SunTrust 2015 Annual Report Download - page 150

Notes to Consolidated Financial Statements, continued
122
Sheets, and the related repurchase (benefit)/provision is
recognized in mortgage production related income in the
Consolidated Statements of Income.
The following table summarizes the carrying value of the
Company's outstanding repurchased mortgage loans at
December 31:
(Dollars in millions) 2015 2014
Outstanding repurchased mortgage loans:
Performing LHFI $255 $271
Nonperforming LHFI 17 29
Nonperforming LHFS —12
Total carrying value of outstanding
repurchased mortgage loans $272 $312
In addition to representations and warranties related to loan sales,
the Company makes representations and warranties that it will
service the loans in accordance with investor servicing
guidelines and standards, which may include (i) collection and
remittance of principal and interest, (ii) administration of escrow
for taxes and insurance, (iii) advancing principal, interest, taxes,
insurance, and collection expenses on delinquent accounts, (iv)
loss mitigation strategies including loan modifications, and (v)
foreclosures.
The Company normally retains servicing rights when loans
are transferred, however, servicing rights are occasionally sold
to third parties. When MSRs are sold, the Company makes
representations and warranties related to servicing standards and
obligations, and recognizes a liability for contingent losses
recorded in other liabilities in the Consolidated Balance Sheets.
This liability, which is separate from the reserve for mortgage
loan repurchases, totaled $14 million and $25 million at
December 31, 2015 and 2014, respectively.
Contingent Consideration
The Company has contingent payment obligations related to
certain business combination transactions. Payments are
calculated using certain post-acquisition performance criteria.
The potential obligation is recorded as an other liability,
measured at the fair value of the contingent payments, which
totaled $23 million and $27 million at December 31, 2015 and
2014, respectively.
Visa
The Company executes credit and debit transactions through
Visa and MasterCard. The Company is a defendant, along with
Visa and MasterCard (the “Card Associations”), as well as
several other banks, in one of several antitrust lawsuits
challenging the practices of the Card Associations (the
“Litigation”). The Company entered into judgment and loss
sharing agreements with Visa and certain other banks in order
to apportion financial responsibilities arising from any potential
adverse judgment or negotiated settlements related to the
Litigation. Additionally, in connection with Visa's restructuring
in 2007, shares of Visa common stock were issued to its financial
institution members and the Company received its proportionate
number of shares of Visa Inc. common stock, which were
subsequently converted to Class B shares of Visa Inc. upon
completion of Visa’s IPO in 2008. A provision of the original
Visa By-Laws, which was restated in Visa's certificate of
incorporation, contains a general indemnification provision
between a Visa member and Visa that explicitly provides that
each member's indemnification obligation is limited to losses
arising from its own conduct and the specifically defined
Litigation.
Agreements associated with Visa's IPO have provisions that
Visa will fund a litigation escrow account, established for the
purpose of funding judgments in, or settlements of, the
Litigation. If the escrow account is insufficient to cover the
Litigation losses, then Visa will issue additional Class A shares
(“loss shares”). The proceeds from the sale of the loss shares
would then be deposited in the escrow account. The issuance of
the loss shares will cause a dilution of Visa's Class B shares as
a result of an adjustment to lower the conversion factor of the
Class B shares to Class A shares. Visa U.S.A.'s members are
responsible for any portion of the settlement or loss on the
Litigation after the escrow account is depleted and the value of
the Class B shares is fully diluted.
In May 2009, the Company sold its 3.2 million Class B
shares to the Visa Counterparty and entered into a derivative with
the Visa Counterparty. Under the derivative, the Visa
Counterparty is compensated by the Company for any decline
in the conversion factor as a result of the outcome of the
Litigation. Conversely, the Company is compensated by the Visa
Counterparty for any increase in the conversion factor. The
amount of payments made or received under the derivative is a
function of the 3.2 million shares sold to the Visa Counterparty,
the change in conversion rate, and Visa’s share price. The Visa
Counterparty, as a result of its ownership of the Class B shares,
is impacted by dilutive adjustments to the conversion factor of
the Class B shares caused by the Litigation losses. The fair value
of the derivative liability was immaterial at both December 31,
2015 and 2014; however, the ultimate impact to the Company
could be significantly different based on the outcome of the
Litigation.
Tax Credit Investments Sold
STCC, one of the Company's subsidiaries, previously obtained
state and federal tax credits through the construction and
development of affordable housing properties and continues to
obtain state and federal tax credits through investments in
affordable housing developments. STCC or its subsidiaries are
limited and/or general partners in various partnerships
established for the properties. Some of the investments that
generate state tax credits may be sold to outside investors.
At December 31, 2015, there were four transactions
outstanding that contain guarantee provisions stating that STCC
will make payment to the outside investors if the tax credits
become ineligible. STCC also guarantees that the general partner
will perform on the delivery of the credits. The guarantees are
expected to expire within a 15 year period from inception and
have remaining years to expiry ranging from three to seven years.
At December 31, 2015, the maximum potential amount that
STCC could be obligated to pay under these guarantees is $19
million; however, STCC can seek recourse against the general
partner. Additionally, STCC can seek reimbursement from the
cash flow and residual values of the underlying affordable
housing properties. At December 31, 2015 and 2014, an
immaterial amount was accrued related to the obligation to