Capital One 2014 Annual Report Download - page 273

we include in other liabilities on our consolidated balance sheets, was $3 million and $4 million as of
December 31, 2014 and 2013, respectively. These financial guarantees had expiration dates ranging from 2014 to
2025 as of December 31, 2014. The amount of liability recognized on our balance sheets for Fannie Mae and other
loss sharing agreements was $36 million and $14 million as of December 31, 2014 and 2013, respectively. No
additional collateral or recourse provisions exist to reduce this exposure.
U.K. Cross Sell
In the U.K., we previously sold payment protection insurance (“PPI”) and other ancillary cross sell products. 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 U.K. cross sell products, including PPI, which totaled $116
million and $169 million as of December 31, 2014 and 2013, respectively. An increased expectation of claims as a
result of the rate of decline in the volume of claims being lower than previously expected and an update to our
calculation used to determine PPI refunds resulted in a $61 million addition to the reserve in the year ended
December 31, 2014. The addition to the reserve during 2014 was more than offset by a combination of utilization
of the reserve through customer refund payments and foreign exchange movements.
Mortgage Representation and 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 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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CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Capital One Financial Corporation (COF)