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90 BANK OF AMERICA 2002
Key economic assumptions used in measuring the fair value of certain residual interests (included in other assets) in securitizations and the
sensitivity of the current fair value of residual cash flows to changes in those assumptions are as follows:
Consumer Commercial –
Credit Card Finance
(1)
Domestic
(2)
(Dollars in millions)
2002 2001 2002 2001 2001
Carrying amount of residual interests (at fair value) $123 $146 $395 $ 469 $ 78
Balance of unamortized securitized loans(3) 4,732 7,302 15,545 22,288 1,954
Weighted-average life to call (in years) 1.47 1.88 3.04 3.25 0.22
Revolving structures – annual payment rate 14.2% 14.4% 30.0%
Amortizing structures – annual constant prepayment rate:
Fixed rate loans 9.3-29.1% 8.1-24.5%
Adjustable rate loans 27.0% 27.0%
Impact on fair value of 100 bps favorable change $3 $4 $– $15 $ –
Impact on fair value of 200 bps favorable change 79233 –
Impact on fair value of 100 bps adverse change (3) (3) (1) (11) –
Impact on fair value of 200 bps adverse change (5) (7) (2) (18) –
Expected credit losses(4) 5.6% 7.8% 4.2-10.0% 3.9-10.0% 1.5%
Impact on fair value of 10% favorable change $6 $15 $40 $42 $ 7
Impact on fair value of 25% favorable change 15 37 115 120 8
Impact on fair value of 10% adverse change (7) (15) (36) (35) (7)
Impact on fair value of 25% adverse change (16) (37) (79) (77) (8)
Residual cash flows discount rate (annual rate) 6.0% 6.0% 15.0-30.0% 15.0-30.0% 6.0%
Impact on fair value of 100 bps favorable change $– $– $14 $16 $ –
Impact on fair value of 200 bps favorable change –129 33 –
Impact on fair value of 100 bps adverse change ––(13) (15) –
Impact on fair value of 200 bps adverse change –(1) (26) (29) –
(1) Consumer finance includes subprime real estate loan and manufactured housing loan securitizations, which are all serviced by third parties.
(2) Commercial-domestic includes the 1997 securitization of commercial loans, which matured during 2002.
(3) Balances represent securitized loans at December 31, 2002 and 2001. At December 31, 2002 and 2001, the Corporation retained in the available-for-sale portfolio $3.5 billion and
$17.5 billion, respectively, of the AAA-rated bonds created from the December 2001 subprime real estate loan securitizations.
(4) Annual rates of expected credit losses are presented for credit card and commercial – domestic securitizations. Cumulative lifetime rates of expected credit losses (incurred plus
projected) are presented for consumer finance loans. 2001 cumulative lifetime credit loss rates for consumer finance have been restated to include interest accrued but not collected
from the borrower.
The sensitivities in the preceding table and related to the Certificates
are hypothetical and should be used with caution. As the amounts
indicate, changes in fair value based on variations in assumptions
generally cannot be extrapolated because the relationship of the
change in assumption to the change in fair value may not be linear.
Also, the effect of a variation in a particular assumption on the fair
value of the retained interest is calculated without changing any
other assumption. In reality, changes in one factor may result in
changes in another, which might magnify or counteract the sensitivi-
ties. Additionally, the Corporation has the ability to hedge interest rate
risk associated with retained residual positions. The above sensitivi-
ties do not reflect any hedge strategies that may be undertaken to mit-
igate such risk.
Static pool net credit losses are considered in determining the
value of retained interests. Static pool net credit losses include
actual incurred plus projected credit losses divided by the original
balance of each securitization pool. Prior year expected static pool net
credit loss disclosures have been restated to include interest
accrued but not collected from the borrower. Expected static pool net
credit losses at December 31, 2002 were 6.86, 8.28, 6.69, 5.30, 4.87
and 6.27 percent for 2001, 1999, 1998, 1997, 1996 and 1995, respec-
tively. Expected static pool net credit losses at December 31, 2001
were 6.86, 6.39, 6.60, 4.95, 4.60 and 6.48 percent for 2001, 1999,
1998, 1997, 1996 and 1995, respectively.
Proceeds from collections reinvested in revolving credit card
securitizations were $16.1 billion and $19.4 billion in 2002 and 2001,
respectively. Other cash flows received from retained interests, which
represent amounts received on retained interests by the transferor
other than servicing fees such as cash flows from interest-only strips,
were $451 million and $605 million in 2002 and 2001, respectively, for
credit card securitizations.