PNC Bank 2012 Annual Report Download - page 101

The table below details our home equity indemnification and repurchase claim settlement activity during 2012 and 2011.
Table 32: Analysis of Home Equity Indemnification and Repurchase Claim Settlement Activity
2012 2011
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)
Home equity loans/lines:
Private investors – Repurchases (d) $22 $18 $4 $42 $107 $3
(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 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.
Amounts for 2011 include amounts for settlement payments.
(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) Activity relates to brokered home equity loans/lines sold through loan sale transactions which occurred during 2005-2007.
During 2012 and 2011, unresolved and settled investor
indemnification and repurchase claims were primarily related
to one of the following alleged breaches in representations and
warranties: (i) misrepresentation of income, assets or
employment, (ii) property evaluation or status issues (e.g.,
appraisal, title, etc.), or (iii) underwriting guideline violations.
The lower balance of unresolved indemnification and
repurchase claims at December 31, 2012 is attributable to
lower claims submissions and lower inventories of claims
undergoing review due to the elevated settlement activity in
2011. The lower 2012 indemnification and repurchase
settlement activity was also affected by the lower claim
activity and the lower inventory of claims mentioned above as
well as a higher rate of claim rescissions.
An indemnification and repurchase liability for estimated
losses for which indemnification is expected to be provided or
for loans that are expected to be repurchased was established
at the acquisition of National City. Management’s evaluation
of these indemnification and repurchase liabilities is based
upon trends in indemnification and repurchase claims, actual
loss experience, risks in the underlying serviced loan
portfolios, current economic conditions and the periodic
negotiations that management may enter into with investors to
settle existing and potential future claims.
At December 31, 2012 and December 31, 2011, the liability
for estimated losses on indemnification and repurchase claims
for home equity loans/lines was $58 million and $47 million,
respectively. We believe our indemnification and repurchase
liability appropriately reflects the estimated probable losses on
indemnification and repurchase claims for all home equity
loans/lines sold and outstanding as of December 31, 2012 and
December 31, 2011. In making these estimates, we consider
the losses that we expect to incur over the life of the sold
loans. See Note 24 Commitments and Guarantees in the Notes
To Consolidated Financial Statements in Item 8 of this Report
for additional information.
Indemnification and repurchase liabilities, which are included
in Other liabilities on the Consolidated Balance Sheet, are
evaluated by management on a quarterly basis. Initial
recognition and subsequent adjustments to the indemnification
and repurchase liability for home equity loans/lines are
recognized in Other noninterest income on the Consolidated
Income Statement.
82 The PNC Financial Services Group, Inc. – Form 10-K