Wells Fargo 2015 Annual Report Download - page 189

indicative of power in them and we therefore do not consolidate
these VIEs.
TAX CREDIT STRUCTURES We co-sponsor and make
investments in affordable housing and sustainable energy
projects that are designed to generate a return primarily through
the realization of federal tax credits. In some instances, our
investments in these structures may require that we fund future
capital commitments at the discretion of the project sponsors.
While the size of our investment in a single entity may at times
exceed 50% of the outstanding equity interests, we do not
consolidate these structures due to the project sponsor’s ability
to manage the projects, which is indicative of power in them.
INVESTMENT FUNDS We do not consolidate the investment
funds because we do not absorb the majority of the expected
future variability associated with the funds’ assets, including
variability associated with credit, interest rate and liquidity risks.
OTHER TRANSACTIONS WITH VIEs Other VIEs include
entities that issue auction rate securities (ARS) which are debt
instruments with long-term maturities that re-price more
frequently, and preferred equities with no maturity. At
December 31, 2015, we held $502 million of ARS issued by VIEs
compared with $567 million at December 31, 2014. We acquired
the ARS pursuant to agreements entered into in 2008 and 2009.
We do not consolidate the VIEs that issued the ARS because
we do not have power over the activities of the VIEs.
TRUST PREFERRED SECURITIES VIEs that we wholly own
issue debt securities or preferred equity to third party investors.
All of the proceeds of the issuance are invested in debt securities
or preferred equity that we issue to the VIEs. The VIEs’
operations and cash flows relate only to the issuance,
administration and repayment of the securities held by third
parties. We do not consolidate these VIEs because the sole assets
of the VIEs are receivables from us, even though we own all of
the voting equity shares of the VIEs, have fully guaranteed the
obligations of the VIEs and may have the right to redeem the
third party securities under certain circumstances. In our
consolidated balance sheet at December 31, 2015 and 2014, we
reported the debt securities issued to the VIEs as long-term
junior subordinated debt with a carrying value of $2.2 billion
and $2.1 billion, respectively, and the preferred equity securities
issued to the VIEs as preferred stock with a carrying value of
$2.5 billion at both dates. These amounts are in addition to the
involvements in these VIEs included in the preceding table.
In 2013, we redeemed $2.8 billion of trust preferred
securities that will no longer count as Tier 1 capital under the
Dodd-Frank Act and the Basel Committee recommendations
known as the Basel III standards.
Loan Sales and Securitization Activity
We periodically transfer consumer and CRE loans and other
types of financial assets in securitization and whole loan sale
transactions. We typically retain the servicing rights from these
sales and may continue to hold other beneficial interests in the
transferred financial assets. We may also provide liquidity to
investors in the beneficial interests and credit enhancements in
the form of standby letters of credit. Through these transfers we
may be exposed to liability under limited amounts of recourse as
well as standard representations and warranties we make to
purchasers and issuers. Table 8.3 presents the cash flows for our
transfers accounted for as sales.
Table 8.3: Cash Flows From Sales and Securitization Activity
Year ended December 31,
2015 2014
Other Other Other
Mortgage financial Mortgage financial Mortgage financial
(in millions) loans assets loans assets loans assets
Proceeds from securitizations and whole loan sales $ 202,335 531 164,331 — 357,807 —
Fees from servicing rights retained 3,675 5 4,062 8 4,240 10
Cash flows from other interests held (1) 1,297 38 1,417 75 2,284 93
Repurchases of assets/loss reimbursements (2):
Non-agency securitizations and whole loan transactions 14 — 6 — 18 —
Agency securitizations (3) 300 — 316 — 1,079 —
Servicing advances, net of repayments (764) — (170) — (34) —
(1) Cash flows from other interests held include principal and interest payments received on retained bonds and excess cash flows received on interest-only strips.
(2) Consists of cash paid to repurchase loans from investors and cash paid to investors to reimburse them for losses on individual loans that are already liquidated. In addition,
during 2015, we paid $19 million to third-party investors to settle repurchase liabilities on pools of loans, compared to $78 million and $1.3 billion in 2014 and 2013,
respectively.
(3) Represent loans repurchased from GNMA, FNMA, and FHLMC under representation and warranty provisions included in our loan sales contracts. Excludes $11.3 billion in
delinquent insured/guaranteed loans that we service and have exercised our option to purchase out of GNMA pools in 2015, compared with $13.8 billion and $15.8 billion in
2014 and 2013, respectively. These loans are predominantly insured by the FHA or guaranteed by the VA.
In 2015, 2014, and 2013, we recognized net gains of
$506 million, $288 million and $149 million, respectively, from
transfers accounted for as sales of financial assets. These net
gains primarily relate to commercial mortgage securitizations
and residential mortgage securitizations where the loans were
not already carried at fair value.
Sales with continuing involvement during 2015, 2014 and
2013 predominantly related to securitizations of residential
mortgages that are sold to the government-sponsored entities
(GSEs), including FNMA, FHLMC and GNMA (conforming
residential mortgage securitizations). During 2015, 2014 and
2013 we transferred $186.6 billion, $155.8 billion and
$343.9 billion, respectively, in fair value of residential mortgages
to unconsolidated VIEs and third-party investors and recorded
the transfers as sales. Substantially all of these transfers did not
result in a gain or loss because the loans were already carried at
fair value. In connection with all of these transfers, in 2015 we
recorded a $1.6 billion servicing asset, measured at fair value
using a Level 3 measurement technique, securities of
$1.9 billion, classified as Level 2, and a $43 million liability for
repurchase losses which reflects management’s estimate of
probable losses related to various representations and
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