Citibank 2010 Annual Report Download - page 114

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for the near term, although the actual number of claims may differ and is
subject to uncertainty. Furthermore, in Citi’s experience to date, approximately
half of the repurchase claims have been successfully appealed and have resulted
in no loss to Citi. The activity in the repurchase reserve for the years ended
December 31, 2010 and 2009 was as follows:
Year ended December 31,
In millions of dollars 2010 2009
Balance, beginning of period $ 482 $ 75
Additions for new sales 16 34
Change in estimate 917 492
Utilizations (446) (119)
Balance, end of period $ 969 $ 482
As referenced above, the repurchase reserve is calculated by sales vintage.
The majority of the repurchases in 2010 were from the 2006 through 2008
sales vintages, which also represent the vintages with the largest loss severity.
An insignificant percentage of 2010 repurchases were from vintages prior to
2006, and Citi anticipates that this percentage will continue to decrease, as
those vintages are later in the credit cycle. Although still early in the credit
cycle, Citi has to date experienced lower repurchases and loss severity from
the 2009 and 2010 vintages.
Sensitivity of Repurchase Reserve
As discussed above, the repurchase reserve estimation process is subject to
numerous estimates and judgments. The assumptions used to calculate the
repurchase reserve contain a level of uncertainty and risk that, if different
from actual results, could have a material impact on the reserve amounts.
For example, Citi estimates that if there were a simultaneous 10% adverse
change in each of the significant assumptions noted above, the repurchase
reserve would increase by approximately $342 million as of December 31,
2010. This potential change is hypothetical and intended to indicate the
sensitivity of the repurchase reserve to changes in the key assumptions. Actual
changes in the key assumptions may not occur at the same time or to the
same degree (i.e., an adverse change in one assumption may be offset by an
improvement in another). Citi does not believe it has sufficient information
to estimate a range of reasonably possible loss (as defined under ASC 450)
relating to its Consumer representations and warranties.
Representation and Warranty Claims—By Claimant
The representation and warranty claims by claimant for the years ended
December 31, 2010 and 2009, respectively, were as follows:
Year ended December 31,
2010 2009
Dollars in millions
Number
of claims
Original
principal
balance
Number
of claims
Original
principal
balance
GSEs 9,512 $2,063 5,835 $1,218
Private investors 321 73 409 69
Mortgage insurers (1) 268 58 316 65
Total 10,101 $2,194 6,560 $1,352
(1) Represents the insurer’s rejection of a claim for loss reimbursement that has yet to be resolved. To the
extent that mortgage insurance will not cover the claim on a loan, Citi may have to make the GSE or
private investor whole.
The number of unresolved claims by type of claimant as of December 31,
2010 and 2009, respectively, was as follows:
December 31,
2010 2009
Dollars in millions
Number
of claims (1)
Original
principal
balance
Number
of claims
Original
principal
balance
GSEs 4,344 $ 954 2,600 $572
Private
investors 163 30 311 40
Mortgage
insurers 76 17 204 42
Total 4,583 $1,001 3,115 $654
(1) For GSEs, the response to the repurchase claim is required within 90 days of the claim receipt. If
Citi does not respond within 90 days, the claim would then be discussed between Citi and the GSE.
For private investors, the time period for responding is governed by the individual sale agreement. If
the specified timeframe is exceeded, the investor may choose to initiate legal action.