Morgan Stanley 2009 Annual Report Download - page 162

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Transferred assets are carried at fair value prior to securitization, and any changes in fair value are recognized in
the consolidated statements of income. The Company may act as underwriter of the beneficial interests issued by
securitization vehicles. Underwriting net revenues are recognized in connection with these transactions. The
Company may retain interests in the securitized financial assets as one or more tranches of the securitization.
These retained interests are included in the consolidated statements of financial condition at fair value. Any
changes in the fair value of such retained interests are recognized in the consolidated statements of income. Net
gains at the time of securitization were $104 million in 2009. Net gains at the time of securitization were not
material in fiscal 2008 and in the one month ended December 31, 2008.
During 2009 and fiscal 2008, the Company received proceeds from new securitization transactions of $8.6 billion
and $7.1 billion, respectively. The Company did not receive any proceeds from new securitization transactions
during the one month ended December 31, 2008. During 2009, fiscal 2008 and the one month ended
December 31, 2008, the Company received proceeds from cash flows from retained interests in securitization
transactions of $2.1 billion, $3.1 billion and $153 million, respectively.
The Company provides representations and warranties that certain assets transferred in securitization transactions
conform to specific guidelines (see Note 11).
Mortgage Servicing Rights. The Company may retain servicing rights to certain mortgage loans that are sold
through its securitization activities. These transactions create an asset referred to as MSRs, which totaled
approximately $137 million and $184 million as of December 31, 2009 and December 31, 2008, respectively, and
are included within Intangible assets and carried at fair value in the consolidated statements of financial condition.
SPE Mortgage Servicing Activities. The Company services residential mortgage loans in the U.S. and Europe and
commercial mortgage loans in Europe owned by SPEs, including SPEs sponsored by the Company and SPEs not
sponsored by the Company. Most of these SPEs met the requirements for QSPEs. The Company generally holds
retained interests in Company-sponsored QSPEs. In some cases, as part of its market making activities, the Company
may own some beneficial interests issued by both Company-sponsored and non-Company sponsored SPEs.
The Company provides no credit support as part of its servicing activities. The Company is required to make
servicing advances to the extent that it believes that such advances will be reimbursed. Reimbursement of
servicing advances is a senior obligation of the SPE, senior to the most senior beneficial interests outstanding.
Outstanding advances are included in Other assets and are recorded at cost. Advances as of December 31, 2009
and December 31, 2008 totaled approximately $2.2 billion and $2.4 billion, respectively, net of reserves of
$23 million as of December 31, 2009 and $10 million as of December 31, 2008.
The following tables present information about the Company’s mortgage servicing activities for SPEs to which
the Company transferred loans as of December 31, 2009 and December 31, 2008 (dollars in millions):
At December 31, 2009
Residential
Mortgage
QSPEs
Residential
Mortgage
Failed
Sales
Commercial
Mortgage
QSPEs
Assets serviced (unpaid principal balance) ........................... $18,902 $1,110 $10,901
Amounts past due 90 days or greater (unpaid principal balance)(1) ........ $ 7,297 $ 408 $ 5
Percentage of amounts past due 90 days or greater(1) .................. 38.6% 36.8% —
Credit losses ................................................... $ 2,859 $ 74 $ 2
(1) Includes loans that are at least 90 days contractually delinquent, loans for which the borrower has filed for bankruptcy, loans in
foreclosure and real estate owned.
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