PNC Bank 2011 Annual Report Download - page 204

in October 2011. In the second amended complaint, the
plaintiffs, who allege that they are officers of a mortgage
broker, allege that several mortgage originators, including
entities affiliated with PNC Bank’s predecessor, National City
Bank, made false statements to the U.S. Department of
Veterans Affairs in order to obtain loan guarantees by the VA
under its Interest Rate Reduction Refinancing Loans (IRRRL)
program. Under that program, the VA guarantees refinancing
loans made to veterans if the loans meet program
requirements, one of which limits the type and amount of fees
that can be charged to borrowers by lenders. The plaintiffs
allege, among other things, that the defendants charged
impermissible fees to borrowers under the VA program and
then made false statements to the VA concerning such fees in
violation of the civil False Claims Act. The plaintiffs allege
that, by doing so, National City Bank and the other defendants
caused the VA to pay, among other costs, amounts in respect
of the loan guarantees to which the defendants were not
entitled. On their behalf and on behalf of the United States, the
plaintiffs seek, among other things, unspecified damages equal
to the loss the defendants allegedly caused the United States
(including treble damages under the False Claims Act),
statutory civil penalties between $5,500 and $11,000 per false
claim made by the defendants, injunctive relief against
submission of false claims to the United States and imposing
unallowable charges against veterans participating in the
IRRRL program, and attorneys’ fees. To date, the United
States has not joined in the prosecution of the plaintiffs’
lawsuit. In December 2011, PNC moved to dismiss the action.
A number of the other defendants have also filed motions to
dismiss. The court has not yet ruled on these motions.
Captive Mortgage Reinsurance Litigation
In December 2011, a lawsuit (White, et al. v. The PNC
Financial Services Group, Inc., et al. (Civil Action
No. 11-7928)) was filed against PNC (as successor in interest
to National City Corporation and several of its subsidiaries)
and several mortgage insurance companies in the United
States District Court for the Eastern District of Pennsylvania.
This lawsuit, which was brought as a class action, alleges that
National City structured its program of reinsurance of private
mortgage insurance in such a way as to avoid a true transfer of
risk from the mortgage insurers to National City’s captive
reinsurer. The plaintiffs allege that the payments from the
mortgage insurers to the captive reinsurer constitute
kickbacks, referral payments, or unearned fee splits prohibited
under the Real Estate Settlement Procedures Act (RESPA), as
well as common law unjust enrichment. The plaintiffs claim,
among other things, that from the beginning of 2004 until the
end of 2010 National City’s captive reinsurer collected from
the mortgage insurance company defendants at least $219
million as its share of borrowers’ private mortgage insurance
premiums and that during the same period its share of paid
claims was approximately $12 million. The plaintiffs seek to
certify a nationwide class of all persons who obtained
residential mortgage loans originated, funded or originated
through correspondent lending by National City or any of its
subsidiaries or affiliates
between January 1, 2004 and the present and, in connection
with these mortgage loans, purchased private mortgage
insurance and whose residential mortgage loans were included
within National City’s captive mortgage reinsurance
arrangements. Plaintiffs seek, among other things, statutory
damages under RESPA (which include treble damages),
restitution of reinsurance premiums collected, disgorgement of
profits, and attorneys’ fees.
Residential Mortgage-Backed Securities Indemnification
Demands
We have received indemnification demands from several
entities sponsoring residential mortgage-backed securities and
their affiliates where purchasers of the securities have brought
litigation against the sponsors and other parties involved in the
securitization transactions. National City Mortgage had sold
whole loans to the sponsors or their affiliates that were
allegedly included in certain of these securitization
transactions. According to the indemnification demands, the
plaintiffs’ claims in these lawsuits are based on alleged
misstatements and omissions in the offering documents for
these transactions. The indemnification demands assert that
agreements governing the sale of these loans or the
securitization transactions to which National City Mortgage is
a party require us to indemnify the sponsors and their affiliates
for losses suffered in connection with these lawsuits. At
present, there has been no determination that the parties
seeking indemnification have any liability to the plaintiffs in
these lawsuits.
Other Regulatory and Governmental Inquiries
PNC is the subject of investigations, audits and other forms of
regulatory and governmental inquiry covering a broad range
of issues in our banking, securities and other financial services
businesses, in some cases as part of regulatory reviews of
specified activities at multiple industry participants. Over the
last few years, we have experienced an increase in regulatory
and governmental investigations, audits and other inquiries.
Areas of current regulatory or governmental inquiry with
respect to PNC include consumer financial protection, fair
lending, mortgage origination and servicing, mortgage-related
insurance and reinsurance, municipal finance activities, and
participation in government insurance or guarantee programs,
some of which are described below. These inquiries, including
those described below, may lead to administrative, civil or
criminal proceedings, and possibly result in remedies
including fines, penalties, restitution, alterations in our
business practices, and in additional expenses and collateral
costs.
• One area of significant regulatory and governmental
focus has been mortgage lending and servicing.
Numerous federal and state governmental, legislative
and regulatory authorities are investigating practices
in this area. PNC has received inquiries from, or is
the subject of investigations by, a broad range of
governmental, legislative and regulatory authorities
relating to our activities in this area and is
cooperating with these investigations and inquiries.
The PNC Financial Services Group, Inc. – Form 10-K 195