Bank of America 2015 Annual Report Download - page 184

182 Bank of America 2015
Home Equity Loans
The Corporation retains interests in home equity securitization
trusts to which it transferred home equity loans. These retained
interests include senior and subordinate securities and residual
interests. In addition, the Corporation may be obligated to provide
subordinate funding to the trusts during a rapid amortization event.
The Corporation typically services the loans in 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. There were no
securitizations of home equity loans during 2015 and 2014, and
all of the home equity trusts that hold revolving home equity lines
of credit (HELOCs) have entered the rapid amortization phase.
The maximum loss exposure in the table above includes the
Corporation’s obligation to provide subordinate funding to the
consolidated and unconsolidated home equity loan securitizations
that have entered a rapid amortization phase. During this period,
cash payments from borrowers are accumulated to repay
outstanding debt securities and the Corporation continues to make
advances to borrowers when they draw on their lines of credit. At
December 31, 2015 and 2014, home equity loan securitizations
in rapid amortization for which the Corporation has a subordinate
funding obligation, including both consolidated and
unconsolidated trusts, had $4.0 billion and $5.8 billion of trust
certificates outstanding. This amount is significantly greater than
the amount the Corporation expects to fund. The charges that will
ultimately be recorded as a result of the rapid amortization events
depend on the undrawn available credit on the home equity lines,
which totaled $7 million and $39 million at December 31, 2015
and 2014, as well as performance of the loans, the amount of
subsequent draws and the timing of related cash flows.
During 2015, the Corporation deconsolidated several home
equity line of credit trusts with total assets of $488 million and
total liabilities of $611 million as its obligation to provide
subordinated funding is no longer considered to be a potentially
significant variable interest in the trusts following a decline in the
amount of credit available to be drawn by borrowers. In connection
with deconsolidation, the Corporation recorded a gain of $123
million in other income in the Consolidated Statement of Income.
The derecognition of assets and liabilities represents non-cash
investing and financing activities and, accordingly, is not reflected
on the Consolidated Statement of Cash Flows.
Credit Card Securitizations
The Corporation securitizes originated and purchased credit card
loans. The Corporation’s continuing involvement with the
securitization trust includes servicing the receivables, retaining an
undivided interest (seller’s interest) in the receivables, and holding
certain retained interests including senior and subordinate
securities, subordinate interests in accrued interest and fees on
the securitized receivables, and cash reserve accounts. The
seller’s interest in the trust, which is pari passu to the investors’
interest, is classified in loans and leases.
During 2015, $2.3 billion of new senior debt securities were
issued to third-party investors from the credit card securitization
trust compared to $4.1 billion issued during 2014.
The Corporation held subordinate securities issued by the
credit card securitization trust with a notional principal amount of
$7.5 billion and $7.4 billion at December 31, 2015 and 2014.
These securities serve as a form of credit enhancement to the
senior debt securities and have a stated interest rate of zero
percent. There were $371 million of these subordinate securities
issued during 2015 and $662 million issued during 2014.
Resecuritization Trusts
The Corporation transfers existing securities, typically MBS, into
resecuritization vehicles at the request of customers seeking
securities with specific characteristics. The Corporation may also
resecuritize securities within its investment portfolio for purposes
of improving liquidity and capital, and managing credit or interest
rate risk. Generally, there are no significant ongoing activities
performed in a resecuritization trust and no single investor has
the unilateral ability to liquidate the trust.
The Corporation resecuritized $30.7 billion and $14.4 billion
of securities in 2015 and 2014. Resecuritizations in 2014
included $1.5 billion of AFS debt securities, and gains on sale of
$71 million were recorded. There were no resecuritizations of AFS
debt securities during 2015. Other securities transferred into
resecuritization vehicles during 2015 and 2014 were measured
at fair value with changes in fair value recorded in trading account
profits or other income prior to the resecuritization and no gain or
loss on sale was recorded. Resecuritization proceeds included
securities with an initial fair value of $9.8 billion and $4.6 billion,
including $6.9 billion and $747 million which were subsequently
classified as HTM during 2015 and 2014. All of these securities
were classified as Level 2 within the fair value hierarchy.
Municipal Bond Trusts
The Corporation administers municipal bond trusts that hold highly-
rated, long-term, fixed-rate municipal bonds. The trusts obtain
financing by issuing floating-rate trust certificates that reprice on
a weekly or other short-term basis to third-party investors. The
Corporation may transfer assets into the trusts and may also serve
as remarketing agent and/or liquidity provider for the trusts. The
floating-rate investors have the right to tender the certificates at
specified dates. Should the Corporation be unable to remarket the
tendered certificates, it may be obligated to purchase them at par
under standby liquidity facilities. The Corporation also provides
credit enhancement to investors in certain municipal bond trusts
whereby the Corporation guarantees the payment of interest and
principal on floating-rate certificates issued by these trusts in the
event of default by the issuer of the underlying municipal bond.
The Corporation’s liquidity commitments to unconsolidated
municipal bond trusts, including those for which the Corporation
was transferor, totaled $1.6 billion and $2.1 billion at
December 31, 2015 and 2014. The weighted-average remaining
life of bonds held in the trusts at December 31, 2015 was 7.4
years. There were no material write-downs or downgrades of assets
or issuers during 2015 and 2014.
Automobile and Other Securitization Trusts
The Corporation transfers automobile and other loans into
securitization trusts, typically to improve liquidity or manage credit
risk. At December 31, 2015 and 2014, the Corporation serviced
assets or otherwise had continuing involvement with automobile
and other securitization trusts with outstanding balances of $314
million and $1.9 billion, including trusts collateralized by
automobile loans of $125 million and $400 million, other loans
of $189 million and $876 million, and student loans of $0 and
$609 million.
During 2015, the Corporation deconsolidated a student loan
trust with total assets of $515 million and total liabilities of $449