Goldman Sachs 2012 Annual Report Download - page 178

Notes to Consolidated Financial Statements
Contingencies
Legal Proceedings. See Note 27 for information about
legal proceedings, including certain mortgage-
related matters.
Certain Mortgage-Related Contingencies. There are
multiple areas of focus by regulators, governmental
agencies and others within the mortgage market that may
impact originators, issuers, servicers and investors. There
remains significant uncertainty surrounding the nature and
extent of any potential exposure for participants in
this market.
‰Representations and Warranties. The firm has not
been a significant originator of residential mortgage
loans. The firm did purchase loans originated by others
and generally received loan-level representations of the
type described below from the originators. During the
period 2005 through 2008, the firm sold approximately
$10 billion of loans to government-sponsored enterprises
and approximately $11 billion of loans to other third
parties. In addition, the firm transferred loans to trusts
and other mortgage securitization vehicles. As of
December 2012 and December 2011, the outstanding
balance of the loans transferred to trusts and other
mortgage securitization vehicles during the period 2005
through 2008 was approximately $35 billion and
$42 billion, respectively. This amount reflects paydowns
and cumulative losses of approximately $90 billion
($20 billion of which are cumulative losses) as of
December 2012 and approximately $83 billion
($17 billion of which are cumulative losses) as of
December 2011. A small number of these Goldman
Sachs-issued securitizations with an outstanding principal
balance of $540 million and total paydowns and
cumulative losses of $1.52 billion ($508 million of which
are cumulative losses) as of December 2012, and an
outstanding principal balance of $635 million and total
paydowns and cumulative losses of $1.42 billion
($465 million of which are cumulative losses) as of
December 2011, were structured with credit protection
obtained from monoline insurers. In connection with
both sales of loans and securitizations, the firm provided
loan level representations of the type described below
and/or assigned the loan level representations from the
party from whom the firm purchased the loans.
The loan level representations made in connection with
the sale or securitization of mortgage loans varied among
transactions but were generally detailed representations
applicable to each loan in the portfolio and addressed
matters relating to the property, the borrower and the
note. These representations generally included, but were
not limited to, the following: (i) certain attributes of the
borrower’s financial status; (ii) loan-to-value ratios,
owner occupancy status and certain other characteristics
of the property; (iii) the lien position; (iv) the fact that the
loan was originated in compliance with law; and
(v) completeness of the loan documentation.
The firm has received repurchase claims for residential
mortgage loans based on alleged breaches of
representations, from government-sponsored enterprises,
other third parties, trusts and other mortgage
securitization vehicles, which have not been significant.
During the years ended December 2012 and
December 2011, the firm repurchased loans with an
unpaid principal balance of less than $10 million. The
loss related to the repurchase of these loans was not
material for the years ended December 2012 and
December 2011.
Ultimately, the firm’s exposure to claims for repurchase
of residential mortgage loans based on alleged breaches of
representations will depend on a number of factors
including the following: (i) the extent to which these
claims are actually made; (ii) the extent to which there are
underlying breaches of representations that give rise to
valid claims for repurchase; (iii) in the case of loans
originated by others, the extent to which the firm could be
held liable and, if it is, the firm’s ability to pursue and
collect on any claims against the parties who made
representations to the firm; (iv) macro-economic factors,
including developments in the residential real estate
market; and (v) legal and regulatory developments.
Based upon the large number of defaults in residential
mortgages, including those sold or securitized by the firm,
there is a potential for increasing claims for repurchases.
However, the firm is not in a position to make a
meaningful estimate of that exposure at this time.
176 Goldman Sachs 2012 Annual Report