PNC Bank 2013 Annual Report Download - page 232

R ECOURSE AND R EPURCHASE O BLIGATIONS
As discussed in Note 3 Loan Sale and Servicing Activities and
Variable Interest Entities, PNC has sold commercial
mortgage, residential mortgage and home equity loans directly
or indirectly through securitization and loan sale transactions
in which we have continuing involvement. One form of
continuing involvement includes certain recourse and loan
repurchase obligations associated with the transferred assets.
C
OMMERCIAL M ORTGAGE L OAN R ECOURSE O BLIGATIONS
We originate, close and service certain multi-family
commercial mortgage loans which are sold to FNMA under
FNMA’s Delegated Underwriting and Servicing (DUS)
program. We participated in a similar program with the
FHLMC.
Under these programs, we generally assume up to a one-third
pari passu risk of loss on unpaid principal balances through a
loss share arrangement. At December 31, 2013 and
December 31, 2012, the unpaid principal balance outstanding
of loans sold as a participant in these programs was $11.7
billion and $12.8 billion, respectively. The potential maximum
exposure under the loss share arrangements was $3.6 billion at
December 31, 2013 and $3.9 billion at December 31, 2012.
We maintain a reserve for estimated losses based upon our
exposure. The reserve for losses under these programs totaled
$33 million and $43 million as of December 31, 2013 and
December 31, 2012, respectively, and is included in Other
liabilities on our Consolidated Balance Sheet.
If payment is required under these programs, we would not
have a contractual interest in the collateral underlying the
mortgage loans on which losses occurred, although the value
of the collateral is taken into account in determining our share
of such losses. Our exposure and activity associated with these
recourse obligations are reported in the Corporate &
Institutional Banking segment.
Table 152: Analysis of Commercial Mortgage Recourse
Obligations
In millions 2013 2012
January 1 $43 $47
Reserve adjustments, net (9) 4
Losses – loan repurchases and settlements (1) (8)
December 31 $33 $43
R
ESIDENTIAL M ORTGAGE L OAN AND H OME E QUITY
R EPURCHASE O BLIGATIONS
While residential mortgage loans are sold on a non-recourse
basis, we assume certain loan repurchase obligations
associated with mortgage loans we have sold to investors.
These loan repurchase obligations primarily relate to
situations where PNC is alleged to have breached certain
origination covenants and representations and warranties
made to purchasers of the loans in the respective purchase and
sale agreements. For additional information on loan sales see
Note 3 Loan Sale and Servicing Activities and Variable
Interest Entities. 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.
In the fourth quarter of 2013, PNC reached agreements with
both FNMA and FHLMC to resolve their repurchase claims
with respect to loans sold between 2000 and 2008. PNC paid a
total of $191 million related to these settlements.
PNC’s repurchase obligations also include certain brokered
home equity loans/lines of credit 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 of credit is reported in the
Non-Strategic Assets Portfolio segment.
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.
214 The PNC Financial Services Group, Inc. – Form 10-K