PNC Bank 2010 Annual Report Download - page 74
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Please find page 74 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.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. 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.
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. The table below
details the unpaid principal balance of our unresolved
indemnification and repurchase claims at December 31, 2010
and 2009.
Analysis of Unresolved Asserted Indemnification and
Repurchase Claims
As of December 31 – in millions 2010 2009
Residential mortgages:
Agency securitizations $110 $76
Private investors (a) 100 68
Home equity loans/lines:
Private investors (b) 299 315
Total unresolved claims $509 $459
(a) Activity relates to loans sold through Non-Agency securitization and whole-loan
sale transactions.
(b) Activity relates to brokered home equity loans/lines sold through whole-loan sale
transactions which occurred during 2005-2007.
To mitigate losses associated with indemnification and
repurchase claims, we have established quality assurance
programs designed to ensure loans sold meet specific
underwriting and origination criteria provided for in the
investor sale agreements. In addition, we investigate every
investor claim on a loan by loan basis to ensure the existence
of a legitimate claim, and that all other conditions for
indemnification or repurchase have been met prior to the
settlement with an investor.
The table below details our indemnification and repurchase claim settlement activity during 2010 and 2009. Any repurchased loan
is appropriately considered in our nonperforming loan disclosures and statistics.
Analysis of Indemnification and Repurchase Claim Settlement Activity
2010 2009
Year ended December 31 – in millions
Unpaid
Principal
Balance (a)
Losses
Incurred (b)
Fair Value of
Repurchased
Loans (c)
Unpaid
Principal
Balance (a)
Losses
Incurred (b)
Fair Value of
Repurchased
Loans (c)
Residential mortgages (d):
Agency securitizations $358 $151 $150 $410 $182 $182
Private investors (e) 127 54 31 199 119 63
Home equity loans/lines:
Private investors - Repurchases (f) (g) 28 25 3 56 47 9
Total indemnification and repurchase settlements $513 $230 $184 $665 $348 $254
(a) Represents unpaid principal balance of loans at the indemnification or repurchase date.
(b) Represents both i) amounts paid for indemnification payments and ii) the difference between loan repurchase price and fair value of the loan at the repurchase date. These losses are
charged to the indemnification and repurchase liability.
(c) Represents fair value of loans repurchased only as we have no exposure to changes in the fair value of loans or underlying collateral when indemnification payments are made to
investors.
(d) Repurchase activity associated with insured loans, government-guaranteed loans, and loans repurchased through the exercise of our removal of account provision (ROAP) option are
excluded from this table. Refer to Note 3 in the Notes To Consolidated Financial Statements in Item 8 of this Report for further discussion of ROAPs.
(e) Activity relates to loans sold through Non-Agency securitizations and whole-loan sale transactions.
(f) Activity relates to brokered home equity loans/lines sold through whole-loan sale transactions which occurred during 2005-2007.
(g) Excludes payments of $10 million in 2010 and $4 million in 2009 associated with pooled brokered home equity loan indemnification settlements on future claims.
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