Bank of America 2013 Annual Report Download - page 199

Bank of America 2013 197
NOTE 6 Securitizations and Other Variable
Interest Entities
The Corporation utilizes variable interest entities (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
assets are transferred into a trust or other securitization vehicle
such that the assets are legally isolated from the creditors of the
Corporation and are not available to satisfy its obligations. These
assets can only be used to settle obligations of the trust or other
securitization vehicle. The Corporation also administers,
structures or invests in other VIEs including CDOs, investment
vehicles and other entities. For more information on the
Corporation’s utilization of VIEs, see Note 1 – Summary of
Significant Accounting Principles.
The tables within this Note present the assets and liabilities
of consolidated and unconsolidated VIEs at December 31, 2013
and 2012, 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 loss exposure at December 31, 2013 and
2012 resulting from its involvement with consolidated VIEs and
unconsolidated VIEs in which the Corporation holds a variable
interest. The Corporation’s maximum loss exposure 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 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 loss exposure does
not include losses previously recognized through write-downs of
assets.
The Corporation invests in asset-backed securities (ABS)
issued by third-party VIEs with which it has no other form of
involvement. These securities are included in Note 20 – Fair Value
Measurements and Note 3 – Securities. In addition, the Corporation
uses VIEs such as trust preferred securities trusts in connection
with its funding activities. For additional information, see Note 11
– 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
4 – 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
2013 or 2012 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 Veterans Affairs (VA)-guaranteed
mortgage loans. Securitization usually occurs in conjunction with
or shortly after origination 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 7 –
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 2013 and 2012.
First-lien Mortgage Securitizations
Residential Mortgage - Agency Commercial Mortgage
(Dollars in millions) 2013 2012 2013 2012
Cash proceeds from new securitizations (1) $ 49,888 $ 39,526 $ 5,326 $ 2,664
Gain (loss) on securitizations (2) 81 (212) 119 65
(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 and commercial 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. The Corporation recognized $2.0 billion of gains, net of hedges, on loans securitized during both 2013 and 2012.
In addition to cash proceeds as reported in the table above,
the Corporation received securities with an initial fair value of $3.3
billion and $3.2 billion in connection with first-lien mortgage
securitizations in 2013 and 2012. All of these securities were
initially classified as Level 2 assets within the fair value hierarchy.
During 2013 and 2012, 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 $2.9 billion and $4.7 billion in 2013 and 2012.
Servicing advances on consumer mortgage loans, including
securitizations where the Corporation has continuing involvement,
were $14.1 billion and $23.2 billion at December 31, 2013 and
2012. 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 2013
and 2012, $10.8 billion and $9.2 billion of loans were repurchased
from first-lien securitization trusts as a result of loan delinquencies
or to perform modifications. The majority of these loans
repurchased were FHA-insured mortgages collateralizing GNMA
securities. For more information on MSRs, see Note 23 – Mortgage
Servicing Rights.