Citibank 2012 Annual Report Download - page 117

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Repurchase Reserve—Private-Label Securitizations
Investors in private-label securitizations may seek recovery for alleged
breaches of representations and warranties, as well as losses caused by
non-performing loans more generally, through repurchase claims or
through litigation premised on a variety of legal theories. Citi considers
litigation relating to private-label securitizations as part of its contingencies
analysis. For additional information, see Note 28 to the Consolidated
Financial Statements.
During 2012, Citi continued to receive significant levels of inquiries and
demands for loan files, as well as requests to toll (extend) the applicable
statutes of limitation for, among others, representation and warranty claims
relating to its private-label securitizations. These inquiries, demands and
requests have come from trustees of securitization trusts and others. Citi
also has received repurchase claims for breaches of representations and
warranties related to private-label securitizations. These claims have been
received at an unpredictable rate, although the number of claims increased
substantially during 2012 and is expected to remain elevated, particularly
given the level of inquiries, demands and requests noted above.
Of the repurchase claims received, Citi believes some are based on a review
of the underlying loan files, while others are not based on such a review. In
either case, upon receipt of a claim, Citi typically requests that it be provided
with the underlying detail supporting the claim; however, to date, Citi has
received little or no response to these requests for information. As a result,
the vast majority of the repurchase claims received on Citi’s private-label
securitizations remain unresolved (see the “Unresolved Claims” table below).
Citi expects unresolved repurchase claims for private-label securitizations to
continue to increase because new claims and requests for loan files continue
to be received, while there has been little progress to date in resolving these
repurchase claims.
Citi cannot reasonably estimate probable losses from future repurchase
claims for private-label securitizations because the claims to date have been
received at an unpredictable rate, the factual basis for those claims is unclear,
and very few such claims have been resolved. Rather, at the present time, Citi
records reserves related to private-label securitizations repurchase claims
based on estimated losses arising from those claims received that appear to
be based on a review of the underlying loan files. During 2012, Citi recorded
a reserve of $244 million (of which $9 million was in the fourth quarter of
2012) relating to such claims. The estimation reflected in this reserve is based
on currently available information and relies on various assumptions that
involve numerous estimates and judgments that are inherently uncertain
and subject to change. If actual experiences differ from Citi’s assumptions,
future provisions may differ substantially from Citi’s current reserve.
The table below sets forth the activity in the repurchase reserve for each of the quarterly periods below:
Three Months Ended
In millions of dollars December 31, 2012 September 30, 2012 June 30, 2012 March 31, 2012 December 31, 2011
Balance, beginning of period $1,516 $1,476 $1,376 $1,188 $1,076
Additions for new sales (1) 6 7 4 6 7
Change in estimate (2) 173 200 242 335 306
Utilizations (130) (167) (146) (153) (201)
Balance, end of period $1,565 $1,516 $1,476 $1,376 $1,188
(1) Reflects new whole loan sales, primarily to the GSEs.
(2) Change in estimate for the fourth quarter of 2012 includes $164 million related to whole loan sales to the GSEs and private investors and $9 million related to loans sold through private-label securitizations.
The following table sets forth the unpaid principal balance of loans repurchased due to representation and warranty claims during each of the quarterly
periods below:
Three Months Ended
In millions of dollars December 31, 2012 September 30, 2012 June 30, 2012 March 31, 2012 December 31, 2011
GSEs and others (1) $157 $105 $202 $101 $110
(1) Predominantly related to claims from the GSEs.
In addition to the amounts set forth in the table above, Citi recorded
make-whole payments of $92 million, $118 million, $91 million,
$107 million and $148 million for the quarterly periods ended December 31,
2012, September 30, 2012, June 30, 2012, March 31, 2012 and December 31,
2011, respectively. Nearly all of these make-whole payments were to the GSEs.