Capital One 2014 Annual Report Download - page 276

The following table summarizes the allocation of our representation and warranty reserve as December 31, 2014
and 2013:
Table 20.4: Allocation of Representation and Warranty Reserve
Reserve Liability
December 31, Loans Sold
(Dollars in millions, except for loans sold) 2014 2013 2005 to 2008(1)
Selected period-end data:
GSEs and Active Insured Securitizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $499 $ 965 $ 27
Inactive Insured Securitizations and Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232 207 84
Total(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $731 $1,172 $ 111
(1) Reflects, in billions, the total original principal balance of loans originated by our subsidiaries and sold to third-party investors between
2005 and 2008.
(2) The total reserve liability at December 31, 2014 included an immaterial amount related to loans that were originated after 2008.
We established reserves for the $11 billion original principal balance of GSE loans, based on open claims and historic
repurchase rates. We have entered into and completed repurchase or settlement agreements with respect to the
majority of our repurchase exposure within this category.
Our reserves also could be impacted by any claims which may be brought by governmental agencies under the
Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”), the False Claims Act, or other federal
or state statutes. For example, GreenPoint and Capital One have received requests for information and/or subpoenas
from various governmental regulators and law enforcement authorities, including members of the RMBS Working
Group, relating to the origination of loans for sale to the GSEs and to RMBS participants. We are cooperating with
these regulators and other authorities in responding to such requests.
For the $16 billion original principal balance in Active Insured Securitizations, our reserving approach is based
upon the expected resolution of litigation with the monoline bond insurers. Accordingly, our representation and
warranty reserves for this category are litigation reserves. In establishing litigation reserves for this category, we
consider the current and future monoline insurer losses inherent within the securitization and apply legal judgment
to the developing factual and legal record to estimate the liability for each securitization. We consider as factors
within the analysis our own past monoline settlements in addition to publicly available industry monoline
settlements. Our reserves with respect to the U.S. Bank Litigation, referenced below, are contained within the
Active Insured Securitization reserve category. Further, to the extent we have litigation reserves with respect to
indemnification risks from certain representation and warranty lawsuits brought by monoline bond insurers against
third-party securitizations sponsors, where one of our subsidiaries provided some or all of the mortgage collateral
within the securitization but is not a defendant in the litigation, such reserves are also contained within this
category.
For the $4 billion original principal balance of mortgage loans in the Inactive Insured Securitizations category
and the $48 billion original principal balance of mortgage loans in the Uninsured Securitizations category, we
establish reserves based on an assessment of probable and estimable legal liability, if any, utilizing both our
own experience and publicly available industry settlement information to estimate lifetime liability. In contrast
with the bond insurers in the Insured Securitizations, investors in Uninsured Securitizations often face a number
of legal and logistical hurdles before they can force a securitization trustee to pursue mortgage repurchases,
including the need to coordinate with a certain percentage of investors holding the securities and to indemnify
the trustee for any litigation it undertakes. Accordingly, we only reserve for such exposures when a trustee or
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CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Capital One Financial Corporation (COF)