PNC Bank 2012 Annual Report Download - page 158

N OTE 3L OAN S ALE AND S ERVICING A CTIVITIES
AND V ARIABLE I NTEREST E NTITIES
L OAN S ALE AND S ERVICING A CTIVITIES
We have transferred residential and commercial mortgage
loans in securitization or sales transactions in which we have
continuing involvement. These transfers have occurred
through Agency securitization, Non-agency securitization, and
loan sale transactions. Agency securitizations consist of
securitization transactions with Federal National Mortgage
Association (FNMA), Federal Home Loan Mortgage
Corporation (FHLMC), and Government National Mortgage
Association (GNMA) (collectively, the Agencies). FNMA and
FHLMC generally securitize our transferred loans into
mortgage-backed securities for sale into the secondary market
through special purpose entities (SPEs) that they sponsor. We,
as an authorized GNMA issuer/servicer, pool Federal Housing
Administration (FHA) and Department of Veterans Affairs
(VA) insured loans into mortgage-backed securities for sale
into the secondary market. In Non-agency securitizations, we
have transferred loans into securitization SPEs. In other
instances, third-party investors have also purchased our loans
in loan sale transactions and in certain instances have
subsequently sold these loans into securitization SPEs.
Securitization SPEs utilized in the Agency and Non-agency
securitization transactions are variable interest entities (VIEs).
Our continuing involvement in the FNMA, FHLMC, and
GNMA securitizations, Non-agency securitizations, and loan
sale transactions generally consists of servicing, repurchases
of previously transferred loans under certain conditions and
loss share arrangements, and, in limited circumstances,
holding of mortgage-backed securities issued by the
securitization SPEs.
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 when subsequently
accounted for at fair value are classified within Level 3 of the
fair value hierarchy. See Note 9 Fair Value and Note 10
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, 2012 and
December 31, 2011, the balance of our ROAP asset and
liability totaled $190 million and $265 million, respectively.
The Agency and Non-agency mortgage-backed securities
issued by the securitization SPEs that are purchased and held
on our balance sheet are typically purchased 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. Substantially all of the Non-agency mortgage-
backed securities acquired and held on our balance sheet are
senior tranches in the securitization structure.
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.
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 24
Commitments and Guarantees for further discussion of our
repurchase and recourse obligations.
The PNC Financial Services Group, Inc. – Form 10-K 139