HR Block 2006 Annual Report Download - page 124

Activity related to available-for-sale residual interests in holding gains represent the increase in fair value of residual interests as
securitizations consists of the following: a result of lower interest rates, loan losses or loan prepayments to date
(in 000s)
than most recently projected in our valuation models.
April 30, 2006 2005 Aggregate net unrealized gains on available-for-sale residual interests,
which had not yet been accreted into income, totaled $44.1 million and
Balance, beginning of year $ 205,936 $ 210,973
Additions (resulting from NIM transactions) 61,651 16,914
$115.4 million at April 30, 2006 and 2005, respectively. These unrealized
Cash received (80,539) (136,045)
gains are recorded net of deferred taxes in other comprehensive income,
Cash proceeds from sales and securitizations of
and may be recognized in income in future periods either through
residual interests (62,396) (16,485)
accretion or upon further securitization of the related residual interest.
Accretion 108,396 137,610
Included in prepaid expenses and other current assets on our
Impairments of fair value (34,107) (12,235)
consolidated balance sheets as of April 30, 2006 and 2005, is
Other (1,583) –
$255.2 million and $231.0 million, respectively, in default advances,
Change in unrealized holding gains arising during
the period (38,300) 5,204
escrow advances and principal and interest advances related to the
servicing of non-prime loans.
Balance, end of year $ 159,058 $ 205,936
Activity related to mortgage servicing rights consists of the following:
Prime mortgage loans are sold in loan sales, servicing released, to
(in 000s)
third-party buyers.
April 30, 2006 2005
We sold $40.3 billion and $31.0 billion of mortgage loans in loan sales
to the Trusts and other buyers during the years ended April 30, 2006 and
Balance, beginning of year $ 166,614 $ 113,821
Additions 250,537 137,510
2005, respectively. Gains totaling $575.4 million and $772.1 million were
Amortization (144,359) (84,191)
recorded on these sales, respectively.
Impairments of fair value (320) (526)
Trading residual interests initially valued at $356.8 million and
Balance, end of year $ 272,472 $ 166,614
$115.7 million were securitized in NIM transactions during the years
ended April 30, 2006 and 2005, respectively. Net cash proceeds of Additions to MSRs during fiscal year 2006 increased primarily as a
$295.2 million and $98.7 million were received from the NIM transactions result of higher origination volumes, higher average loan balances and
for the years ended April 30, 2006 and 2005, respectively. Total net higher interest rates. In addition, during fiscal year 2006 we updated our
additions to available-for-sale residual interests for the years ended assumptions used to value MSRs. The assumptions were updated
April 30, 2006 and 2005 were $61.7 million and $16.9 million, respectively. primarily to reflect lower servicing costs, in particular interest paid to
Cash flows from available-for-sale residual interests of $80.5 million bondholders on monthly loan prepayments, and higher discount rates.
and $136.0 million were received from the securitization trusts for the The change in assumptions increased the weighted average value of
years ended April 30, 2006 and 2005, respectively. An additional MSRs recorded during fiscal year 2006 by approximately $37.0 million
$62.4 million and $16.5 million was received during fiscal years 2006 and (0.09% of loans originated). These changes in assumptions, coupled with
2005, respectively, as a result of the sale of previously securitized increases in origination volumes, average loan size and interest rates,
residuals, as discussed below. Cash received on available-for-sale increased gains on sales of mortgage loans by $113.0 million over the
residual interests is included in investing activities on the consolidated prior year.
statements of cash flows. Estimated amortization of MSRs for fiscal years 2007, 2008, 2009, 2010
During fiscal year 2006, we completed sales of previously securitized and 2011 is $147.5 million, $76.1 million, $32.4 million, $11.8 million and
residual interests and recorded gains of $31.5 million. We received cash $4.7 million, respectively.
proceeds of $62.4 million from the transactions and retained a The key assumptions we used to originally estimate the cash flows
$10.0 million available-for-sale residual interest. During fiscal year 2005, and values of our available-for-sale residual interests are as follows:
we completed sales of previously securitized residual interests and
recorded gains of $15.4 million. We received cash proceeds of
2006 2005 2004
$16.5 million from the transactions and retained a $21.5 million
Estimated credit losses 2.55% 2.72% 3.63%
available-for-sale residual interest. These sales accelerate cash flows
Discount rate 25.00% 25.00% 16.25%
Variable returns to third-party beneficial LIBOR forward curve at
from the residual interests, effectively realizing previously recorded
interest holders closing date
unrealized gains included in other comprehensive income.
Residual interests from NIM securitizations are classified as available-
for-sale securities and are reported at fair value. Gross unrealized
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H&R BLOCK 2006 Form 10K