Wells Fargo 2007 Annual Report Download - page 95

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In the normal course of creating securities to sell to
investors, we may sponsor special-purpose entities that hold,
for the benefit of the investors, financial instruments that are
the source of payment to the investors. Special-purpose entities
are consolidated unless they meet the criteria for a qualifying
special-purpose entity in accordance with FAS 140 or are not
required to be consolidated under existing accounting guidance.
For securitizations completed in 2007 and 2006, we
used the following assumptions to determine the fair value
of mortgage servicing rights and other interests held at the
date of securitization.
(in millions) Year ended December 31,
2007 2006
Mortgage Other Mortgage Other
loans financial loans financial
assets assets
Sales proceeds from
securitizations $38,971 $— $50,767 $103
Servicing fees 300 — 229 —
Cash flows on other
interests held 496 6 259 3
Note 8: Securitizations and Variable Interest Entities
We routinely originate, securitize and sell into the secondary
market home mortgage loans and, from time to time, other
financial assets, including student loans, commercial mortgages
and auto receivables. We typically retain the servicing rights
from these sales and may continue to hold other interests.
Through these securitizations, which are structured without
recourse to us and with no restrictions on the other interests
held, we may be exposed to a liability under standard
representations and warranties we make to purchasers
and issuers. The amount recorded for this liability was not
material to our consolidated financial statements at year-end
2007 or 2006. In response to the reduced liquidity in the
capital markets, for certain sales and securitizations of non-
conforming mortgage loans, we retained the subordinate
bonds on these securitizations. At December 31, 2007, the
total book value of these other interests held (subordinate
bonds) was $486 million.
We recognized net gains of $10 million and $399 million
from sales of financial assets in securitizations in 2007 and
2006, respectively. Additionally, we had the following cash
flows with our securitization trusts.
($ in millions) Mortgage Other Other
servicing interests interests
rights held held –
subordinate
bonds
Fair value of interests held $17,336 $420 $486
Expected weighted-average
life (in years) 5.4 5.3 6.9
Prepayment speed
assumption (annual CPR) 12.9% 14.3% 13.1%
Decrease in fair value from:
10% adverse change $ 603 $ 20 $ 1
25% adverse change 1,403 48 4
Discount rate assumption 9.5% 11.4% 6.9%
MSRs and other interests held
Decrease in fair value from:
100 basis point
adverse change $ 664 $ 16
200 basis point
adverse change 1,277 31
Other interests held –
subordinate bonds
Decrease in fair value from:
50 basis point
adverse change $ 13
100 basis point
adverse change 27
Credit loss assumption 1.1%
Decrease in fair value from:
10% higher losses $ 11
25% higher losses 29
Key economic assumptions and the sensitivity of the
current fair value to immediate adverse changes in those
assumptions at December 31, 2007, for residential and
commercial mortgage servicing rights, and other interests
held related to residential mortgage loan securitizations
are presented in the following table.
Mortgage Other Other interests held –
servicing rights interests held subordinate bonds
2007 2006 2007 2006 2007
Prepayment speed (annual CPR (1)) (2) 13.5% 15.7% 14.1% 13.9% 24.3%
Life (in years) (2) 6.8 5.8 7.2 7.0 4.4
Discount rate (2) 9.8% 10.5% 10.2% 10.0% 6.9%
Life of loan losses 0.8%
(1) Constant prepayment rate.
(2) Represents weighted averages for all other interests held resulting from securitizations completed in 2007 and 2006.