Morgan Stanley 2009 Annual Report Download - page 163

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
At December 31, 2008
Residential
Mortgage
QSPEs
Residential
Mortgage
Failed
Sales
Commercial
Mortgage
QSPEs
Commercial
Mortgage
Consolidated
SPEs
Assets serviced (unpaid principal balance) ................ $23,211 $ 890 $8,196 $2,349
Amounts past due 90 days or greater (unpaid principal
balance)(1) ....................................... $ 7,586 $ 308 $ — $ —
Percentage of amounts past due 90 days or greater(1) ....... 32.7% 34.6% — —
Credit losses ....................................... $ 181 $ 11 $ — $ —
(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.
The Company also serviced residential and commercial mortgage loans for SPEs sponsored by unrelated parties
with unpaid principal balances totaling $20 billion and $25 billion as of December 31, 2009 and December 31,
2008, respectively.
Variable Interest Entities. Accounting guidance for consolidation of VIEs applied to certain entities in which
equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity
at risk for the entity to finance its activities without additional subordinated financial support from other parties.
QSPEs were not subject to consolidation prior to January 1, 2010, but are subject to consolidation requirements
for VIEs beginning on that date. Under the guidance effective prior to January 1, 2010, the primary beneficiary of
a VIE was the party that absorbed a majority of the entity’s expected losses, received a majority of its expected
residual returns or both, as a result of holding variable interests. The Company consolidated entities of which it
was the primary beneficiary. Under the guidance adopted on January 1, 2010, the primary beneficiary of a VIE is
the party that both has the power to make decisions that most significantly affect the economic performance of
the VIE and has the right to receive benefits or obligation to absorb losses that in either case could potentially be
significant to the VIE.
The Company is involved with various entities in the normal course of business that may be deemed to be VIEs.
The Company’s variable interests in VIEs include debt and equity interests, commitments, guarantees and
derivative instruments. The Company’s involvement with VIEs arises primarily from:
• Interests purchased in connection with market making and retained interests held as a result of
securitization activities.
• Guarantees issued and residual interests retained in connection with municipal bond securitizations.
• Loans and investments made to VIEs that hold debt, equity, real estate or other assets.
• Derivatives entered into with VIEs.
• Structuring of credit-linked notes (“CLNs”) or other asset-repackaged notes designed to meet the
investment objectives of clients.
• Other structured transactions designed to provide tax-efficient yields to the Company or its clients.
The Company determined whether it was the primary beneficiary of a VIE upon its initial involvement with the
VIE. This determination was based upon an analysis of the design of the VIE, including the VIE’s structure and
activities and the variable interests owned by the Company.
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