Bank of America 2007 Annual Report Download - page 138

Credit Card and Other Securitizations
The Corporation maintains interests in credit card, other consumer, and
commercial loan securitization vehicles. These acquired interests include
interest-only strips, subordinated tranches, cash reserve accounts, and
subordinated interests in accrued interest and fees on the securitized
receivables. During 2007 and 2006, the Corporation securitized $19.9
billion and $23.7 billion of credit card receivables resulting in $99 million
and $104 million in gains (net of securitization transaction costs of $14
million and $28 million) which were recorded in card income. As of
December 31, 2007 and 2006, the aggregate debt securities outstanding
for the Corporation’s credit card securitization trusts were $101.3 billion
and $96.8 billion.
The Corporation also securitized $3.3 billion of automobile loans and
recorded losses of $6 million in 2006. The Corporation did not securitize
any automobile loans in 2007. At December 31, 2007 and 2006,
aggregate debt securities outstanding for the Corporation’s automobile
securitization vehicles were $2.6 billion and $5.2 billion, and the Corpo-
ration held residual interests which totaled $100 million and $130 million.
At December 31, 2007 and 2006, the remaining other consumer and
commercial loan securitization vehicles were not material to the Corpo-
ration.
At December 31, 2007 and 2006, the Corporation held investment
grade securities issued by its securitization vehicles of $2.1 billion ($425
million of which were issued in 2007) and $3.5 billion (none of which were
issued in 2006) in the AFS debt securities portfolio which are valued using
quoted market prices. At December 31, 2007 and 2006, there were no
recognized servicing assets or liabilities associated with any of these
credit card and other securitization transactions.
Key economic assumptions used in measuring the fair value of cer-
tain residual interests that continue to be held by the Corporation
(included in other assets) in credit card securitizations and the sensitivity
of the current fair value of residual cash flows to changes in those
assumptions are disclosed in the table below.
The sensitivities in the table below 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 an interest that continues to be held by
the Corporation 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 sensitivities. Additionally, the Corporation
has the ability to hedge interest rate risk associated with retained residual
positions. The above sensitivities do not reflect any hedge strategies that
may be undertaken to mitigate such risk.
Principal proceeds from collections reinvested in revolving credit card
securitizations were $178.6 billion and $163.4 billion in 2007 and 2006.
Contractual credit card servicing fee income totaled $2.1 billion and $1.9
billion in 2007 and 2006. Other cash flows received on retained interests,
such as cash flow from interest-only strips, were $6.6 billion and $6.7 bil-
lion in 2007 and 2006, for credit card securitizations. Proceeds from col-
lections reinvested in revolving commercial loan securitizations were $2.9
billion and $4.6 billion in 2007 and 2006. Servicing fees and other cash
flows received on retained interests, such as cash flows from interest-only
strips, were $1 million and $9 million in 2007, and $2 million and $15
million in 2006 for commercial loan securitizations.
The Corporation also reviews its loans and leases portfolio on a
managed basis. Managed loans and leases are defined as on-balance
sheet loans and leases as well as those loans in revolving securitizations
and other securitizations where servicing is retained that are undertaken
for corporate management purposes, which include credit card, commer-
cial loans, automobile and certain mortgage securitizations. Managed
loans and leases exclude originate-to-distribute loans and other loans in
securitizations where the Corporation has not retained servicing. New
advances on accounts for which previous loan balances were sold to the
securitization trusts will be recorded on the Corporation’s Consolidated
Balance Sheet after the revolving period of the securitization, which has
the effect of increasing loans and leases on the Corporation’s Con-
solidated Balance Sheet and increasing net interest income and charge-
offs, with a related reduction in noninterest income.
(Dollars in millions) 2007 2006
Carrying amount of residual interests (at fair value) (1) $ 2,766 $ 2,929
Balance of unamortized securitized loans 102,967 98,295
Weighted average life to call or maturity (in years) 0.3 0.3
Monthly payment rate 11.6-16.6% 11.2-19.8%
Impact on fair value of 10% favorable change $51 $43
Impact on fair value of 25% favorable change 158 133
Impact on fair value of 10% adverse change (35) (38)
Impact on fair value of 25% adverse change (80) (82)
Expected credit losses (annual rate) 3.7-5.4% 3.8-5.8%
Impact on fair value of 10% favorable change $ 141 $86
Impact on fair value of 25% favorable change 374 218
Impact on fair value of 10% adverse change (133) (85)
Impact on fair value of 25% adverse change (333) (211)
Residual cash flows discount rate (annual rate) 11.5% 12.5%
Impact on fair value of 100 bps favorable change $9 $12
Impact on fair value of 200 bps favorable change 13 17
Impact on fair value of 100 bps adverse change (12) (14)
Impact on fair value of 200 bps adverse change (23) (27)
(1) Residual interests include interest-only strips, subordinated tranches, subordinated interests in accrued interest and fees on the securitized receivables and cash reserve accounts which are carried at fair value or amounts
that approximate fair value.
136 Bank of America 2007