronger contractual rights than non-GSE counterparties because GSE contracts typically do not contain prompt notice requirements for
repurchase requests or materiality qualifications to the representations and warranties. Moreover, although we often disagree with the GSEs
about the validity of their repurchase requests, we have established a negotiation pattern whereby the GSEs and our subsidiaries continually
negotiate around individual repurchase requests, leading to the GSEs rescinding some repurchase requests and our subsidiaries agreeing in
some cases to repurchase some loans or make the GSEs whole with respect to losses. Our lifetime representation and warranty reserves with
respect to GSE loans are grounded in this history.
For the $13 billion original principal balance in Active Insured Securitizations, our reserving approach also reflects our historical interaction
with monoline bond insurers around repurchase requests. Typically, monoline bond insurers allege a very high repurchase rate with respect to
the mortgage loans in the Active Insured Securitization category. In response to these repurchase requests, our subsidiaries typically request
information from the monoline bond insurers demonstrating that the contractual requirements around a valid repurchase request have been
satisfied, such as, for example, the typical requirements that the counterparty promptly notify us upon discovery of any breach and that any
breach materially and adversely affect the value of the mortgage loan at issue. In response to these requests for supporting documentation,
monoline bond insurers typically initiate litigation. Accordingly, our reserves within the Active Insured Securitization are not based upon the
historical repurchase rate with monoline bond insurers, but rather upon the expected resolution of litigation with the monoline bond insurers.
Every bond insurer within this category is pursuing a substantially similar litigation strategy either through active or probable litigation.
Accordingly, our representation and warranty reserves for this category are litigation reserves. In establishing litigation reserves for this
category, we consider current and future losses inherent within the securitization and apply legal judgment to the anticipated factual and legal
record to estimate the lifetime legal liability for each securitization. Our estimated legal liability for each securitization within this category
assumes that we will be responsible for only a portion of the losses inherent in each securitization. Our litigation reserves with respect to both
the U.S. Bank Lawsuit and the DBSP Lawsuit, in each case as referenced below, are contained within the Active Insured Securitization reserve
category. Further, our litigation reserves with respect to indemnification risks from certain representation and warranty lawsuits brought by
monoline bond insurers against third-party securitizations sponsors, where GreenPoint provided some or all of the mortgage collateral within
the securitization but is not a defendant in the litigation, are also contained within this category.