PNC Bank 2010 Annual Report Download - page 75
Download and view the complete annual report
Please find page 75 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.During 2010 and 2009, unresolved and settled investor
indemnification and repurchase claims were primarily related
to one of the following alleged breaches in representations and
warranties: 1) misrepresentation of income, assets or
employment; 2) property evaluation or status issues (e.g.,
appraisal, title, etc.); or 3) underwriting guideline violations.
Additionally during these years, the frequency and timing of
unresolved and settled investor indemnification and
repurchase claims increased as a result of higher loan
delinquencies which have been impacted by the deterioration
in the overall economy and the prolonged weak residential
housing sector. The increased volume of claims was also
reflective of an industry trend where investors implemented
certain strategies to aggressively reduce their exposure to
losses on purchased loans.
For the first and second-lien mortgage balances of unresolved
and settled claims contained in the tables above, a significant
amount of these claims were associated with sold loans
originated through correspondent lender and broker
origination channels. For the home equity loans/lines sold
portfolio, all unresolved and settled claims relate to loans
originated through the broker origination channel. In certain
instances when indemnification or repurchase claims are
settled for these types of sold loans, we have recourse back to
the correspondent lenders, brokers and other third-parties
(e.g., contract underwriting companies, closing agents,
appraisers, etc.). Depending on the underlying reason for the
investor claim, we determine our ability to pursue recourse
with these parties and file claims with them accordingly. Our
historical recourse recovery rate has been insignificant as our
efforts have been impacted by the inability of such parties to
reimburse us for their recourse obligations (e.g., their capital
availability or whether they remain in business) or contractual
limitations that limit our ability to pursue recourse with these
parties (e.g., loss caps, statutes of limitations, etc.). All of
these factors are considered in the determination of our
estimated indemnification and repurchase liability detailed
below.
Origination and sale of residential mortgages is an ongoing
business activity and, accordingly, management continually
assesses the need for indemnification and repurchase liabilities
pursuant to the associated investor sale agreements. We
establish indemnification and repurchase liabilities for
estimated losses on sold first and second-lien mortgages and
home equity loans/lines for which indemnification is expected
to be provided or for loans that are expected to be
repurchased. For the first and second-lien mortgage sold
portfolio, we have established an indemnification and
repurchase liability pursuant to investor sale agreements based
on claims made and our estimate of future claims on a loan by
loan basis. These relate primarily to loans originated during
2006-2008. For the home equity loans/lines sold portfolio, we
have established indemnification and repurchase liabilities
based upon this same methodology for loans sold during
2005-2007.
Indemnification and repurchase liabilities are initially
recognized when loans are sold to investors and are
subsequently evaluated for adequacy by management. Initial
recognition and subsequent adjustments to the indemnification
and repurchase liability for the first and second-lien mortgage
sold portfolio are recognized in Residential mortgage revenue
on the Consolidated Income Statement. Since PNC is no
longer engaged in the brokered home equity lending business,
only subsequent adjustments are recognized to the home
equity loans/lines indemnification and repurchase liability.
These adjustments are recognized in other noninterest income
on the Consolidated Income Statement.
Management’s subsequent evaluation of these indemnification
and repurchase liabilities is based upon trends in
indemnification and repurchase requests, actual loss
experience, known and inherent risks in the underlying
serviced loan portfolios, and current economic conditions. As
part of its evaluation, management considers estimated loss
projections over the life of the subject loan portfolio. At
December 31, 2010 and 2009, the total indemnification and
repurchase liability for estimated losses on indemnification
and repurchase claims totaled $294 million and $270 million,
respectively, and was included in Other liabilities on the
Consolidated Balance Sheet. An analysis of the changes in this
liability during 2010 and 2009 follows:
Analysis of Indemnification and Repurchase Liability for Asserted and Unasserted Claims
2010 2009
In millions
Residential
Mortgages (a)
Home Equity
Loans/Lines (b) Total
Residential
Mortgages (a)
Home Equity
Loans/Lines (b) Total
January 1 $ 229 $ 41 $ 270 $ 300 $101 $ 401
Reserve adjustments, net (c) 120 144 264 230 (9) 221
Losses – loan repurchases and settlements (205) (35) (240) (301) (51) (352)
December 31 $ 144 $150 $ 294 $ 229 $ 41 $ 270
(a) Repurchase obligation associated with sold loan portfolios of $139.8 billion and $157.2 billion at December 31, 2010 and December 31, 2009, respectively.
(b) Repurchase obligation associated with sold loan portfolios of $6.5 billion and $7.5 billion at December 31, 2010 and December 31, 2009, respectively. PNC is no longer in engaged in
the brokered home equity business which was acquired with National City.
(c) Includes $157 million in 2009 for residential mortgages related to the final purchase price allocation associated with the National City acquisition.
67