PNC Bank 2013 Annual Report Download - page 87

The table below details our indemnification and repurchase claim settlement activity during 2013 and 2012.
Table 32: Analysis of Residential Mortgage Indemnification and Repurchase Claim Settlement Activity
2013 2012
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):
FNMA, FHLMC and GNMA securitizations $378 $399 $89 $356 $210 $85
Private investors (e) 47 31 6 75 46 5
Total indemnification and repurchase settlements $425 $430 $95 $431 $256 $90
(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 loan sale transactions.
Residential mortgages that we service through FNMA,
FHLMC and GNMA securitizations, and for which we could
experience a loss if required to repurchase a delinquent loan
due to a breach in representations or warranties, were $48
billion at December 31, 2013, of which $253 million was 90
days or more delinquent. These amounts were $43 billion and
$288 million, respectively, at December 31, 2012.
During 2013 and 2012, in an effort to reduce their exposure to
losses on purchased loans, FNMA and FHLMC increased
their level of repurchase claims, primarily on 2008 and prior
vintage loans. 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. As these settlements were being finalized, both
FNMA and FHLMC continued to make repurchase demands,
which drove the increase in claims activity in the fourth
quarter of 2013. However, most of these claims were included
in the settlements, resulting in the significant decline of
unresolved claims to $35 million as of December 31, 2013.
As a result of the claim settlement activity in 2013, including
the FNMA and FHLMC settlements, the liability for estimated
losses on indemnification and repurchase claims for
residential mortgages decreased to $131 million at
December 31, 2013 from $614 million at December 31, 2012.
We believe our indemnification and repurchase liability
appropriately reflects the estimated probable losses on
indemnification and repurchase claims for all residential
mortgage loans sold and outstanding as of December 31, 2013
and December 31, 2012. 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
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.
H
OME E QUITY R EPURCHASE O BLIGATIONS
PNC’s repurchase obligations include obligations with respect
to 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 the
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.
Loan covenants and representations and warranties were
established through loan sale agreements with various
investors to provide assurance that loans PNC sold to the
investors were 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.
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 settlement with that investor. Indemnifications for loss
or loan repurchases typically occur when, after review of the
claim, we agree insufficient evidence exists to dispute the
The PNC Financial Services Group, Inc. – Form 10-K 69