Bank of America 2013 Annual Report Download - page 184

182 Bank of America 2013
The Corporation mitigates a portion of its credit risk on the
residential mortgage portfolio through the use of synthetic
securitization vehicles. These vehicles issue long-term notes to
investors, the proceeds of which are held as cash collateral. The
Corporation pays a premium to the vehicles to purchase mezzanine
loss protection on a portfolio of residential mortgage loans owned
by the Corporation. Cash held in the vehicles is used to reimburse
the Corporation in the event that losses on the mortgage portfolio
exceed 10 basis points (bps) of the original pool balance, up to
the remaining amount of purchased loss protection of $339 million
and $500 million at December 31, 2013 and 2012. The vehicles
from which the Corporation purchases credit protection are VIEs.
The Corporation does not have a variable interest in these vehicles
and, accordingly, these vehicles are not consolidated by the
Corporation. Amounts due from the vehicles are recorded in other
income (loss) in the Consolidated Statement of Income when the
Corporation recognizes a reimbursable loss, as described above.
Amounts are collected when reimbursable losses are realized
through the sale of the underlying collateral. At December 31,
2013 and 2012, the Corporation had a receivable of $198 million
and $305 million from these vehicles for reimbursement of losses,
and principal of $12.5 billion and $17.6 billion of residential
mortgage loans was referenced under these agreements. The
Corporation records an allowance for credit losses on these loans
without regard to the existence of the purchased loss protection
as the protection does not represent a guarantee of individual
loans.
In addition, the Corporation has entered into long-term credit
protection agreements with FNMA and FHLMC on loans totaling
$28.2 billion and $24.3 billion at December 31, 2013 and 2012,
providing full protection on residential mortgage loans that become
severely delinquent. All of these loans are individually insured and
therefore the Corporation does not record an allowance for credit
losses related to these loans. For additional information, see Note
7 – Representations and Warranties Obligations and Corporate
Guarantees.
Nonperforming Loans and Leases
The Corporation classifies junior-lien home equity loans as
nonperforming when the first-lien loan becomes 90 days past due
even if the junior-lien loan is performing. At December 31, 2013
and 2012, $1.2 billion and $1.5 billion of such junior-lien home
equity loans were included in nonperforming loans.
The Corporation classifies consumer real estate loans that
have been discharged in Chapter 7 bankruptcy and not reaffirmed
by the borrower as troubled debt restructurings (TDRs), irrespective
of payment history or delinquency status, even if the repayment
terms for the loan have not been otherwise modified. The
Corporation continues to have a lien on the underlying collateral.
At December 31, 2013, nonperforming loans discharged in
Chapter 7 bankruptcy with no change in repayment terms at the
time of discharge were $1.8 billion of which $1.1 billion were
current on their contractual payments while $642 million were 90
days or more past due. Of the contractually current nonperforming
loans, nearly 80 percent were discharged in Chapter 7 bankruptcy
more than 12 months ago, and nearly 50 percent were discharged
24 months or more ago. As subsequent cash payments are
received on the loans that are contractually current, the interest
component of the payments is generally recorded as interest
income on a cash basis and the principal component is recorded
as a reduction in the carrying value of the loan.