Fifth Third Bank 2014 Annual Report Download - page 134

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
132 Fifth Third Bancorp
The Bancorp uses the best information available to it in
estimating its mortgage representation and warranty reserve,
however, the estimation process is inherently uncertain and
imprecise and, accordingly, losses in excess of the amounts accrued
as of December 31, 2014, are reasonably possible. The Bancorp
currently estimates that it is reasonably possible that it could incur
losses related to mortgage representation and warranty provisions in
an amount up to approximately $57 million in excess of amounts
reserved. This estimate was derived by modifying the key
assumptions discussed above to reflect management's judgment
regarding reasonably possible adverse changes to those assumptions.
The actual repurchase losses could vary significantly from the
recorded mortgage representation and warranty reserve or this
estimate of reasonably possibly losses, depending on the outcome of
various factors, including those noted above.
During 2014 and 2013, the Bancorp paid $11 million and $64
million, respectively, in the form of make whole payments and
repurchased $59 million and $89 million, respectively, in
outstanding principal of loans to satisfy investor demands. Total
repurchase demand requests during 2014 and 2013 were $97 million
and $263 million, respectively. Total outstanding repurchase
demand inventory was $7 million at December 31, 2014 compared
to $46 million at December 31, 2013.
The following table summarizes activity in the reserve for representation and warranty provisions for the years ended:
($ in millions) 2014 2013
Balance, beginning of period $ 44 110
Net additions to the reserve 6 7
Losses charged against the reserve (15) (73)
Balance, end of period $ 35 44
The following tables provide a rollforward of unresolved claims by claimant type for the years ended:
GSE Private Label
December 31, 2014 ($ in millions) Units Dollars Units Dollars
Balance, beginning of period 264 $ 41 33 $ 5
New demands 744 95 14 2
Loan paydowns/payoffs (44) (5) (2) (1)
Resolved demands (927) (125) (44) (5)
Balance, end of period 37 $ 6 1 $ 1
GSE Private Label
December 31, 2013 ($ in millions) Units Dollars Units Dollars
Balance, beginning of period 294 $ 48 124 $ 19
New demands 1,962 259 237 4
Loan paydowns/payoffs (20) (3) (6) (1)
Resolved demands (1,972) (263) (322) (17)
Balance, end of period 264 $ 41 33 $ 5
Residential mortgage loans sold with credit recourse
The Bancorp sold certain residential mortgage loans in the
secondary market with credit recourse. In the event of any customer
default, pursuant to the credit recourse provided, the Bancorp is
required to reimburse the third party. The maximum amount of
credit risk in the event of nonperformance by the underlying
borrowers is equivalent to the total outstanding balance. In the
event of nonperformance, the Bancorp has rights to the underlying
collateral value securing the loan. The outstanding balances on these
loans sold with credit recourse were $548 million and $579 million
at December 31, 2014 and 2013, respectively, and the delinquency
rates were 4.0% at December 31, 2014 and 4.4% at December 31,
2013. The Bancorp maintained an estimated credit loss reserve on
these loans sold with credit recourse of $11 million at December 31,
2014 and $16 million at December 31, 2013 recorded in other
liabilities in the Consolidated Balance Sheets. To determine the
credit loss reserve, the Bancorp used an approach that is consistent
with its overall approach in estimating credit losses for various
categories of residential mortgage loans held in its loan portfolio.
Margin accounts
FTS, a subsidiary of the Bancorp, guarantees the collection of all
margin account balances held by its brokerage clearing agent for the
benefit of its customers. FTS is responsible for payment to its
brokerage clearing agent for any loss, liability, damage, cost or
expense incurred as a result of customers failing to comply with
margin or margin maintenance calls on all margin accounts. The
margin account balance held by the brokerage clearing agent was
$13 million at December 31, 2014 and $12 million at December 31,
2013. In the event of any customer default, FTS has rights to the
underlying collateral provided. Given the existence of the underlying
collateral provided and negligible historical credit losses, the
Bancorp does not maintain a loss reserve related to the margin
accounts.
Long-term borrowing obligations
The Bancorp had certain fully and unconditionally guaranteed long-
term borrowing obligations issued by wholly-owned issuing trust
entities of $62 million as of December 31, 2014.
Visa litigation
The Bancorp, as a member bank of Visa prior to Visa’s
reorganization and IPO (the “IPO”) of its Class A common shares
(the “Class A Shares”) in 2008, had certain indemnification
obligations pursuant to Visa’s certificate of incorporation and by-
laws and in accordance with their membership agreements. In
accordance with Visa’s by-laws prior to the IPO, the Bancorp could
have been required to indemnify Visa for the Bancorp’s