PNC Bank 2001 Annual Report Download - page 80

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78
NOTE 14 SECURITIZATIONS
During 2001, the Corporation sold residential mortgage
loans, commercial mortgage loans and other loans totaling
$1.0 billion, $374 million, and $82 million, respectively, in
secondary market securitization transactions. These
securitization transactions resulted in pretax gains of $9.6
million, $1 million, and $2 million, respectively, for the year
ended December 31, 2001.
In addition to the sale of loans discussed above, in March
2001 PNC securitized $3.8 billion of residential mortgage
loans by selling the loans into a trust with PNC retaining
99% or $3.7 billion of the certificates. PNC also securitized
$175 million of commercial mortgage loans by selling the
loans into a trust with PNC retaining 99% or $173 million of
the certificates. In each case, the 1% interest in the trust was
purchased by a publicly-traded entity managed by a
subsidiary of PNC. A substantial portion of the entity’s
purchase price was financed by PNC. The reclassification of
these loans to securities increased the liquidity of the assets
and was consistent with PNC’s on-going balance sheet
restructuring. At the time of the residential mortgage
securitization, gains of $25.9 million were deferred and are
being recognized when principal payments are received or
the securities are sold to third parties. At December 31, 2001,
these securities had been reduced to $1.3 billion through
sales and principal payments and the remaining deferred
gains were $7.8 million. No gain was recognized at the time
of the commercial mortgage loan securitization and none of
the securities retained at the time of the securitization
remained on the balance sheet at December 31, 2001.
In addition to the securities discussed above, the
Corporation retained certain interest-only strips and servicing
rights that were created in the sale of certain loans.
Additional information on these items is contained below.
Key economic assumptions used in measuring the fair
value of the interest-only strips and servicing rights at the
date of the securitization resulting from securitizations
completed during the year and related information were as
follows:
Key Economic Assumptions
Dollars in millions
Fair
Value
Weighted-
average Life
(Years)
Prepayment
Speed
(CPR)(a)
Discount
Rate
During 2001
Residential
mortgage $38 1.2 – 1.7 36.0% 10.00%
Commercial
mortgage 5 9.4 10.0 10.00
Other 21.9 4.14
During 2000
Commercial
mortgage $7 9.6 10.0% 10.00%
(a) Constant Prepayment Rate (“CPR”).
Quantitative information about managed securitized loan
portfolios in which the Corporation had interest-only strips
outstanding at December 31, 2001 and related delinquencies
follows:
Interest-Only Strips
Managed Delinquencies
December 31 - in millions 2001 2000 2001 2000
Residential loans $1,058 $178 $24 $2
Student loans 453 573 49 66
Total managed loans $1,511 $751 $73 $68
Certain cash flows received from and paid to securitization
trusts in which the Corporation had interest-only strips
outstanding during the period follows:
Securitization Cash Flows
Year ended December 31 – in millions 2001 2000
Proceeds from new securitizations $1,040 $877
Servicing revenue 87
Other cash flows received on retained
interests 16 22
Proceeds from new securitizations are limited to cash
proceeds received from third parties. It excludes the value of
securities generated as a result of the recharacterization of
loans to securities. During 2001 and 2000, there were no
purchases of delinquent or foreclosed assets, and servicing
advances and repayments of servicing advances were not
significant.
Changes in the Corporation’s commercial mortgage
servicing assets are as follows:
Commercial Mortgage Servicing Activity
In millions 2001 2000
Balance at January 1 $156 $125
Additions 70 49
Amortization (27) (18)
Balance at December 31 $199 $156
Assuming a prepayment speed of 10% and weighted average
life of 10.8 years discounted at 10%, the estimated fair value
of commercial mortgage servicing rights was $240 million at
December 31, 2001. A 10% and 20% adverse change in all
assumptions used to determine fair value at December 31,
2001, results in a $22 million and $44 million decrease in fair
value, respectively. No valuation allowance was necessary for
the years ended December 31, 2001 and December 31, 2000.