PNC Bank 2014 Annual Report Download - page 232

Visa Indemnification
Our payment services business issues and acquires credit and
debit card transactions through Visa U.S.A. Inc. card
association or its affiliates (Visa).
In October 2007, Visa completed a restructuring and issued
shares of Visa Inc. common stock to its financial institution
members (Visa Reorganization) in contemplation of its initial
public offering (IPO). As part of the Visa Reorganization, we
received our proportionate share of Class B Visa Inc. common
stock allocated to the U.S. members. Prior to the IPO, the U.S.
members, which included PNC, were obligated to indemnify
Visa for judgments and settlements related to certain specified
litigation.
As a result of the acquisition of National City, we became
party to judgment and loss sharing agreements with Visa and
certain other banks. The judgment and loss sharing
agreements were designed to apportion financial
responsibilities arising from any potential adverse judgment or
negotiated settlements related to the specified litigation.
In September 2014, Visa funded $450 million into its
litigation escrow account and reduced the conversion rate of
Visa B to A shares. We continue to have an obligation to
indemnify Visa for judgments and settlements for the
remaining specified litigation.
Recourse and Repurchase Obligations
As discussed in Note 2 Loan Sale and Servicing Activities and
Variable Interest Entities, PNC has sold commercial
mortgage, residential mortgage and home equity loans/ lines
of credit 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.
Commercial Mortgage Loan Recourse Obligations
We originate 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, 2014 and
December 31, 2013, the unpaid principal balance outstanding
of loans sold as a participant in these programs was $12.3
billion and $11.7 billion, respectively. The potential maximum
exposure under the loss share arrangements was $3.7 billion at
December 31, 2014 and $3.6 billion at December 31, 2013.
We maintain a reserve for estimated losses based upon our
exposure. The reserve for losses under these programs totaled
$35 million and $33 million as of December 31, 2014 and
December 31, 2013, 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 150: Analysis of Commercial Mortgage Recourse
Obligations
In millions 2014 2013
January 1 $33 $43
Reserve adjustments, net 2 (9)
Losses – loan repurchases and settlements (1)
December 31 $35 $33
Residential Mortgage Loan and Home Equity Loan/ Line
of Credit Repurchase Obligations
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. 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.
214 The PNC Financial Services Group, Inc. – Form 10-K