Bank of America 2008 Annual Report Download - page 145

The sensitivities in the preceding table 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 assump-
tion on the fair value of an interest that continues to be held by the
Corporation is calculated without changing any other assumption. In real-
ity, 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 sensitivities in the previous table do not reflect any hedge
strategies that may be undertaken to mitigate such risk.
Other Securitizations
The Corporation also maintains interests in other securitization vehicles. These retained interests include senior and subordinated securities and
residual interests. The following table summarizes selected information related to home equity and automobile loan securitizations for 2008 and 2007.
Home Equity Automobile
(Dollars in millions) 2008 2007 2008 2007
Cash proceeds from new securitizations $– $ 363 $ 741 $–
Losses on securitizations
(1)
– (20) (31) –
Collections reinvested in revolving period securitizations 235 41 ––
Repurchase of loans from trust
(2)
128 –184 –
Cash flows received on residual interests 27 115 ––
Principal balance outstanding
(3)
34,169 8,776 5,385 1,955
Senior securities held
(4, 5)
– 24,102 1,400
Subordinated securities held
(4, 6)
3 14 383 33
Residual interests held
(7)
93 584 100
(1) Net of hedges
(2) The repurchases of loans from the trust for home equity loans during 2008 was a result of the Corporation’s representations and warranties and the exercise of an optional clean-up call. The repurchases of automobile
loans during 2008 was substantially due to the exercise of an optional clean-up call.
(3) The increase in principal balance outstanding at December 31, 2008 from the prior year was due to the addition of Countrywide home equity securitizations.
(4) 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.
(5) Substantially all of the held senior securities issued by these securitization vehicles are valued using quoted market prices. At December 31, 2007, all of the senior securities issued by home equity securitization
vehicles were classified as trading account assets. At December 31, 2008 and 2007, substantially all of the senior securities issued by the automobile securitization vehicle were classified as AFS debt securities.
(6) At December 31, 2008 and 2007, all of the subordinated securities issued by the home equity securitization vehicles were valued using model valuations. At December 31, 2008, all of the subordinated securities
issued by the home equity securitization vehicles were classified as AFS debt securities and at December 31, 2007, all of these subordinated securities were classified as trading account assets. At December 31,
2008, all of the subordinated securities issued by the automobile securitization vehicle were classified as AFS debt securities and $330 million were valued using quoted market prices, while $53 million were valued
using model valuations. At December 31, 2007, all of the subordinated securities issued by the automobile securitization vehicle were valued using model valuations and classified as trading account assets.
(7) Residual interests include the residual asset, overcollateralization and cash reserve accounts, which are carried at fair value or amounts that approximate fair value. The residual interests were valued using model
valuations and substantially all are classified in other assets.
Under the terms of the Corporation’s home equity securitizations,
advances are made to borrowers when they make a subsequent draw on
their line of credit and the Corporation is reimbursed for those advances
from the cash flows in the securitization. During the revolving period of
the securitization, this reimbursement normally occurs within a short
period after the advance. However, when the securitization transaction
has begun its rapid amortization period, reimbursement of the Corpo-
ration’s advance occurs only after other parties in the securitization have
received all of the cash flows to which they are entitled. This has the
effect of extending the time period for which the Corporation’s advances
are outstanding. In particular, if loan losses requiring draws on monoline
insurer’s policies (which protect the bondholders in the securitization)
exceed a specified threshold or duration, the Corporation may not receive
reimbursement for all of the funds advanced to borrowers, as the senior
bondholders and the monoline insurer have priority for repayment. As of
December 31, 2008, the reserve for losses on expected future draw obli-
gations on the home equity securitizations in or expected to be in rapid
amortization was $345 million.
The Corporation has retained consumer MSRs from the sale or securi-
tization of home equity loans. The Corporation recorded $78 million in
servicing fees related to home equity securitizations during 2008. No
such fees were recorded during 2007. For more information on MSRs,
see Note 21 – Mortgage Servicing Rights to the Consolidated Financial
Statements. At December 31, 2008 and 2007, there were no recognized
servicing assets or liabilities associated with any of these automobile
securitization transactions. The Corporation recorded $30 million and
$27 million in servicing fees related to automobile securitizations during
2008 and 2007.
Managed Asset Quality Indicators
The Corporation evaluates its credit card loan portfolio on a managed basis. Managed loans are defined as on-balance sheet loans as well as those
loans in revolving credit card securitizations. Portfolio balances, delinquency and historical loss amounts of the credit card managed loan portfolio for
2008 and 2007, are presented in the following table.
At and for the Year Ended December 31, 2008 At and for the Year Ended December 31, 2007
(Dollars in millions) Outstandings
Accruing
Past
Due 90
Days or
More
Net
Charge-
offs/
Losses Outstandings
Accruing
Past
Due 90
Days or
More
Net
Charge-
offs/
Losses
Held credit card outstandings
$ 81,274 $2,565 $ 4,712 $ 80,724 $2,127 $3,442
Securitization impact
100,960 3,185 6,670 102,967 2,757 4,772
Managed credit card outstandings $182,234 $5,750 $11,382 $183,691 $4,884 $8,214
Bank of America 2008 143