Capital One 2012 Annual Report Download - page 277

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes changes in our representation and warranty reserves in 2012 and 2011:
Changes in Representation and Warranty Reserves
Year Ended December 31,
(Dollars in millions) 2012 2011
Representation and warranty repurchase reserve, beginning of period(1) ............... $ 943 $816
Provision for mortgage representation and warranty losses(2) ........................ 349 212
Net realized losses ......................................................... (393) (85)
Representation and warranty repurchase reserve, end of period(1) .................... $ 899 $943
(1) Reported in our consolidated balance sheets as a component of other liabilities.
(2) The pre-tax portion of the provision for mortgage representation and warranty recognized in our consolidated statements of income as a
component of non-interest income totaled $42 million and $43 million in 2012 and 2011, respectively. The pre-tax portion of the
provision for mortgage representation and warranty recognized in our consolidated statements of income as a component of discontinued
operations totaled $307 million and $169 million in 2012 and 2011, respectively.
As indicated in the table below, most of the reserves relate to the $27 billion in original principal balance of
mortgage loans sold directly to the GSEs or to the Active Insured Securitizations.
Allocation of Representation and Warranty Reserves
Reserve Liability
December 31, Loans Sold
2005 to 2008(1) (Dollars in millions, except for loans sold) 2012 2011
Selected period-end data:
GSEs and Active Insured Securitizations ............................... $817 $778 $ 27
Inactive Insured Securitizations and Others .............................. 82 165 84
Total ............................................................ $899 $943 $111
(1) Reflects, in billions, the total original principal balance of mortgage loans originated by our subsidiaries and sold to third party investors
between 2005 and 2008.
The adequacy of the reserves and the ultimate amount of losses incurred by our subsidiaries will depend on,
among other things, actual future mortgage loan performance, the actual level of future repurchase and
indemnification requests (including the extent, if any, to which Inactive Insured Securitizations and other
currently inactive investors ultimately assert claims), the actual success rates of claimants, developments in
litigation, actual recoveries on the collateral and macroeconomic conditions (including unemployment levels and
housing prices).
As part of our business planning processes, we have considered various outcomes relating to the potential future
representation and warranty liabilities of our subsidiaries that are possible but do not rise to the level of being
both probable and reasonably estimable outcomes justifying an incremental accrual under applicable accounting
standards. Our current best estimate of reasonably possible future losses from representation and warranty claims
as of December 31, 2012 beyond what is in our reserve is approximately $2.7 billion. As of September 30, 2012
and December 31, 2011, estimates of reasonably possible losses were $1.7 billion and $1.5 billion, respectively.
The estimate as of December 31, 2012 covers all reasonably possible losses relating to relating to the
representation and warranty claim activity including those relating to the US Bank Litigation, the DBSP
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