Capital One 2015 Annual Report Download - page 184

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
165 Capital One Financial Corporation (COF)
in place with the third party that mirrors this advance requirement. The amount advanced is tracked through mortgage-backed
securities retained as part of the securitization transaction. As advances occur, we record an asset in the form of negative amortization
bonds, which are held at fair value in other assets on our consolidated balance sheets. Our maximum exposure is affected by rate
caps and monthly payment change caps, but the funding obligation cannot exceed the difference between the original loan balance
multiplied by a preset negative amortization cap and the current unpaid principal balance.
We have also entered into certain derivative contracts related to the securitization activities. These are classified as free-standing
derivatives, with fair value adjustments recorded in non-interest income in our consolidated statements of income. See “Note 11
—Derivative Instruments and Hedging Activities” for further details on these derivatives.
GreenPoint Mortgage Home Equity Lines of Credit (“HELOCs”)
Our discontinued wholesale mortgage banking unit, GreenPoint, previously sold HELOCs in whole loan sales and subsequently
acquired residual interests in certain trusts which securitized some of those loans. We do not consolidate these trusts because we
either lack the power to direct the activities that most significantly impact the economic performance of the trusts or because we
do not have the right to receive benefits or the obligation to absorb losses that could potentially be significant to the trusts. As the
residual interest holder, GreenPoint is required to fund advances on the HELOCs when certain performance triggers are met due
to deterioration in asset performance. On behalf of GreenPoint, we have funded cumulative advances of $30 million as of both
December 31, 2015 and 2014. These advances are generally expensed as funded due to the low likelihood of recovery. We also
have unfunded commitments of $6 million related to those interests for our non-consolidated VIEs as of both December 31, 2015
and 2014.
GreenPoint Credit Manufactured Housing
We retain the primary obligation for certain provisions of corporate guarantees, recourse sales and clean-up calls related to the
discontinued manufactured housing operations of GreenPoint Credit, LLC, which was a subsidiary of GreenPoint and was sold
to a third party in 2004. Although we are the primary obligor, recourse obligations related to aforementioned whole loan sales,
commitments to exercise mandatory clean-up calls on certain securitization transactions and servicing were transferred to a third
party in the sale transaction. We do not consolidate the trusts used for the securitization of manufactured housing loans because
we do not have the power to direct the activities that most significantly impact the economic performance of the trusts since we
no longer service the loans.
We were required to fund letters of credit in 2004 to cover losses and are obligated to fund future amounts under swap agreements
for certain transactions. We have the right to receive any funds remaining in the letters of credit after the securities are released.
The unpaid principal balance of manufactured housing securitization transactions where we are the residual interest holder was
$794 million and $893 million as of December 31, 2015 and 2014, respectively. In the event the third-party servicer does not fulfill
its obligation to exercise the clean-up calls on certain transactions, the obligation reverts to us and we would assume approximately
$420 million of loans receivable upon our execution of the clean-up call with the requirement to absorb any losses on the loans
receivable. We monitor the underlying assets for trends in delinquencies and related losses and review the purchaser’s financial
strength as well as servicing performance. These factors are considered in assessing the adequacy of the liabilities established for
these obligations and the valuations of the assets.
We also have credit exposure on agreements that we entered into to absorb a portion of the risk of loss on certain manufactured
housing securitizations issued by GreenPoint Credit, LLC in 2000. Our maximum credit exposure related to the agreements totaled
$13 million and $14 million as of December 31, 2015 and 2014, respectively. These agreements are recorded on our consolidated
balance sheets as a component of other liabilities and our obligations under these agreements was $8 million and $12 million as
of December 31, 2015 and 2014, respectively.
Other VIEs
Affordable Housing Entities
As part of our community reinvestment initiatives, we invest in private investment funds that make equity investments in multi-
family affordable housing properties. We receive affordable housing tax credits for these investments. The activities of these entities
are financed with a combination of invested equity capital and debt.