HR Block 2006 Annual Report Download - page 123

events specific to the issuer or industry, external credit ratings and $41.8 million, respectively; gross realized losses were $0.2 million,
recent downgrades in such ratings. Impairments of fair value of $0.3 million and $0.1 million, respectively.
available-for-sale residual interests realized during fiscal years 2006 and Contractual maturities of available-for-sale debt securities at April 30,
2005 totaled $34.1 million and $12.2 million, respectively. 2006 occur at varying dates over the next four to nine years. Because
Proceeds from the sales of available-for-sale securities were expected maturities differ from contractual maturities due to the
$73.6 million, $26.2 million and $68.8 million during fiscal years 2006, issuers’ rights to prepay certain obligations or the seller’s rights to call
2005 and 2004, respectively. Gross realized gains on those sales during certain obligations, the first call date, put date or auction date for
fiscal years 2006, 2005 and 2004 were $32.1 million, $15.8 million and municipal bonds and notes is considered the contractual maturity date.
NOTE 5: MORTGAGE BANKING ACTIVITIES
We originate mortgage loans and sell most non-prime loans the same change, resulting in either additional gains or impairment of the value of
day the loans are funded to Trusts. These Trusts meet the criteria of the residual interests. These residual interests are classified as trading
QSPEs and are therefore not consolidated. The sale is recorded in securities. We held no trading residual interests as of April 30, 2006 and
accordance with Statement of Financial Accounting Standards No. 140, 2005, as all trading residuals had been securitized.
‘‘Accounting for Transfers and Servicing of Financial Assets and Activity related to trading residual interests in securitizations consists
Extinguishments of Liabilities’’ (SFAS 140). The Trusts purchase the of the following:
(in 000s)
loans from us using nine warehouse facilities we arrange. As a result of
the loan sales to the Trusts, we remove the mortgage loans from our April 30, 2006 2005
balance sheet and record the gain on the sale, cash, MSRs, recourse
Balance, beginning of year $– $–
reserves and a beneficial interest in Trusts, which represents our Additions (resulting from securitization of mortgage
loans) 353,882 110,305
residual interest in the ultimate expected outcome from the disposition
Cash received (12,858) –
of the loans by the Trusts. The beneficial interest in Trusts was
Accretion 5,950 –
$188.0 million and $215.4 million at April 30, 2006 and
Change of fair value 9,837 5,352
2005, respectively.
Residuals securitized in NIM transactions (356,811) (115,657)
The Trusts, in response to the exercise of a put option by the third-
Balance, end of year $– $–
party beneficial interest holders, either sell the loans directly to third-
party investors or back to us to pool the loans for securitization. The To accelerate the cash flows from our trading residual interests, we
decision to complete a loan sale or a securitization is dependent on securitize the majority of these residual interests in NIM transactions. In
market conditions. If the Trusts sell the mortgage loans, we receive cash a NIM transaction, the trading residual interests are transferred to
for our beneficial interest in Trusts. In a securitization transaction, the another QSPE (NIM trust), which then issues bonds to third-party
Trusts transfer the loans to one of our consolidated subsidiaries, and we investors. The proceeds from the bonds are returned to us as payment
transfer our beneficial interest in Trusts and the loans to a securitization for the residual interests. The bonds are secured by the pooled residual
trust. The securitization trust meets the definition of a QSPE and is interests and are obligations of the NIM trust. We retain a subordinated
therefore not consolidated. The securitization trust issues bonds, which interest in the NIM trust, and receive cash flows on our residual interest
are supported by the cash flows from the pooled loans, to third-party generally after the bonds issued to the third-party investors are paid in
investors. We retain an interest in the loans in the form of a trading full. Residual interests retained from NIM securitizations may also be
residual interest and usually assume the first risk of loss for credit bundled and sold in a subsequent securitization. The new residual
losses in the loan pool. As the cash flows of the underlying loans and interests are classified as available-for-sale securities. See note 4.
market conditions change, the value of these residual interests may also
H&R BLOCK 2006 Form 10K
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