Ally Bank 2011 Annual Report Download - page 137

Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10−K
agreements with them to repurchase vehicles used as collateral to secure the loans.
The quantitative assessment component maybe supplemented with qualitative reserves based on management's determination that such adjustments
provide a better estimate of credit losses. This qualitative assessment takes into consideration relevant internal and external factors that have occurred and
may affect the credit quality of the portfolio.
Our methodology and policies with respect to the allowance for loan losses for our commercial portfolio segment did not change during 2011.
Securitizations and Variable Interest Entities
We securitize, sell, and service consumer automobile loans, operating leases, wholesale loans, and consumer mortgage loans. Securitization
transactions typically involve the use of variable interest entities and are accounted for either as sales or secured financings. We may retain economic
interests in the securitized and sold assets, which are generally retained in the form of senior or subordinated interests, interest− or principal−only strips,
cash reserve accounts, residual interests, and servicing rights.
In order to conclude whether or not a variable interest entity is required to be consolidated, careful consideration and judgment must be given to our
continuing involvement with the variable interest entity. Subsequent to the implementation of ASU 2009−17 on January 1, 2010, in circumstances where we
have both the power to direct the activities of the entity that most significantly impact the entity's performance and the obligation to absorb losses or the
right to receive benefits of the entity that could be significant, we would conclude that we would consolidate the entity, which would also preclude us from
recording an accounting sale on the transaction. In the case of a consolidated variable interest entity, the accounting is consistent with a secured financing,
i.e., we continue to carry the loans and we record the securitized debt on our balance sheet. Unrecorded economic interests in consolidated variable interest
entities can be determined as the difference between the recognized assets and recognized liabilities.
In transactions where either one or both of the power or economic criteria mentioned above are not met, we then must determine whether or not we
achieve a sale for accounting purposes. In order to achieve a sale for accounting purposes, the assets being transferred must be legally isolated, not be
constrained by restrictions from further transfer, and be deemed to be beyond our control. If we were to fail any of the three criteria for sale accounting, the
accounting would be consistent with the preceding paragraph (i.e., a secured borrowing). Refer to Note 11 for discussion on variable interest entities.
Prior to the implementation of ASU 2009−17, many of our securitizations were executed utilizing qualifying special−purpose entities (SPEs), which
were exempt from consideration for consolidation so long as the transaction would otherwise qualify as a sale. Therefore, these transactions were recorded
as sales. Additionally, the gain or loss on sale was dependent on the previous carrying amount of the assets involved in the transfer and were allocated
between the assets sold and the retained interests based on relative fair values except for certain servicing assets and liabilities, which were initially recorded
at fair value on the date of the sale.
Subsequent to the implementation of ASU 2009−17, gains or losses on off−balance sheet securitizations take into consideration the fair value of the
retained interests including the value of certain servicing assets or liabilities, which are initially recorded at fair value at the date of sale. The estimate of the
fair value of the retained interests and servicing requires us to exercise significant judgment about the timing and amount of future cash flows from the
interests. Refer to Note 27 for a discussion of fair value estimates.
Gains or losses on off−balance sheet securitizations and sales are reported in gain (loss) on mortgage and automotive loans, net, in our Consolidated
Statement of Income for consumer automobile loans, wholesale loans, and consumer mortgage loans. Declines in the fair value of retained interests, other
than servicing, below the carrying amount are reflected in other comprehensive income, or as other (loss) gain on investments, net, in our Consolidated
Statement of Income if such declines are determined to be other−than−temporary or if the interests are classified as trading. Retained interests, as well as
any purchased securities, are generally included in available−for−sale investment securities, trading investment securities, or other assets. Designation as
available−for−sale or trading depends on management's intent. Securities that are noncertificated and cash reserve accounts related to securitizations are
included in other assets on our Consolidated Balance Sheet.
We retain servicing responsibilities for all of our consumer automobile loan, operating lease, and wholesale loan securitizations and for the majority of
our consumer mortgage loan securitizations. We may receive servicing fees based on the securitized loan balances and certain ancillary fees, all of which
are reported in servicing fees in the Consolidated Statement of Income. We also retain the right to service the consumer mortgage loans sold in
securitization transactions involving the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation
(Freddie Mac), and the Government National Mortgage Association (Ginnie Mae) (collectively the Government−sponsored Enterprises or GSEs) and
private investors. We also serve as the collateral manager in the securitizations of commercial investment securities.
Whether on− or off−balance sheet, the investors in the securitization trusts generally have no recourse to our assets outside of customary market
representation and warranty repurchase provisions.
Mortgage Servicing Rights
Primary servicing rights represent our right to service consumer residential mortgages securitized by us or through the GSEs and third−party
whole−loan sales. Primary servicing involves the collection of payments from individual borrowers and the distribution of these payments to the investors
or master servicer. Master−servicing rights represent our right to service mortgage− and asset−backed securities and whole−loan packages issued for
investors. Master−servicing involves the collection of borrower payments from primary servicers and the
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