SunTrust 2015 Annual Report Download - page 134

Notes to Consolidated Financial Statements, continued
106
(i) the transferred assets are legally isolated, (ii) the transferee
has the right to pledge or exchange the transferred assets, and
(iii) the Company has relinquished effective control of the
transferred assets. If all three conditions are met, then the transfer
is accounted for as a sale.
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. No events occurred during the year ended
December 31, 2015 that changed the Company’s previous
conclusions regarding whether it is the primary beneficiary of
the VIEs described herein. Furthermore, no events occurred
during the year ended December 31, 2015 that changed the
Company’s sale conclusion with regards to previously
transferred residential mortgage loans, indirect auto loans,
student loans, or commercial and corporate loans.
Transfers of Financial Assets
The following discussion summarizes 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, and servicing rights are retained.
The Company sold residential mortgage loans to the
aforementioned GSEs, which resulted in pre-tax net gains of
$232 million, $224 million, and $186 million for the years ended
December 31, 2015, 2014, and 2013, respectively. The Company
has made certain representations and warranties with respect to
the transfer of these loans. See Note 16, “Guarantees,” for
additional information regarding representations and warranties.
In a limited number of securitizations, the Company has
received securities in addition to cash in exchange for the
transferred loans, while also retaining servicing rights. The
securities received are measured at fair value and classified as
securities AFS. At December 31, 2015 and 2014, the fair value
of securities received totaled $38 million and $55 million,
respectively.
The Company evaluated its VI securitization entities for
potential consolidation under the VIE consolidation model.
Notwithstanding the Company's role as servicer, the Company
typically does not have power over the securitization entities as
a result of rights held by the master servicer. However, in certain
transactions, the Company does have power as the servicer, but
does not have an obligation to absorb losses, or the right to receive
benefits, that could potentially be significant. In all such cases,
the Company does not consolidate the securitization entity. Total
assets at December 31, 2015 and 2014, of the unconsolidated
entities in which the Company has a VI were $241 million and
$288 million, respectively.
The Company’s maximum exposure to loss related to these
unconsolidated residential mortgage loan securitizations is
comprised of the loss of value of any interests it retains, which
are immaterial, and any repurchase obligations or other losses it
incurs as a result of any guarantees related to these
securitizations, discussed further in Note 16, “Guarantees.”
Commercial and Corporate Loans
The Company holds securities issued by CLO entities that own
commercial leveraged loans and bonds, certain of which were
transferred to the entities by the Company. The Company has
determined that the CLO entities are VIEs and that it is not the
primary beneficiary of these entities because it does not possess
the power to direct the activities that most significantly impact
the economic performance of the entities. The Company
previously acted as collateral manager for one of these CLO
entities that it consolidated; however, upon the sale of
RidgeWorth in May 2014, the Company was no longer the
collateral manager or primary beneficiary of this CLO and the
CLO was deconsolidated. At December 31, 2015 and 2014, the
Company's unconsolidated VIEs had estimated assets of $525
million and $704 million and estimated liabilities of $482 million
and $654 million, respectively. At December 31, 2015 and 2014,
the Company's holdings included a preference share exposure
valued at $2 million and $3 million, and a senior debt exposure
valued at $8 million and $18 million, respectively.
Consumer Loans
Guaranteed Student Loans
The Company has securitized government-guaranteed student
loans through a transfer of loans to a securitization entity and
retained the residual interest in the entity. The Company
concluded that this entity should be consolidated because the
Company has (i) the power to direct the activities that most
significantly impact the economic performance of the VIE and
(ii) the obligation to absorb losses, and the right to receive
benefits, that could potentially be significant. At December 31,
2015 and 2014, the Company’s Consolidated Balance Sheets
reflected $262 million and $306 million of assets held by the
securitization entity and $259 million and $302 million of debt
issued by the entity, respectively.
To the extent that the securitization entity incurs losses on
its assets, the securitization entity has recourse to the guarantor
of the underlying loan, which is backed by the Department of
Education up to a maximum guarantee of 100%. When the
maximum government guarantee is not realized, losses reduce
the amount of available cash payable to the Company as the
owner of the residual interest. To the extent that losses result
from a breach of servicing responsibilities, the securitization
entity has recourse to the Company, which functions as the
master servicer, whereby the Company may be required to
repurchase the defaulting loan(s) at par value. If the breach was
caused by the subservicer, the Company would seek
reimbursement from the subservicer up to the guaranteed
amount. The Company’s maximum exposure to loss related to
the securitization entity would arise from a breach of its servicing
responsibilities. To date, loss claims filed with the guarantor that
have been denied due to servicing errors have either been, or are
in the process of, being cured, or reimbursement has been
provided to the Company by the subservicer, or in limited cases,
absorbed by the Company.