PNC Bank 2011 Annual Report Download - page 79

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. In connection
with pooled settlements, we typically do not repurchase loans
and the consummation of such transactions generally results in
us no longer having indemnification and repurchase exposure
with the investor in the transaction.
The following table details the unpaid principal balance of our
unresolved indemnification and repurchase claims at
December 31, 2011 and December 31, 2010.
Analysis of Unresolved Asserted Indemnification and
Repurchase Claims
In millions
Dec. 31
2011
Dec. 31
2010
Residential mortgages:
Agency securitizations $302 $110
Private investors (a) 73 100
Home equity loans/lines:
Private investors (b) 110 299
Total unresolved claims $485 $509
(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 determine 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 2011 and 2010.
Analysis of Indemnification and Repurchase Claim Settlement Activity
2011 2010
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 $220 $115 $74 $358 $151 $150
Private investors (e) 76 48 14 127 54 31
Home equity loans/lines:
Private investors – Repurchases (f) (g) 42 107 3 28 35 3
Total indemnification and repurchase settlements $338 $270 $91 $513 $240 $184
(a) Represents unpaid principal balance of loans at the indemnification or repurchase date. Excluded from these balances are amounts associated with pooled settlement payments as loans
are typically not repurchased in these transactions.
(b) Represents both i) amounts paid for indemnification/settlement 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/settlement 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) Included in the Losses Incurred column are payments associated with pooled settlement activities. These payments were made to settle disputed pending repurchase claims as well as
any future repurchase claims made by investors. No loans were repurchased in these transactions and accordingly, balances associated with these activities are not included in the
Unpaid Principal Balance and Fair Value of Repurchased Loans columns in this table.
70 The PNC Financial Services Group, Inc. – Form 10-K