Bank of America 2001 Annual Report Download - page 97

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BANK OF AMERICA 2001 ANNUAL REPORT
95
Note 7 Allowance for Credit Losses
The table below summarizes the changes in the allowance for credit losses on loans and leases for 2001, 2000 and 1999:
(Dollars in millions)
2001 2000 1999
Balance, January 1 $6,838 $ 6,828 $ 7,122
Loans and leases charged off(1) (4,844) (2,995) (2,582)
Recoveries of loans and leases previously charged off 600 595 582
Net charge-offs (4,244) (2,400) (2,000)
Provision for credit losses(2) 4,287 2,535 1,820
Other, net (6) (125) (114)
Balance, December 31 $6,875 $6,838 $6,828
(1) Includes $635 million related to the exit of the subprime real estate lending business in 2001.
(2) Includes $395 million related to the exit of the subprime real estate lending business in 2001.
Note 8 Securitizations
The Corporation securitizes, sells and services interests in consumer finance, commercial and bankcard loans and residential mortgage loans. When
the Corporation securitizes assets, it may retain a portion or all of the securities, subordinated tranches, interest only strips and, in some cases, a cash
reserve account, all of which are considered retained interests in the securitized assets. See Note One for a more detailed discussion of securitizations.
In conjunction with or shortly after closing, the Corporation securitizes the majority of its mortgage loan originations. In 2001, the Corporation
converted a total of $52.9 billion of residential first mortgages into mortgage-backed securities issued through Fannie Mae, Freddie Mac, Ginnie Mae
and Bank of America Mortgage Securities. Of the total securities issued in 2001, the Corporation retained $4.6 billion at December 31, 2001 with an
additional $5.1 billion retained of securities issued prior to 2001 for a total of $9.7 billion. At December 31, 2000, the Corporation had retained
$7.8 billion in securities. These retained interests are valued using quoted market values. The Corporation reported $637 million in income on loans
converted into securities and sold, of which $449 million was from loans originated by the Corporation and $188 million was from loans originated
by other entities on behalf of the Corporation. In addition to the retained interests in the securities, the Corporation has retained the servicing asset
and Excess Spread Certificates from securitized mortgage loans (see the Mortgage Banking Assets section of Note One) and has limited recourse
obligations on $1.8 billion of the securities issued in 2001. Of this amount, $1.5 billion has recourse limited to one year, and $318 million has recourse
of five to seven years. Mortgage servicing fee income on all loans serviced, including securitizations, was $1.1 billion in 2001.
Excess Spread Certificates of $3.9 billion at December 31, 2001 are classified as mortgage banking assets and marked to market with the unreal-
ized gains or losses recorded in trading account profits. At December 31, 2001, key economic assumptions and the sensitivities of the fair value of the
Excess Spread Certificates to immediate changes in those assumptions were analyzed. The sensitivity analysis included the impact on fair value of
modeled prepayment and interest rate changes under favorable and adverse conditions. A decrease of 10 percent and 20 percent in modeled prepay-
ments would result in an increase in value ranging from $189 million to $397 million, and an increase in modeled prepayments of 10 percent and 20
percent would result in a decrease in value ranging from $174 million to $333 million. An increase of 100 and 200 basis points in interest rates would
result in an increase in value ranging from $167 million to $348 million, and a decrease in interest rates of 100 and 200 basis points would result in a
decrease in value ranging from $154 million to $297 million. See Note One for additional disclosures related to the Excess Spread Certificates.
In December 2001, the Corporation securitized $17.5 billion of sub-prime real estate loans in two bond-insured transactions. At December 31,
2001, the Corporation retained both the AAA-rated securities in the available-for-sale portfolio and $178 million of residual interests created in these
securitizations. The Corporation sold the servicing rights on these loans.