Capital One 2012 Annual Report Download - page 272

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
liabilities in our consolidated balance sheets, was $4 million as of December 31, 2012. These financial
guarantees had expiration dates ranging from 2012 to 2023 as of December 31, 2012.
Contingent Payments Related to Acquisitions and Partnership Agreements
Certain of our acquisition and partnership agreements include contingent payment provisions in which we agree
to provide future payments, up to a maximum amount, based on certain performance criteria. Our contingent
payment arrangements are generally based on the difference between the expected credit performance of
specified loan portfolios as of the date of the applicable agreement and the actual future performance. To the
extent that actual losses associated with these portfolios are less than the expected level, we agree to share a
portion of the benefit with the seller. The maximum contingent payment amount related to our acquisitions
totaled $165 million as of December 31, 2012. The actual payment amount related to $30 million of this balance
will be determined as of September 30, 2013. The actual payment amount related to the remaining $135 million
of this balance was determined as of December 31, 2012. We recognized an expense related to contingent
payment arrangements of $77 million during 2012. As such, we had a liability for contingent payments related to
these arrangements of $165 million and $88 million as of December 31, 2012 and 2011, respectively. On
January 4, 2013, we settled one of our existing contingent payment arrangements for $135 million.
Guarantees
We have credit exposure on agreements that we entered into to manage our risk of loss on certain manufactured
housing securitizations issued by GPC in 2000. Our maximum credit exposure related to these agreements totaled
$19 million and $23 million as of December 31, 2012 and 2011, respectively. These agreements are recorded in
our consolidated balance sheets as a component of other liabilities. The value of our obligations under these
agreements was $17 million and $12 million as of December 31, 2012 and 2011, respectively. See “Note 7—
Variable Interest Entities and Securitizations” for additional information about our manufactured housing
securitization transactions.
Payment Protection Insurance
In the U.K., we previously sold payment protection insurance (“PPI”). In response to an elevated level of
customer complaints across the industry, heightened media coverage and pressure from consumer advocacy
groups, the U.K. Financial Services Authority (“FSA”) investigated and raised concerns about the way some
companies have handled complaints related to the sale of these insurance policies. In connection with this matter,
we have established a reserve related to PPI, which totaled $220 million as of December 31, 2012.
Potential Mortgage Representation & Warranty Liabilities
In recent years, we acquired three subsidiaries that originated residential mortgage loans and sold them to various
purchasers, including purchasers who created securitization trusts. These subsidiaries are Capital One Home
Loans, which was acquired in February 2005; GreenPoint Mortgage Funding, Inc. (“GreenPoint”), which was
acquired in December 2006 as part of the North Fork acquisition; and CCB, which was acquired in February
2009 and subsequently merged into CONA.
In connection with their sales of mortgage loans, the subsidiaries entered into agreements containing varying
representations and warranties about, among other things, the ownership of the loan, the validity of the lien
securing the loan, the loan’s compliance with any applicable loan criteria established by the purchaser, including
underwriting guidelines and the ongoing existence of mortgage insurance, and the loan’s compliance with
applicable federal, state and local laws. The representations and warranties do not address the credit performance
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