SunTrust 2011 Annual Report Download - page 148
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Please find page 148 of the 2011 SunTrust annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Notes to Consolidated Financial Statements (Continued)
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NOTE 11 - CERTAIN TRANSFERS OF FINANCIAL ASSETS AND VARIABLE INTEREST ENTITIES
Certain Transfers of Financial Assets and related Variable Interest Entities
The Company has transferred residential and commercial mortgage loans, student loans, commercial and corporate loans, and
CDO securities in sale or securitization transactions in which the Company has, or had, continuing involvement. All such transfers
have been accounted for as sales by the Company. The Company’s continuing involvement in such transfers includes owning
certain beneficial interests, including senior and subordinate debt instruments as well as equity interests, servicing or collateral
manager responsibilities, and guarantee or recourse arrangements. Except as specifically noted herein, the Company is not required
to provide additional financial support to any of the entities to which the Company has transferred financial assets, nor has the
Company provided any support it was not otherwise obligated to provide. In accordance with the accounting guidance related to
transfers of financial assets that became effective on January 1, 2010, upon completion of transfers of assets that satisfy the
conditions to be reported as a sale, the Company derecognizes the transferred assets and recognizes at fair value any beneficial
interests in the transferred financial assets such as trading assets or securities AFS as well as servicing rights retained and guarantee
liabilities incurred. See Note 19, “Fair Value Election and Measurement,” for further discussion of the Company’s fair value
methodologies.
When evaluating transfers and other transactions with VIEs for consolidation, the Company first determines if it has a VI in the
VIE. A VI is typically in the form of securities representing retained interests in the transferred assets and, at times, servicing rights
and collateral manager fees. If the Company has a VI in the entity, it then evaluates whether or not it has both (1) the power to
direct the activities that most significantly impact the economic performance of the VIE, and (2) the obligation to absorb losses
or the right to receive benefits that could potentially be significant to the VIE to determine if the Company should consolidate the
VIE.
Below is a summary of transfers of financial assets to VIEs for which the Company has retained some level of continuing
involvement.
Residential Mortgage Loans
The Company typically transfers first lien residential mortgage loans in conjunction with Ginnie Mae, Fannie Mae, and
Freddie Mac securitization transactions whereby the loans are exchanged for cash or securities that are readily redeemed
for cash proceeds and servicing rights. The securities issued through these transactions are guaranteed by the issuer and,
as such, under seller/servicer agreements the Company is required to service the loans in accordance with the issuers’
servicing guidelines and standards. The Company sold residential mortgage loans to these entities, which resulted in pre-
tax gains of $397 million, $588 million, and $707 million, including servicing rights for the years ended December 31,
2011, 2010, and 2009, respectively. These gains are included within mortgage production related (loss)/income in the
Consolidated Statements of Income/(Loss). These gains include the change in value of the loans as a result of changes
in interest rates from the time the related IRLCs were issued to the borrowers but do not include the results of hedging
activities initiated by the Company to mitigate this market risk. See Note 17, “Derivative Financial Instruments,” for
further discussion of the Company’s hedging activities. As seller, the Company has made certain representations and
warranties with respect to the originally transferred loans, including those transferred under Ginnie Mae, Fannie Mae,
and Freddie Mac programs, which are discussed in Note 18, “Reinsurance Arrangements and Guarantees.”
In a limited number of securitizations, the Company has transferred loans to trusts, which previously qualified as QSPEs,
sponsored by the Company. These trusts issue securities which are ultimately supported by the loans in the underlying
trusts. 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 received securities are carried at fair
value as either trading assets or securities AFS. As of December 31, 2011, the fair value of securities received totaled
$104 million and were valued using a third party pricing service. As of December 31, 2010, the fair value of securities
received was $193 million. At December 31, 2010, securities with a fair value of $175 million were valued using a third
party pricing service. The remaining $18 million in securities consisted of subordinate interests from a 2003 securitization
of prime fixed and floating rate loans and were valued using a discounted cash flow model that uses historically derived
prepayment rates and credit loss assumptions along with estimates of current market discount rates. During the fourth
quarter of 2011, the Company exercised its clean up call rights from the 2003 securitization and repurchased the remaining
residential mortgage loans. The exercise of the clean up call was not material to the Company’s financial condition, results
of operations, or cash flows.
The Company evaluated these securitization transactions for consolidation under the VIE consolidation guidance. As
servicer of the underlying loans, the Company is generally deemed to have power over the securitization. However, if a
single party, such as the issuer or the master servicer, effectively controls the servicing activities or has the unilateral
ability to terminate the Company as servicer without cause, then that party is deemed to have power. In almost all of its