PNC Bank 2014 Annual Report Download - page 233

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, 2014 and
December 31, 2013, the total indemnification and repurchase
liability for estimated losses on indemnification and
repurchase claims totaled $136 million and $153 million,
respectively, and was included in Other liabilities on the
Consolidated Balance Sheet. An analysis of the changes in this
liability during 2014 and 2013 follows:
Table 151: Analysis of Indemnification and Repurchase Liability for Asserted Claims and Unasserted Claims
2014 2013
In millions
Residential
Mortgages (a)
Home
Equity
Loans/
Lines (b) Total
Residential
Mortgages (a)
Home
Equity
Loans/
Lines (b) (c) Total
January 1 $131 $ 22 $153 $ 614 $ 58 $ 672
Reserve adjustments, net 20 20 (53) (53)
Losses – loan repurchases and private investor settlements (24) (13) (37) (239) (36) (275)
Agency settlements (191) (191)
December 31 $107 $ 29 $136 $ 131 $ 22 $ 153
(a) Repurchase obligation associated with sold loan portfolios of $57.4 billion and $91.9 billion at December 31, 2014 and December 31, 2013, respectively. The decrease at
December 31, 2014 compared to December 31, 2013 reflects the exclusion of loans sold between 2000 and 2008 that were included in agency settlements and thus repurchase risk was
mitigated.
(b) Repurchase obligation associated with sold loan portfolios of $2.5 billion and $2.8 billion at December 31, 2014 and December 31, 2013, respectively. PNC is no longer engaged in
the brokered home equity lending business, which was acquired with National City.
(c) In prior periods, the unpaid principal balance of loans serviced for home equity loans/lines of credit in (b) above reflected the outstanding balance at the time of charge-off. During the
second quarter of 2014, we corrected the outstanding principal balance to reflect the unpaid principal balance as of the reporting date. Accordingly, the prior period amount as of
December 31, 2013 was reduced by $.8 billion.
Management believes the indemnification and repurchase
liabilities appropriately reflect the estimated probable losses
on indemnification and repurchase claims for all loans sold
and outstanding as of December 31, 2014. In making these
estimates, we consider the losses that we expect to incur over
the life of the sold loans. While management seeks to obtain
all relevant information in estimating the indemnification and
repurchase liability, the estimation process is inherently
uncertain and imprecise and, accordingly, it is reasonably
possible that future indemnification and repurchase losses
could be more or less than our established liability. Factors
that could affect our estimate include the volume of valid
claims driven by investor strategies and behavior, our ability
to successfully negotiate claims with investors, housing prices
and other economic conditions. At December 31, 2014, we
estimate that it is reasonably possible that we could incur
additional losses in excess of our accrued indemnification and
repurchase liability of up to approximately $99 million for our
portfolio of residential mortgage loans sold. At December 31,
2014, the reasonably possible loss above our accrual for our
portfolio of home equity loans/lines of credit sold was not
material. This estimate of potential additional losses in excess
of our liability is based on assumed higher repurchase claims
and lower claim rescissions than our current assumptions.
The PNC Financial Services Group, Inc. – Form 10-K 215