US Bank 2014 Annual Report Download - page 159

claims for substantial or indeterminate amounts of damages,
while banking regulators and certain other governmental
authorities, such as the U.S. Department of Justice, have
demonstrated an increasing focus on enforcement, including
in connection with alleged violations of law and customer
harm. In addition, governmental authorities have begun to
seek criminal penalties against companies in the financial
services sector for regulatory violations.
As an example of the expansion of risks arising from
litigation, for the past several years, certain plaintiffs have
been attempting to broaden the duties of residential
mortgage–backed securities (“RMBS”) trustees in litigation
matters involving RMBS trusts where the Company, or
another financial institution, served as the trustee. While the
Company has denied liability and believes it has meritorious
defenses in these cases, any finding of liability or new or
enhanced contractual or statutory duties in one or more of
these cases against the Company, or another financial
institution, could result in a significant financial loss or
require a modification to the Company’s business practices,
which could negatively impact the Company’s financial
results.
Increased litigation costs, substantial legal liability or
significant governmental action against the Company could
materially impact its financial condition and results of
operations or cause significant reputational harm to the
Company, which in turn could adversely impact its business
prospects.
The Company faces increased regulatory and legal risk
arising out of its mortgage lending and servicing
businesses In April 2011, the Company and certain other
large financial institutions entered into Consent Orders with
U.S. federal banking regulators relating to residential
mortgage servicing and foreclosure practices. These
regulators will determine whether any of the institutions will
be released from the Consent Orders, based on their
compliance with the Consent Orders’ provisions. If the
federal regulators determine that the Company has not
appropriately addressed the requirements of the Consent
Orders, the Company could be required to enter into further
orders and settlements, pay additional fines or penalties,
make restitution or further modify the Company’s business
practices (which may increase the Company’s operating
expenses and decrease its revenue). The Company is also
subject to other investigations and examinations by
government agencies and bank regulators concerning
mortgage-related practices, including those related to
compliance with selling guidelines relating to residential
home loans sold to GSEs, foreclosure-related expenses
submitted to the Federal Housing Administration or GSEs for
reimbursement, and various practices related to lender-
placed insurance. The Company is cooperating fully with
these investigations and examinations, any of which could
lead to administrative or legal proceedings or settlements.
Remedies in such proceedings or settlements may include
fines, penalties, restitution or alterations to the Company’s
business practices, which could increase the Company’s
operating expenses. Additionally, reputational damage
arising from these or other inquiries and industry-wide
publicity could also have an adverse effect upon the
Company’s existing mortgage business and could reduce
future business opportunities.
In addition to governmental or regulatory investigations,
the Company, like other companies with residential mortgage
origination and servicing operations, faces the risk of class
actions and other litigation arising out of these operations.
The Company may be required to repurchase mortgage
loans as a result of breaches in contractual
representations and warranties When the Company sells
mortgage loans that it has originated to various parties,
including GSEs, it is required to make customary
representations and warranties to the purchaser about the
mortgage loans and the manner in which they were
originated. The Company may be required to repurchase
mortgage loans in the event of a breach of contractual
representations or warranties that is not remedied within a
certain period. Contracts for residential mortgage loan sales
to the GSEs include various types of specific remedies and
penalties that could be applied to inadequate responses to
repurchase requests. If economic conditions and the housing
market deteriorate or the GSEs increase their claims of
breached representations and warranties, the Company
could have increased repurchase obligations and increased
loss severity on repurchases, requiring material increases to
its repurchase reserve.
The Company is exposed to risk of environmental liability
when it takes title to properties In the course of the
Company’s business, the Company may foreclose on and
take title to real estate. As a result, the Company could be
subject to environmental liabilities with respect to these
properties. The Company may be held liable to a
governmental entity or to third parties for property damage,
personal injury, investigation and clean-up costs incurred by
these parties in connection with environmental
contamination or may be required to investigate or clean up
hazardous or toxic substances or chemical releases at a
property. The costs associated with investigation or
remediation activities could be substantial. In addition, if the
Company is the owner or former owner of a contaminated
U.S. BANCORP The power of potential
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