Bank of America 2008 Annual Report Download - page 143

The following table summarizes the balance sheet classification of the Corporation’s residential and commercial mortgage senior and subordinated
securities held at December 31, 2008 and 2007.
Residential Mortgage
Non-Agency
Agency Prime Subprime Alt-A
Commercial
Mortgage
(Dollars in millions) 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007
Senior securities
(1, 2)
:
Trading account assets $ 1,308 $– $ 367 $1,254 $– $– $ 278 $12 $168 $584
Available-for-sale debt
securities 12,507 4,702 4,559 4,007 121 – 2,668 541 16 –
Total senior securities $13,815 $4,702 $4,926 $5,261 $121 $– $2,946 $553 $184 $584
Subordinated securities
(1, 3)
:
Trading account assets $– $– $23 $ 141 $3 $– $1 $36 $136 $77
Available-for-sale debt
securities – – 20 2 1 – 17 – – –
Total subordinated
securities $– $– $43 $ 143 $4 $– $18 $36 $136 $77
(1) As a holder of these securities, the Corporation receives scheduled interest and principal payments accordingly. During 2008 and 2007, there were no significant impairments recorded on those securities classified as
AFS debt securities.
(2) At December 31, 2008 and 2007, $13.8 billion and $4.7 billion of the agency senior securities were valued using quoted market prices and $13 million were valued using model valuations at December 31, 2008. At
December 31, 2008 and 2007, $4.3 billion and $4.7 billion of the non-agency prime senior securities were valued using quoted market prices and $661 million and $583 million were valued using model valuations. At
December 31, 2008, all of the non-agency subprime senior securities were valued using model valuations. At December 31, 2008 and 2007, $2.4 billion and $553 million of the non-agency Alt-A senior securities were
valued using quoted market prices and $541 million were valued using model valuations at December 31, 2008. At December 31, 2008 and 2007, $16 million and $0 of the commercial mortgage senior securities
were valued using quoted market prices and $168 million and $584 million were valued using model valuations.
(3) At December 31, 2008 and 2007, $23 million and $141 million of the non-agency prime subordinated securities were valued using quoted market prices and $20 million and $2 million were valued using model
valuations. At December 31, 2008 all of the non-agency subprime and non-agency Alt-A subordinated securities were valued using model valuations. At December 31, 2007, all of the non-agency Alt-A subordinated
securities were valued using quoted market prices. At December 31, 2008 and 2007, all of the commercial mortgage subordinated securities were valued using model valuations.
At December 31, 2008 and 2007, the Corporation had recourse obli-
gations of $157 million and $150 million with varying terms up to seven
years on loans that had been securitized and sold.
The Corporation sells loans with various representations and warran-
ties related to, among other things, the ownership of the loan, validity of
the lien securing the loan, absence of delinquent taxes or liens against
the property securing the loan, the process used in selecting the loans for
inclusion in a transaction, the loan’s compliance with any applicable loan
criteria established by the buyer, and the loan’s compliance with appli-
cable local, state and federal laws. Under the Corporation’s representa-
tions and warranties, the Corporation may be required to either
repurchase the mortgage loans with the identified defects or indemnify
the investor or insurer. In such cases, the Corporation bears any sub-
sequent credit loss on the mortgage loans. During 2008, the Corporation
repurchased $448 million of loans from securitization trusts as a result
of the Corporation’s representations and warranties. The Corporation’s
representations and warranties are generally not subject to stated limits.
However, the Corporation’s contractual liability arises only when the
representations and warranties are breached. The Corporation attempts
to limit its risk of incurring these losses by structuring its operations to
ensure consistent production of quality mortgages and servicing those
mortgages at levels that meet secondary mortgage market standards. In
addition, certain of the Corporation’s securitizations include a corporate
guarantee, which are contracts written to protect purchasers of the loans
from credit losses up to a specified amount. The losses to be absorbed
by the guarantees are recorded when the Corporation sells the loans with
guarantees. The Corporation records its liability for representations and
warranties, and corporate guarantees in accrued expenses and other
liabilities and records the related expense through mortgage banking
income.
In addition to the amounts included in the preceding tables, during
2008, the Corporation purchased $12.2 billion of mortgage-backed secu-
rities from third parties and resecuritized them, as compared to $18.1
billion during 2007. Net gains, which include net interest income earned
during the holding period, totaled $80 million for 2008, as compared to
net gains of $13 million during 2007. At December 31, 2008 and 2007
the Corporation retained $1.0 billion and $540 million of the senior secu-
rities issued in these transactions which were valued using quoted mar-
ket prices and recorded in trading account assets.
The Corporation has retained consumer MSRs from the sale or securi-
tization of mortgage loans. Servicing fee and ancillary fee income on
consumer mortgage loans serviced, including securitizations where we
still have continued involvement, were $3.3 billion and $810 million dur-
ing 2008 and 2007. Servicing advances on consumer mortgage loans,
including securitizations where we still have continuing involvement, were
$8.8 billion and $323 million at December 31, 2008 and 2007. In addi-
tion, the Corporation has retained commercial MSRs from the sale or
securitization of commercial mortgage loans. Servicing fee and ancillary
fee income on commercial mortgage loans serviced, including securitiza-
tions where we still have continued involvement, were $40 million and
$11 million during 2008 and 2007. Servicing advances on commercial
mortgage loans, including securitizations where we still have continuing
involvement, were $14 million and $13 million at December 31, 2008
and 2007. For more information on MSRs, see Note 21 – Mortgage Serv-
icing Rights to the Consolidated Financial Statements.
Bank of America 2008 141