Capital One 2008 Annual Report Download - page 56

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Securitization transactions may amortize earlier than scheduled due to certain early amortization triggers, which could require the
Company to fund spread accounts, reduce the value of its retained residual interests and ultimately require the off-balance sheet loans
to be recorded on the Companys balance sheet and accelerate the need for alternative funding. Additionally, early amortization of
securitization structures would require the Company to record higher reserves for loan losses and would also have a significant impact
on the ability of the Company to meet regulatory capital adequacy requirements. As of December 31, 2008, no early amortization
events related to the Companys off-balance sheet securitizations have occurred.
The amounts of investor principal from off-balance sheet loans as of December 31, 2008 that are expected to amortize into the
Companys loans, or be otherwise paid over the periods indicated, are summarized in Table 12. Of the Companys total managed
loans, 31% and 33% were included in off-balance sheet securitizations for the years ended December 31, 2008 and 2007, respectively.
Servicing Activities
The Company services mortgage loans that have been sold through either whole loan sales or securitizations with servicing retained.
MSRs, are recognized when mortgage loans are sold in the secondary market and the right to service these loans are retained for a fee,
and are carried at fair value; changes in fair value are recognized in mortgage servicing and other. The Company may enter into
derivatives to economically hedge changes in fair value of MSRs. The Company typically does not have any continuing involvement
other than its right to service the loans and the Company does not hold subordinate residual interests or enter into other guarantees or
liquidity agreements with these structures. The Company records the MSR at estimated fair value and has no other loss exposure over
and above the recorded fair value. See Item 8 Financial Statements and Supplementary DataNotes to the Consolidated Financial
StatementsNote 13 for quantitative information regarding MSRs.
Community Development Activities
As part of its community reinvestment initiatives, the Company invests in private investment funds that make investments in common
stock of VIEs or provide debt financing to VIEs to support multi-family affordable housing properties. The Company receives
affordable housing tax credits for these investments. The activities of these entities are financed with a combination of invested equity
capital and debt. The Company is not required to consolidate these entities because it does not absorb the majority of the entities
expected losses nor does it receive a majority of the entities expected residual returns. The Company records its interests in these
unconsolidated VIEs in loans held for investment, other assets and other liabilities. The Companys maximum exposure to these
entities is limited to its variable interests in the entities and the creditors of the VIEs have no recourse to the general credit of the
Company. The Company has not provided additional financial or other support during the period that it was not previously
contractually required to provide. See Item 8 Financial Statements and Supplementary DataNotes to the Consolidated Financial
StatementsNote 20 for quantitative information regarding Other Variable Interest Entities.
The Company holds variable interests in entities (Investor Entities) that invest in community development entities (CDEs) that
provide debt financing to businesses and non-profit entities in low-income and rural communities. Investments of the consolidated
Investor Entities are also variable interests of the Company. The activities of the Investor Entities are financed with a combination of
invested equity capital and debt. The activities of the CDEs are financed solely with invested equity capital. The Company receives
federal and state tax credits for these investments. The Company consolidates the VIEs of which it absorbs the majority of the entities
expected losses or receives a majority of the entities expected residual returns. The assets of the entities consolidated by the Company
at December 31, 2008 and December 31, 2007 were approximately $189.7 million and $102.1 million, respectively. The assets and
liabilities of these consolidated VIEs were recorded in cash, loans held for investment, interest receivable, other assets and other
liabilities. In addition to the amounts above, the Company had involvement with entities where we held a significant variable interest
in the VIE but were not deemed to be the primary beneficiary as the Company would not absorb the majority of expected losses or
receive a majority of the expected residual returns. Accordingly, these entities were not consolidated by the Company. The assets of
the entities that the Company held a significant variable interest in but was not required to consolidate at December 31, 2008 and
December 31, 2007 were approximately $46.6 million and $12.0 million, respectively. The Company records its interests in these
unconsolidated VIEs in loans held for investment and other assets. The Companys maximum exposure to these entities is limited to
its variable interests in the entities. The creditors of the VIEs have no recourse to the general credit of the Company. The Company
has not provided additional financial or other support during the period that it was not previously contractually required to provide.
See Item 8 Financial Statements and Supplementary DataNotes to the Consolidated Financial StatementsNote 20 for
quantitative information regarding Other Variable Interest Entities.