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Capital One settles GreenPoint lawsuit, totals rewards reserves

Capital One Financial Corp. said in its Form 10-K filed Feb. 21 that it resolved long-running litigation over its closed GreenPoint Mortgage Funding Inc. unit.

The mortgage unit, which was shut down in 2007, was named as a defendant in a lawsuit by U.S. Bank NA, Syncora Guarantee Inc. and CIFG Assurance North America Inc. in 2009. The suit alleged that GreenPoint breached certain representations and warranties in two contracts on 30,000 mortgage loans it sold that carried an aggregate original principal balance of approximately $1.8 billion to a purchaser that ultimately transferred most of these mortgage loans to a securitization trust.

The plaintiffs sought damages and an order compelling GreenPoint to repurchase the entire portfolio of loans based on alleged breaches of representations and warranties relating to a limited sampling of loans in the portfolio or repurchase specific loans related to the alleged breaches of representations and warranties.

GreenPoint resolved the litigation for a total of $540 million in December 2017, according to the filing. Its discontinued operations results included a pretax charge of $169 million related the settlement of previously recognized reserves.

The bank said the reserve for reasonably possible future losses beyond reserves at the end of 2017 was about $550 million, including the mortgage representation and warranty exposure.

The bank also said it had reserved $3.9 billion at the end of 2017 earmarked for customer rewards associated with the bank's credit cards, up from $3.6 billion a year ago. The bank said rewards earned through customer spending are recorded as an offset to interchange income and increase reward reserves.

The bank computes customer rewards based on the estimated future cost of earned rewards that are expected to be redeemed, and it expects the "vast majority" of all rewards earned to be redeemed.