PNC Bank 2010 Annual Report Download - page 189
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Please find page 189 of the 2010 PNC Bank annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.$70 million as a result of the indemnification provision in
Section 2.05j of the Visa By-Laws and/or the indemnification
provided through the judgment and loss sharing agreements
which is considered appropriate at this time in consideration
of the Visa announcement. Any ultimate exposure to the
specified Visa litigation may be different than this amount.
R
ECOURSE
A
ND
R
EPURCHASE
O
BLIGATIONS
As discussed in Note 3 Loan Sale and Servicing Activities and
Variable Interest Entities, PNC has sold commercial mortgage
and residential mortgage loans directly or indirectly in
securitizations and whole-loan sale transactions with
continuing involvement. One form of continuing involvement
includes certain recourse and loan repurchase obligations
associated with the transferred assets in these transactions.
C
OMMERCIAL
M
ORTGAGE
R
ECOURSE
O
BLIGATIONS
We originate, close and service commercial mortgage loans
which are sold to FNMA under FNMA’s DUS program. We
have similar arrangements with FHLMC.
Under these programs, we generally assume up to a one-third
pari passu risk of loss on unpaid principal balances through a
loss share arrangement. At December 31, 2010 and 2009, the
unpaid principal balance outstanding of loans sold as a
participant in these programs was $13.2 billion and $19.7
billion, respectively. At December 31, 2010 and 2009, the
potential maximum exposure under the loss share
arrangements was $4.0 billion and $6.0 billion, respectively.
We maintain a reserve based upon these potential losses. The
reserve for losses under these programs totaled $54 million
and $71 million as of December 31, 2010 and 2009,
respectively, and is included in Other liabilities on our
Consolidated Balance Sheet. If payment is required under
these programs, we would not have a contractual interest in
the collateral underlying the mortgage loans on which losses
occurred, although the value of the collateral is taken into
account in determining our share of such losses. Our exposure
and activity associated with these recourse obligations are
reported in the Corporate & Institutional Banking segment.
Analysis of Commercial Mortgage Recourse Obligations
In millions 2010 2009
January 1 $71 $79
Reserve adjustments, net 9(3)
Losses – loan repurchases and settlements (2) (5)
Loan sales (24)
December 31 $54 $71
R
ESIDENTIAL
M
ORTGAGE
L
OAN
R
EPURCHASE
O
BLIGATIONS
While residential mortgage loans are sold on a non-recourse
basis, we assume certain loan repurchase obligations
associated with mortgage loans we have sold to investors.
These loan repurchase obligations primarily relate to
situations where PNC is alleged to have breached certain
origination covenants and representations and warranties
made to purchasers of the loans in the respective purchase and
sale agreements. Residential mortgage loans covered by these
loan repurchase obligations include first and second-lien
mortgage loans we have sold through Agency securitizations,
Non-Agency securitizations, and whole-loan sale transactions.
As discussed in Note 3, Agency securitizations consist of
mortgage loans sale transactions with FNMA, FHLMC, and
GNMA, while Non-Agency securitizations and whole-loan
sale transactions consist of mortgage loans sale transactions
with private investors. Our exposure and activity associated
with these loan repurchase obligations is reported in the
Residential Mortgage Banking segment. In addition, PNC’s
residential mortgage loan repurchase obligations include
certain brokered home equity loans/lines that were sold to
private investors by National City prior to our acquisition.
PNC is no longer engaged in the brokered home equity
lending business, and our exposure under these loan
repurchase obligations is reported in the Distressed Assets
Portfolio segment.
Loan covenants and representations and warranties are
established through loan sale agreements with various
investors to provide assurance that PNC has sold loans to
investors of sufficient investment quality. Key aspects of such
covenants and representations and warranties include the
loan’s compliance with any applicable loan criteria established
by the investor, including underwriting standards, delivery of
all required loan documents to the investor or its designated
party, sufficient collateral valuation, and the validity of the
lien securing the loan. As a result of alleged breaches of these
contractual obligations, investors may request PNC to
indemnify them against losses on certain loans or to
repurchase loans. These investor indemnification or
repurchase claims are typically settled on an individual loan
basis through make-whole payments or loan repurchases;
however, on occasion we may negotiate pooled settlements
with investors.
Indemnifications for loss or loan repurchases typically occur
when, after review of the claim, we agree insufficient
evidence exists to dispute the investor’s claim that a breach of
a loan covenant and representation and warranty has occurred,
such breach has not been cured, and the effect of such breach
is deemed to have had a material and adverse effect on the
value of the transferred loan. Depending on the sale agreement
and upon proper notice from the investor, we typically
respond to such indemnification and repurchase requests
within 60 days, although final resolution of the claim may take
a longer period of time. With the exception of the sales
agreements associated with the Agency securitizations, most
sale agreements do not provide for penalties or other remedies
if we do not respond timely to investor indemnification or
repurchase requests.
Origination and sale of residential mortgages is an ongoing
business activity and, accordingly, management continually
assesses the need for indemnification and repurchase liabilities
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