In the second quarter, the Company increased its expectations of future payments on second-lien RMBS exposures by $41 million reflecting slower than expected declines in early stage delinquencies within these transactions. Expected salvage declined by $26 million reflecting a reduction in anticipated recoveries on certain insured transactions sponsored by GMAC Mortgage, LLC and Residential Funding Company, LLC following their bankruptcy filings and a decrease in expected recoveries from excess spread due to faster principal repayment on the underlying loans, partially offset by an increase in expected recoveries from contractual claims related to ineligible mortgage loans improperly included in the insured securitizations. The Company’s estimates for expected recoveries related to “put-backs” of ineligible mortgage loans totaled $3.2 billion as of June 30, 2012. However, based on its assessment of the strength of its contract claims, the Company continues to believe it is entitled to collect the full amount of its cumulative incurred losses on these transactions, which totaled $4.9 billion as of June 30, 2012.
In the second quarter of 2012, the Company estimated $171 million of incremental economic losses on certain insured transactions backed by pools of CMBS. The increase reflects additional deterioration within some insured transactions.
Included in the $68 million of “Other” economic loss activity was approximately $57 million of losses on insured first-lien mortgage loan securitizations where recoveries of advances by the servicers of the underlying loans led to higher than expected loss severities.
Portions of the $306 million of total economic losses are on policies subject to insurance accounting while other amounts relate to losses on insured VIEs or insured credit derivatives for which GAAP specifies different accounting. The following is a summary of second quarter economic losses based on those categories:
|2Q 2012 Economic Losses (Benefit)|
|$ in millions|
|Change in Expected Payments||$86|
|Change in Insurance Recoveries||(21)|
|Loss & LAE Expense on Policies Subject to Insurance Accounting||$65|
|Credit Impairments on Insured VIEs||$81|
|Credit Impairments on Insured Credit Derivatives||$160|
|LAE on Insured Credit Derivatives||0|
|Credit Impairments and LAE on Insured Credit Derivatives||$160|
|Total Economic Losses (Benefit)||$306|
|$ in millions||Q2 2011||Q1 2012||Q2 2012|
|Collections on Paid Claims||(9)||(7)||(6)|
|Paid LAE (net of collections)||22||14||35|
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