Wells Fargo 2010 Annual Report Download - page 157

NONCONFORMING RESIDENTIAL MORTGAGE LOAN
SECURITIZATIONS We have consolidated certain of our
nonconforming residential mortgage loan securitizations in
accordance with consolidation accounting guidance. We have
determined we are the primary beneficiary of these
securitizations because we have the power to direct the most
significant activities of the entity through our role as primary
servicer and also hold variable interests that we have determined
to be significant. The nature of our variable interests in these
entities may include beneficial interests issued by the VIE,
mortgage servicing rights and recourse or repurchase reserve
liabilities.
MULTI-SELLER COMMERCIAL PAPER CONDUIT We administer
a multi-seller asset-based commercial paper conduit that
finances certain client transactions. This conduit is a bankruptcy
remote entity that makes loans to, or purchases certificated
interests, generally from SPEs, established by our clients
(sellers) and which are secured by pools of financial assets. The
conduit funds itself through the issuance of highly rated
commercial paper to third party investors. The primary source of
repayment of the commercial paper is the cash flows from the
conduit’s assets or the re-issuance of commercial paper upon
maturity. The conduit’s assets are structured with deal-specific
credit enhancements generally in the form of
overcollateralization provided by the seller, but may also include
subordinated interests, cash reserve accounts, third party credit
support facilities and excess spread capture. The timely
repayment of the commercial paper is further supported by
asset-specific liquidity facilities in the form of liquidity asset
purchase agreements that we provide. Each facility is equal to
102% of the conduit’s funding commitment to a client. The
aggregate amount of liquidity must be equal to or greater than
all the commercial paper issued by the conduit. At the discretion
of the administrator, we may be required to purchase assets
from the conduit at par value plus accrued interest or discount
on the related commercial paper, including situations where the
conduit is unable to issue commercial paper. Par value may be
different from fair value.
We receive fees in connection with our role as administrator
and liquidity provider. We may also receive fees related to the
structuring of the conduit’s transactions. In 2010, the conduit
terminated its subordinated note to a third party investor and
repaid all amounts due under the terms of the note agreement.
We incurred a loss on the termination of the subordinated note
of $16 million. We are the primary beneficiary of the conduit
because we have power over the significant activities of the
conduit and have a significant variable interest due to our
liquidity arrangement.
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