Bank of America 2011 Annual Report Download - page 193

Bank of America 2011 191
NOTE 8 Securitizations and Other Variable
Interest Entities
The Corporation utilizes VIEs in the ordinary course of business
to support its own and its customers’ financing and investing
needs. The Corporation routinely securitizes loans and debt
securities using VIEs as a source of funding for the Corporation
and as a means of transferring the economic risk of the loans or
debt securities to third parties. The Corporation also administers,
structures or invests in other VIEs including CDOs, investment
vehicles and other entities.
The following tables present the assets and liabilities of
consolidated and unconsolidated VIEs at December 31, 2011 and
2010, in situations where the Corporation has continuing
involvement with transferred assets or if the Corporation otherwise
has a variable interest in the VIE. The tables also present the
Corporation’s maximum exposure to loss at December 31, 2011
and 2010 resulting from its involvement with consolidated VIEs
and unconsolidated VIEs in which the Corporation holds a variable
interest. The Corporation’s maximum exposure to loss is based
on the unlikely event that all of the assets in the VIEs become
worthless and incorporates not only potential losses associated
with assets recorded on the Corporation’s Consolidated Balance
Sheet but also potential losses associated with off-balance sheet
commitments such as unfunded liquidity commitments and other
contractual arrangements. The Corporation’s maximum exposure
to loss does not include losses previously recognized through write-
downs of assets.
The Corporation invests in ABS issued by third-party VIEs with
which it has no other form of involvement. These securities are
included in Note 3 – Trading Account Assets and Liabilities and Note
5 – Securities. In addition, the Corporation uses VIEs such as trust
preferred securities trusts in connection with its funding activities
as described in Note 13 – Long-term Debt. The Corporation also
uses VIEs in the form of synthetic securitization vehicles to mitigate
a portion of the credit risk on its residential mortgage loan portfolio
as described in Note 6 – Outstanding Loans and Leases. The
Corporation uses VIEs, such as cash funds managed within Global
Wealth & Investment Management (GWIM), to provide investment
opportunities for clients. These VIEs, which are not consolidated
by the Corporation, are not included in the tables within this Note.
Except as described below, the Corporation did not provide
financial support to consolidated or unconsolidated VIEs during
2011 or 2010 that it was not previously contractually required to
provide, nor does it intend to do so.
Mortgage-related Securitizations
First-lien Mortgages
As part of its mortgage banking activities, the Corporation
securitizes a portion of the first-lien residential mortgage loans it
originates or purchases from third parties, generally in the form
of MBS guaranteed by government-sponsored enterprises, FNMA
and FHLMC (collectively the GSEs), or GNMA in the case of FHA-
insured and U.S. Department of Veteran Affairs (VA)-guaranteed
mortgage loans. Securitization usually occurs in conjunction with
or shortly after loan closing or purchase. In addition, the
Corporation may, from time to time, securitize commercial
mortgages it originates or purchases from other entities. The
Corporation typically services the loans it securitizes. Further, the
Corporation may retain beneficial interests in the securitization
trusts including senior and subordinate securities and equity
tranches issued by the trusts. Except as described below and in
Note 9 – Representations and Warranties Obligations and Corporate
Guarantees, the Corporation does not provide guarantees or
recourse to the securitization trusts other than standard
representations and warranties.
The table below summarizes select information related to first-
lien mortgage securitizations for 2011 and 2010.
First-lien Mortgage Securitizations
(Dollars in millions)
Cash proceeds from new securitizations (1)
Loss on securitizations, net of hedges (2)
Cash flows received on residual interests
Residential Mortgage
Agency
2011
$ 142,910
(373)
—
2010
$243,901
(473)
—
Non-Agency
Prime
2011
$—
—
3
2010
$—
—
18
Subprime
2011
$—
—
38
2010
$—
—
58
Alt-A
2011
$36
—
6
2010
$7
—
2
Commercial
Mortgage
2011
$ 4,468
—
18
2010
$ 4,227
—
20
(1) The Corporation sells residential mortgage loans to GSEs in the normal course of business and receives MBS in exchange which may then be sold into the market to third-party investors for cash
proceeds.
(2) Substantially all of the first-lien residential mortgage loans securitized are initially classified as LHFS and accounted for under the fair value option. As such, gains are recognized on these LHFS prior
to securitization. During 2011 and 2010, the Corporation recognized $2.9 billion and $5.1 billion of gains on these LHFS, net of hedges.
In addition to cash proceeds as reported in the table above,
the Corporation received securities with an initial fair value of $545
million and $23.7 billion in connection with first-lien mortgage
securitizations, principally residential agency securitizations, in
2011 and 2010. All of these securities were initially classified as
Level 2 assets within the fair value hierarchy. During 2011 and
2010, there were no changes to the initial classification.
The Corporation recognizes consumer MSRs from the sale or
securitization of first-lien mortgage loans. Servicing fee and
ancillary fee income on consumer mortgage loans serviced,
including securitizations where the Corporation has continuing
involvement, were $5.8 billion and $6.4 billion in 2011 and 2010.
Servicing advances on consumer mortgage loans, including
securitizations where the Corporation has continuing involvement,
were $26.0 billion and $24.3 billion at December 31, 2011 and
2010. The Corporation may have the option to repurchase
delinquent loans out of securitization trusts, which reduces the
amount of servicing advances it is required to make. During 2011
and 2010, $9.0 billion and $14.5 billion of loans were repurchased
from first-lien securitization trusts as a result of loan delinquencies
or in order to perform modifications. The majority of these loans
repurchased were FHA-insured mortgages collateralizing GNMA
securities. In addition, 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 securitizations where the