PNC Bank 2012 Annual Report Download - page 248

Variable Interest Entities, Agency securitizations consist of
mortgage loan sale transactions with FNMA, FHLMC, and the
GNMA program, while Non-agency securitizations consist of
mortgage loan sale transactions with private investors.
Mortgage loan sale transactions that are not part of a
securitization may involve FNMA, FHLMC or private
investors. Our historical exposure and activity associated with
Agency securitization repurchase obligations has primarily
been related to transactions with FNMA and FHLMC, as
indemnification and repurchase losses associated with FHA
and VA-insured and uninsured loans pooled in GNMA
securitizations historically have been minimal. Repurchase
obligation activity associated with residential mortgages is
reported in the Residential Mortgage Banking segment.
PNC’s repurchase obligations also include certain brokered
home equity loans/lines that were sold to a limited number of
private investors in the financial services industry by National
City prior to our acquisition of National City. PNC is no longer
engaged in the brokered home equity lending business, and our
exposure under these loan repurchase obligations is limited to
repurchases of loans sold in these transactions. Repurchase
activity associated with brokered home equity loans/lines is
reported in the Non-Strategic Assets Portfolio segment.
Loan covenants and representations and warranties are
established through loan sale agreements with various
investors to provide assurance that PNC has sold loans that are
of sufficient investment quality. Key aspects of such
covenants and representations and warranties include the
loan’s compliance with any applicable loan criteria established
for the transaction, 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.
Indemnification and repurchase liabilities are initially
recognized when loans are sold to investors and are
subsequently evaluated by management. Initial recognition
and subsequent adjustments to the indemnification and
repurchase liability for the sold residential mortgage 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, 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, 2012 and
December 31, 2011, the total indemnification and repurchase
liability for estimated losses on indemnification and
repurchase claims totaled $672 million and $130 million,
respectively, and was included in Other liabilities on the
Consolidated Balance Sheet. An analysis of the changes in this
liability during 2012 and 2011 follows:
Table 155: Analysis of Indemnification and Repurchase Liability for Asserted Claims and Unasserted Claims
2012 2011
In millions
Residential
Mortgages (a)
Home
Equity
Loans/
Lines (b) Total
Residential
Mortgages (a)
Home
Equity
Loans/
Lines (b) Total
January 1 $ 83 $47 $130 $144 $150 $ 294
Reserve adjustments, net 32 12 44 14 14
RBC Bank (USA) acquisition 26 26
Losses – loan repurchases and settlements (40) (8) (48) (34) (22) (56)
March 31 $101 $51 $152 $124 $128 $ 252
Reserve adjustments, net 438 15 453 21 3 24
Losses – loan repurchases and settlements (77) (5) (82) (50) (76) (126)
June 30 $462 $61 $523 $ 95 $ 55 $ 150
Reserve adjustments, net 37 4 41 31 31
Losses – loan repurchases and settlements (78) (3) (81) (41) (4) (45)
September 30 $421 $62 $483 $ 85 $ 51 $ 136
Reserve adjustments, net 254 (2) 252 36 1 37
Losses – loan repurchases and settlements (61) (2) (63) (38) (5) (43)
December 31 $614 $58 $672 $ 83 $ 47 $ 130
(a) Repurchase obligation associated with sold loan portfolios of $105.8 billion and $121.4 billion at December 31, 2012 and December 31, 2011, respectively.
(b) Repurchase obligation associated with sold loan portfolios of $4.3 billion and $4.5 billion at December 31, 2012 and December 31, 2011, respectively. PNC is no longer engaged in
the brokered home equity lending business, which was acquired with National City.
The PNC Financial Services Group, Inc. – Form 10-K 229