Capital One 2013 Annual Report Download - page 268

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
which we include in other liabilities in our consolidated balance sheets, was $4 million as of December 31, 2013,
and 2012. These financial guarantees had expiration dates ranging from 2013 to 2025 as of December 31, 2013.
The amount of the loss sharing agreement with Fannie Mae was $14 million at December 31, 2013. No
additional collateral or recourse provisions exist to reduce this exposure.
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 Conduct Authority (“FCA”) 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 $139 million and $220 million as of December 31,
2013 and 2012, respectively.
Potential Mortgage Representation & Warranty Liabilities
We acquired three subsidiaries that originated residential mortgage loans and sold these loans to various
purchasers, including purchasers who created securitization trusts. These subsidiaries are Capital One Home
Loans, LLC, which was acquired in February 2005; 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 (collectively, “the subsidiaries”).
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
of the mortgage loans, but mortgage loan performance often influences whether a claim for breach of
representation and warranty will be asserted and has an effect on the amount of any loss in the event of a breach
of a representation or warranty.
Each of these subsidiaries may be required to repurchase mortgage loans in the event of certain breaches of these
representations and warranties. In the event of a repurchase, the subsidiary is typically required to pay the unpaid
principal balance of the loan together with interest and certain expenses (including, in certain cases, legal costs
incurred by the purchaser and/or others). The subsidiary then recovers the loan or, if the loan has been foreclosed,
the underlying collateral. The subsidiary is exposed to any losses on the repurchased loans after giving effect to
any recoveries on the collateral. In some instances, rather than repurchase the loans, a subsidiary may agree to
make cash payments to make an investor whole on losses or to settle repurchase claims, possibly including
claims for attorneys’ fees and interest. In addition, our subsidiaries may be required to indemnify certain
purchasers and others against losses they incur as a result of certain breaches of representations and warranties.
These subsidiaries, in total, originated and sold to non-affiliates approximately $111 billion original principal
balance of mortgage loans between 2005 and 2008, which are the years (or “vintages”) with respect to which our
subsidiaries have received the vast majority of the repurchase requests and other related claims.
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