Subsequent Events

Repurchase Request Resolution Agreement

On January 6, 2013, we entered into an agreement (the “resolution agreement”) with Bank of America, N.A., Countrywide Home Loans, Inc., and other parties, each of which is an affiliate of Bank of America Corporation, to resolve certain repurchase requests arising from breaches of selling representations and warranties.

The resolution agreement resolved our outstanding and expected future repurchase requests arising from breaches of selling representations and warranties on specified single-family loans delivered to us by Bank of America and Countrywide that were originated between January 1, 2000 and December 31, 2008. The resolution agreement included the following components:


•	Bank of America made a cash payment to us of $3.6 billion related to repurchase requests in January 2013; and


•	Bank of America repurchased approximately 29,500 loans from us in January 2013 for an aggregate repurchase price of $6.6 billion, subject to a reconciliation process.

The resolution agreement also provided that:


•	We released Bank of America from current and future repurchase liability in connection with seller representations and warranties on the loans covered by the agreement, except for repurchase obligations arising out of specified excluded defects (for example, certain violations of our Charter Act);


•	We retained ownership of all of the loans covered by the agreement, other than the loans that Bank of America repurchased pursuant to the agreement and any additional loans that will be repurchased by Bank of America in the future due to an excluded defect;

•

Bank of America continues to be responsible for certain payments and related obligations with respect to mortgage insurance rescissions, cancellations and denials on the loans covered by the agreement, which obligations are in addition to the cash payment and the repurchase price described above. In January 2013, Bank of America made an initial cash payment of $518 million related to mortgage insurance claims; and


•	Bank of America continues to be responsible for its servicing, third-party indemnification and recourse obligations with respect to the loans covered by the agreement.

The resolution agreement addressed $11.3 billion of unpaid principal balance, or 97%, of our outstanding repurchase requests made to Bank of America as of December 31, 2012. Accordingly, the amount of our outstanding repurchase requests will decrease substantially in the three months ending March 31, 2013 as outstanding repurchase requests to Bank of America represent 73% of our total repurchase requests outstanding as of December 31, 2012.

The following table displays the impact of this agreement that we recognized in our consolidated statement of operations and comprehensive income (loss) for the year ended December 31, 2012.



	For the Year Ended
	December 31, 2012
	(Dollars in millions)
Net interest income		$	181
Benefit for credit losses		841
Foreclosed property income		106
Total		$	1,128

Below we describe the resolution agreement’s impact on our consolidated statement of operations and comprehensive income (loss).

As of December 31, 2012, we adjusted our allowance for loan losses to consider the net impact of the resolution agreement as it related to both the loans to be repurchased as well as the loans for which we retained ownership. For loans that Bank of America repurchased in accordance with the resolution agreement, we eliminated the associated allowance for loan losses as we no longer expected to incur any loss on them. For loans that we retained, we adjusted the estimated repurchase benefit in the allowance for loan losses to reflect only the compensation we would receive under the terms of the agreement. In addition, the loans that Bank of America repurchased that were on nonaccrual status before the settlement of the agreement were returned to accrual status as of December 31, 2012 to reflect the change in our assessment of collectibility, which resulted in additional net interest income for the year ended December 31, 2012.

For loans that had previously charged off, for the year ended December 31, 2012, we recognized foreclosed property income and a benefit for credit losses for cash received under the terms of the resolution agreement for which we had an outstanding repurchase request or mortgage insurance receivable as of December 31, 2012. The income recognized for the year ended December 31, 2012 relates to cash received for these receivables in excess of the amounts previously charged off.

Upon settlement of the resolution agreement in the three months ending March 31, 2013, the unamortized basis adjustments on the loans repurchased by Bank of America will be recognized into net interest income, resulting in additional net interest income. In addition, in the three months ending March 31, 2013 we expect to record foreclosed property income and a benefit for credit losses for cash received under the terms of the agreement for previously charged off loans for which we had no outstanding repurchase request as of December 31, 2012.

Compensatory Fee Resolution Agreement

On January 6, 2013, we and Bank of America entered into an agreement (the “compensatory fee agreement”) to resolve outstanding and certain future compensatory fees owed by Bank of America due to servicing delays. Bank of America made an initial payment to us of $1.3 billion in January 2013. Subsequent to the initial payment, we and Bank of America will complete a loan review process in 2013 as specified in the compensatory fee agreement to mutually determine the final amount of compensatory fees owed. For the year ended December 31, 2012, we recognized income of $203 million in “Foreclosed property (income) expense” in our consolidated statement of operations and comprehensive income (loss) as a result of the compensatory fee agreement. Any remaining amount will be recognized in 2013 once we have completed a sufficient portion of the loan review process to determine the final amount of income that will be received under the terms of the agreement.