Bank of America 2009 Annual Report Download - page 157

Corporation. This reduction was partially offset by a $340 million increase
associated with the reclassification to other assets of the December 31,
2008 amount expected to be reimbursable under residential mortgage
cash collateralized synthetic securitizations. The 2008 “other” amount
under allowance for loan and lease losses, includes the $1.2 billion addi-
tion of the Countrywide allowance for loan losses as of July 1, 2008. The
2007 “other” amount under allowance for loan and lease losses includes
the $725 million and $25 million additions of the LaSalle and U.S. Trust
Corporation allowance for loan losses as of October 1, 2007 and July 1,
2007.
In the previous table, the 2009 “other” amount under the reserve for
unfunded lending commitments represents the fair value of the acquired
Merrill Lynch reserve excluding those accounted for under the fair value
option, net of accretion and the impact of funding previously unfunded
portions. The 2007 “other” amount under the reserve for unfunded lend-
ing commitments includes the $124 million addition of the LaSalle
reserve as of October 1, 2007.
NOTE 8 – Securitizations
The Corporation routinely securitizes loans and debt securities. These
securitizations are a source of funding for the Corporation in addition to
transferring the economic risk of the loans or debt securities to third par-
ties. In a securitization, various classes of debt securities may be issued
and are generally collateralized by a single class of transferred assets
which most often consist of residential mortgages, but may also include
commercial mortgages, credit card receivables, home equity loans, auto-
mobile loans or MBS. The securitized loans may be serviced by the
Corporation or by third parties. With each securitization, the Corporation
may retain a portion of the securities, subordinated tranches, interest-
only strips, subordinated interests in accrued interest and fees on the
securitized receivables or, in some cases, overcollateralization and cash
reserve accounts, all of which are referred to as retained interests. These
retained interests are recorded in other assets, AFS debt securities, or
trading account assets and are generally carried at fair value or amounts
that approximate fair value with changes recorded in income or accumu-
lated OCI, or are recorded as HTM debt securities and carried at amor-
tized cost. Changes in the fair value of credit card related interest- only
strips are recorded in card income. In addition, the Corporation may enter
into derivatives with the securitization trust to mitigate the trust’s interest
rate or foreign currency risk. These derivatives are entered into at market
terms and are generally senior in payment. The Corporation also may
serve as the underwriter and distributor of the securitization, serve as the
administrator of the trust, and from time to time, make markets in secu-
rities issued by the securitization trusts.
First Lien Mortgage-related Securitizations
As part of its mortgage banking activities, the Corporation securitizes a
portion of the residential mortgage loans it originates or purchases from
third parties in conjunction with or shortly after loan closing or purchase.
In addition, the Corporation may, from time to time, securitize commercial
mortgages and first lien residential mortgages that it originates or pur-
chases from other entities.
The following table summarizes selected information related to mortgage
securitizations at and for the years ended December 31, 2009 and 2008.
Residential Mortgage
Agency
Non-Agency
Prime Subprime Alt-A Commercial Mortgage
(Dollars in millions) 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008
For the Year Ended December 31
Cash proceeds from new
securitizations
(1)
$ 346,448 $ 123,653 $–$ 1,038 $–$ 1,377 $– $– $ 313 $3,557
Gains on securitizations
(2,3)
73 25 –2–24 –––29
Cash flows received on residual
interests
– –25 671 33 5423 –
At December 31
Principal balance outstanding
(4)
1,255,650 1,123,916 81,012 111,683 83,065 57,933 147,072 136,027 65,397 55,403
Residual interests held
– –9–213 ––48 7
Senior securities held
(5, 6)
:
Trading account assets
$ 2,295 $ 1,308 $ 201 $ 367 $12$–$431 $278 $ 469 $ 168
Available-for-sale debt securities
13,786 12,507 3,845 4,559 188 121 561 569 1,215 16
Total senior securities held
$ 16,081 $ 13,815 $ 4,046 $ 4,926 $ 200 $ 121 $992 $847 $1,684 $ 184
Subordinated securities held
(5, 7)
:
Trading account assets
$– $–$–$23$–$3 $– $1 $ 122 $ 136
Available-for-sale debt securities
– –13 20 22 1417 23 –
Total subordinated
securities held $– $–$13$43$22$4 $4 $18 $ 145 $ 136
(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) Net of hedges
(3) Substantially all of the residential mortgages 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. During 2009
and 2008, the Corporation recognized $5.5 billion and $1.6 billion of gains on these LHFS.
(4) Generally, the Corporation as transferor will service the sold loans and thus recognize a MSR upon securitization.
(5) As a holder of these securities, the Corporation receives scheduled interest and principal payments. During 2009 and 2008, there were no significant other-than-temporary impairment losses recorded on those
securities classified as AFS debt securities.
(6) At December 31, 2009 and 2008, substantially all of the residential mortgage held senior securities were valued using quoted market prices. At December 31, 2009, substantially all of the commercial mortgage held
senior securities were valued using quoted market prices while at December 31, 2008 substantially all were valued using model valuations.
(7) At December 31, 2009, substantially all of the residential mortgage held subordinated securities and all of the commercial mortgage held subordinated securities were valued using quoted market prices while at
December 31, 2008 substantially all were valued using model valuations.
In addition to the amounts included in the table above, during 2009,
the Corporation purchased $49.2 billion of MBS from third parties and
resecuritized them compared to $12.2 billion during 2008. Net gains,
which include net interest income earned during the holding period,
totaled $213 million and $80 million in 2009 and 2008. At
December 31, 2009 and 2008, the Corporation retained $543 million
Bank of America 2009 155