PNC Bank 2011 Annual Report Download - page 130

Depending on the transaction, we may act as the master,
primary, and/or special servicer to the securitization SPEs or
third-party investors. Servicing responsibilities typically
consist of collecting and remitting monthly borrower principal
and interest payments, maintaining escrow deposits,
performing loss mitigation and foreclosure activities, and, in
certain instances, funding of servicing advances. Servicing
advances, which are reimbursable, are recognized in Other
assets at cost and are made for principal and interest and
collateral protection.
We earn servicing and other ancillary fees for our role as
servicer and, depending on the contractual terms of the
servicing arrangement, we can be terminated as servicer with
or without cause. At the consummation date of each type of
loan transfer, we recognize a servicing asset at fair value.
Servicing assets are recognized in Other intangible assets on
our Consolidated Balance Sheet and are classified within
Level 3 of the fair value hierarchy. See Note 8 Fair Value and
Note 9 Goodwill and Other Intangible Assets for further
discussion of our residential and commercial servicing assets.
Certain loans transferred to the Agencies contain removal of
account provisions (ROAPs). Under these ROAPs, we hold an
option to repurchase at par individual delinquent loans that
meet certain criteria. When we have the unilateral ability to
repurchase a delinquent loan, effective control over the loan
has been regained and we recognize an asset (in either Loans
or Loans held for sale) and a corresponding liability (in Other
borrowed funds) on the balance sheet regardless of our intent
to repurchase the loan. At December 31, 2011 and
December 31, 2010, balances recognized in Loans and Other
borrowed funds associated with our ROAP option totaled
$265 million and $336 million, respectively.
We generally do not retain mortgage-backed securities issued
by the Agency and Non-Agency securitization SPEs at the
inception of the securitization transactions. Rather, our limited
holdings of these securities occur through subsequent
purchases in the secondary market. PNC does not retain any
credit risk on its Agency mortgage-backed security positions
as FNMA, FHLMC, and the US Government (for GNMA)
guarantee losses of principal and interest. We generally hold a
senior class of Non-Agency mortgage-backed securities.
We also have involvement with certain Agency and
Non-Agency commercial securitization SPEs where we have
not transferred commercial mortgage loans. These SPEs were
sponsored by independent third-parties and the loans held by
these entities were purchased exclusively from other third-
parties. Generally, our involvement with these SPEs is as
servicer with servicing activities consistent with those
described above. In certain instances, we can be terminated as
servicer in these commercial securitization structures without
cause by the controlling class of mortgage-backed security
holders of the SPE.
We recognize a liability for our loss exposure associated with
contractual obligations to repurchase previously transferred
loans due to breaches of representations and warranties and
also for loss sharing arrangements (recourse obligations) with
the Agencies. Other than providing temporary liquidity under
servicing advances and our loss exposure associated with our
repurchase and recourse obligations, we have not provided nor
are we required to provide any type of credit support,
guarantees, or commitments to the securitization SPEs or
third-party investors in these transactions. See Note 23
Commitments and Guarantees for further discussion of our
repurchase and recourse obligations.
The PNC Financial Services Group, Inc. – Form 10-K 121