Capital One 2011 Annual Report Download - page 263

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED STATEMENTS—(Continued)
Open Pipeline All Vintages (all entities)(1)
(Dollars in millions) (All amounts are Original Principal Balance) GSEs
Insured
Securitizations
Uninsured
Securitizations
and Other Total
Open claims as of December 31, 2009 ...................... $ 61 $ 366 $588 $1,015
Gross new demands received ............................. 204 645 104 953
Loans repurchased/made whole(2) ......................... (52) (179) (5) (236)
Demands rescinded(2) ................................... (87) 0 (22) (109)
Open claims as of December 31, 2010 ...................... $126 $ 832 $665 $1,623
Gross new demands received ............................. 196 359 131 686
Loans repurchased/made whole ........................... (67) (14) (16) (97)
Demands rescinded .................................... (85) (6) (30) (121)
Reclassifications(3) ..................................... 6 72 (78) 0
Open claims as of December 31, 2011 ...................... $176 $1,243 $672 $2,091
(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not formally rescinded the repurchase request and where our subsidiary has not agreed to either repurchase the loan at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requesting party has formally rescinded its repurchase request.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 the original
principal balance amounts of the mortgage loans at issue 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.
(3) Represents adjustments to correct the counterparty category as of December 31, 2011 for amounts that were
misclassified. The reclassification had no impact on the total pending repurchase requests; however, it resulted in an
increase in open claims attributable to GSEs and Insured Securitizations and a decrease in open claims attributable to
Uninsured Securitizations and Other.
We have established representation and warranty reserves for losses associated with the mortgage loans sold by
each subsidiary that we consider to be both probable and reasonably estimable, 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, and also includes anticipated repurchases resulting from mortgage insurance
rescissions. The GSEs typically have stronger contractual rights than non-GSE counterparties because GSE
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