Ford 2006 Annual Report Download - page 66
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Notes to the Financial Statements
64
NOTE 7. SALES OF RECEIVABLES — FINANCIAL SERVICES SECTOR
Servicing Portfolio
We retain servicing rights for receivables sold in off-balance sheet securitization and whole-loan sale transactions.
The servicing portfolio is summarized in the following table (in millions):
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In the fourth quarter of 2005, we consolidated our off-balance sheet wholesale securitization program as a result of
certain changes authorized in accordance with the transaction documents. The accounting consolidation did not have an
impact on our earnings, credit facilities, unsecured debt programs or other securitization programs. This transaction was
primarily non-cash and increased receivables by $17.9 billion and debt by $15.8 billion upon consolidation.
Retained Interest
Components of retained interest in off-balance sheet securitized assets at December 31 include (in millions):
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Investments in subordinated securities and restricted cash are senior to the residual interest in securitization
transactions. Retained interests are recorded at fair value. The fair value of subordinated securities are valued based on
secondary market trading prices, if available, or by utilizing a discounted cash flow method with current market rates. In
determining the fair value of residual interest in securitization transactions, we discount the present value of the projected
cash flows retained at the transaction discount rate.
Investment and Other Income
The following table summarizes the activity related to off-balance sheet sales of receivables reported in Financial
Services revenues for the years ended December 31 (in millions):
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For the year ended December 31, 2006, we utilized certain point-of-sale assumptions to value the residual interest in
our retail transactions, which included a discount rate of 11.0%, prepayment speeds of 0.9% to 1.5% (which represent
expected payments earlier than scheduled maturity dates) and credit losses of 0.1% to 2.3% over the life of the sold
receivables. The weighted-average life of the underlying assets was 45.8 months. For the year ended
December 31, 2005, point-of-sale assumptions in our retail transactions included discount rates of 11.0%, prepayment
speeds of 0.9% to 1.5% and credit losses of 0.1% to 2.3% over the life of the sold receivables. For the year ended
December 31, 2005, the weighted-average life of the underlying assets was 51.9 months.