SunTrust 2008 Annual Report Download - page 121

SUNTRUST BANKS, INC.
Notes to Consolidated Financial Statements (Continued)
Note 11 - Certain Transfers of Financial Assets, Mortgage Servicing Rights and Variable Interest Entities
Certain Transfers of Financial Assets
The Company has transferred residential and commercial mortgage loans, student loans, commercial and corporate loans and
collateralized debt obligation (“CDO”) securities in a sale or securitization in which the Company has continuing
involvement. All such transfers have been accounted for as sales by the Company. The Company’s continuing involvement
in such transfers has been limited to owning certain beneficial interests, such as securitized debt instruments, and certain
servicing or collateral manager responsibilities. Except as specifically noted herein, the Company is not required to provide
additional financial support to any of these entities, nor has the Company provided any support it was not obligated to
provide. Generally, the Company’s forms of continuing involvement under SFAS No. 140 also constituted variable interests
(“VIs”) under FIN 46(R). Interests that continue to be held by the Company in transferred financial assets, excluding
servicing and collateral management rights, are generally recorded as securities available for sale or trading assets at their
allocated carrying amounts based on their relative fair values at the time of transfer and are subsequently remeasured at fair
value. For such interests, when quoted market prices are not available, fair value is generally estimated based on the present
value of expected cash flows, calculated using management’s best estimates of key assumptions, including credit losses, loan
repayment speeds, and discount rates commensurate with the risks involved, based on how management believes market
participants would determine such assumptions. See Note 20, “Fair Value Election and Measurement,” to the Consolidated
Financial Statements for further discussion of the Company’s fair value methodologies. Servicing rights may give rise to
servicing assets, which are initially recognized at fair value, subsequently amortized, and tested for impairment. Gains or
losses upon sale, in addition to servicing fees and collateral management fees, are recorded in noninterest income. Changes in
the fair value of interests that continue to be held by the Company that are accounted for as trading assets or securities
available for sale are recorded in trading account profits and commissions or as a component of accumulated other
comprehensive income, respectively. In the event any decreases in the fair value of such interests that are recorded as
securities available for sale are deemed to be other-than-temporary, such losses are recorded in securities gains/losses. See
Note 5, “Securities Available for Sale,” to the Consolidated Financial Statements for a discussion of the Company’s
evaluation of other-than-temporary impairment charges on its available for sale securities portfolio.
Residential Mortgage Loans
SunTrust typically transfers first lien residential mortgage loans in securitization transactions involving qualifying
special purpose entities (“QSPEs”) sponsored by Ginnie Mae, Fannie Mae and Freddie Mac. These loans are exchanged
for cash proceeds and servicing rights, which generate servicing assets for the Company. The servicing assets are
recorded initially at fair value and subsequently amortized. See Mortgage Servicing Rights herein for further discussion
of these servicing rights. In a limited number of securitization transactions, the Company has transferred loans to QSPEs
sponsored by the Company. In these transactions, the Company has received securities representing retained interests in
the transferred loans in addition to cash and servicing rights in exchange for the transferred loans. The securities are
carried at fair value as either trading assets or securities available for sale. The Company accounts for all transfers of
residential mortgage loans to QSPEs as sales and, because the transferees are QSPEs, the Company does not consolidate
any of these entities.
In addition to transfers of first-lien residential mortgage loans, the Company executed one securitization transaction that
involved Alt-A and other closed-end second lien residential mortgage loans. This transfer was executed with a special
purpose entity that was a QSPE. The Company did not retain the servicing in this securitization, but retained certain
subordinate interests. These interests were carried as trading assets, with changes in fair value recorded in current period
income. Because this transferee was a QSPE, the Company did not consolidate it.
As seller, the Company has made certain representations and warranties with respect to the originally transferred loans,
which are discussed in Note 18, “Reinsurance Arrangements and Guarantees,” to the Consolidated Financial Statements.
Repurchase of loans from QSPEs sponsored by the Company totaled approximately $17 million in 2008, including
approximately $13 million of second lien loans that were substituted with new loans. Other than servicing
responsibilities and repurchase contingencies under representations and warrantees, the Company has not provided any
other support to the QSPE, including any support that the Company was not obligated to provide.
Commercial Mortgage Loans
Certain transfers of commercial mortgage loans were executed with third party special purpose entities, which the
Company deemed to be QSPEs and did not consolidate. The Company’s continuing involvement in these commercial
loan transactions was limited to certain servicing activities, but not including any special servicing or decision making
109