SunTrust 2013 Annual Report Download - page 154

Notes to Consolidated Financial Statements, continued
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changes in another, which might magnify or counteract the sensitivities. Additionally, the sensitivities above do not include
the effect of hedging activity undertaken by the Company to offset changes in the fair value of MSRs. See Note 16, “Derivative
Financial Instruments,” for further information regarding these hedging activities.
NOTE 10 - CERTAIN TRANSFERS OF FINANCIAL ASSETS AND VARIABLE INTEREST ENTITIES
Certain Transfers of Financial Assets and related Variable Interest Entities
The Company has transferred residential 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. 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 18, “Fair Value Election and Measurement,” for further discussion
of the Company’s fair value methodologies. No events occurred during the year ended December 31, 2013 that changed the
Company’s sale accounting conclusion in regards to the residential mortgage loans, student loans, commercial and corporate
loans, or CDO securities.
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
redeemable for cash proceeds and servicing rights. The Company sold residential mortgage loans to these entities,
which resulted in pre-tax net gains of $186 million, $1.0 billion, and $397 million, including servicing rights, for
the years ended December 31, 2013, 2012, and 2011, respectively. These net gains are included within mortgage
production related income/(loss) in the Consolidated Statements of Income. These net 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
16, “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, and those representations and warranties
are discussed in Note 17, “Guarantees.”
In a limited number of securitizations, 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. At December 31, 2013 and 2012, the fair value of
securities received totaled $71 million and $98 million, respectively, and were valued using a third party pricing
service.
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 over
the securitization. In almost all of its securitization transactions, the Company does not have power over the VIE as
a result of these rights held by the master servicer. In certain transactions, the Company does have power as the
servicer; however, the Company does not also have an obligation to absorb losses or the right to receive benefits that
could potentially be significant to the securitization. The absorption of losses and the receipt of benefits would