PNC Bank 2009 Annual Report Download - page 133

N OTE 10 L OAN S ALES AND S ECURITIZATIONS
Loan Sales
We sell residential and commercial mortgage loans in loan
securitization transactions sponsored by Government National
Mortgage Association (GNMA), FNMA, and FHLMC and in
certain instances to other third-party investors. GNMA,
FNMA, and the FHLMC securitize our transferred loans into
mortgage-backed securities for sale into the secondary market.
Generally, we do not retain any interest in the transferred
loans other than mortgage servicing rights. Refer to Note 9
Goodwill and Other Intangible Assets for further discussion
on our residential and commercial mortgage servicing rights
assets.
During 2009, residential and commercial mortgage loans sold
totaled $19.8 billion and $5.7 billion, respectively. During
2008, commercial mortgage loans sold totaled $3.1 billion.
There were no residential mortgage loans sales in 2008 as
these activities were obtained through our acquisition of
National City.
Our continuing involvement in these loan sales consists
primarily of servicing and limited repurchase obligations for
loan and servicer breaches in representations and warranties.
Generally, we hold a cleanup call repurchase option for loans
sold with servicing retained to the other third-party investors.
In certain circumstances as servicer, we advance principal and
interest payments to the GSEs and other third-party investors
and also may make collateral protection advances. Our risk of
loss in these servicing advances has historically been minimal.
We maintain a liability for estimated losses on loans expected
to be repurchased as a result of breaches in loan and servicer
representations and warranties. We have also entered into
recourse arrangements associated with commercial mortgage
loans sold to FNMA and FHLMC. Refer to Note 25
Commitments and Guarantees for further discussion on our
repurchase liability and recourse arrangements. Our maximum
exposure to loss in our loan sale activities is limited to these
repurchase and recourse obligations.
In addition, for certain loans transferred in the GNMA and
FNMA transactions, we hold an option to repurchase
individual delinquent loans that meet certain criteria. Without
prior authorization from these GSEs, this option gives PNC
the ability to repurchase the delinquent loan at par. Under
GAAP, once we have the unilateral ability to repurchase the
delinquent loan, effective control over the loan has been
regained and we are required to recognize the loan and a
corresponding repurchase liability on the balance sheet
regardless of our intent to repurchase the loan. At
December 31, 2009 and December 31, 2008, the balance of
our repurchase option asset and liability totaled $577 million
and $476 million, respectively.
Securitizations
In securitizations, loans are typically transferred to a
qualifying special purpose entity (QSPE) that is demonstrably
distinct from the transferor to transfer the risk from our
Consolidated Balance Sheet. A QSPE is a bankruptcy-remote
trust allowed to perform only certain passive activities. In
addition, these entities are self-liquidating and in certain
instances are structured as Real Estate Mortgage Investment
Conduits (REMICs) for tax purposes. The QSPEs are
generally financed by issuing certificates for various levels of
senior and subordinated tranches. QSPEs are exempt from
consolidation provided certain conditions are met.
Our securitization activities were primarily obtained through
our acquisition of National City. Credit card receivables,
automobile, and residential mortgage loans were securitized
through QSPEs sponsored by NCB. These QSPEs were
financed primarily through the issuance and sale of beneficial
interests to independent third parties and were not
consolidated on our balance sheet at December 31, 2009 or
December 31, 2008. However, see Note 1 Accounting Policies
regarding accounting guidance that impacts the accounting for
these QSPEs effective January 1, 2010.
Qualitative and quantitative information about the
securitization QSPEs and our retained interests in these
transactions follow.
The following summarizes the assets and liabilities of the
securitization QSPEs associated with securitization
transactions that were outstanding at December 31, 2009.
December 31, 2009 December 31, 2008
In millions Credit Card Mortgage Credit Card Mortgage
Assets (a) $2,368 $232 $2,129 $319
Liabilities 1,622 232 1,824 319
(a) Represents period-end outstanding principal balances of loans transferred to the
securitization QSPEs.
Credit Card Loans
At December 31, 2009, the credit card securitization series
2005-1, 2006-1, 2007-1, and 2008-3 were outstanding. During
the fourth quarter of 2009, the 2008-1 and 2008-2 credit card
securitization series matured. Our continuing involvement in
the securitized credit card receivables consists primarily of
servicing and our holding of certain retained interests.
Servicing fees earned approximate current market rates for
servicing fees; therefore, no servicing asset or liability is
recognized. We hold a clean-up call repurchase option to the
extent a securitization series extends past its scheduled note
principal payoff date. To the extent this occurs, the clean-up
call option is triggered when the principal balance of the asset-
backed notes of any series reaches 5% of the initial principal
balance of the asset-backed notes issued at the securitization
date.
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