Bank of Montreal 2007 Annual Report Download - page 109

When the loans are considered sold for accounting purposes,
we remove them from our Consolidated Balance Sheet.
We account for transfers to securitization vehicles as sales
when control over the loans is given up and consideration other than
notes issued by the securitization vehicle has been received. We recog-
nize securitization revenues at the time of the sale, based on our
best estimate of the net present value of expected future cash flows,
primarily the deferred purchase price, net of our estimate of the fair
value of any servicing obligations undertaken. The deferred purchase
price is recorded in our Consolidated Balance Sheet in available-for-
sale securities. A servicing liability is recognized only for securitizations
where we do not receive adequate compensation for servicing the
transferred loans. It is initially measured at fair value and is recorded
in our Consolidated Balance Sheet in other liabilities. A servicing
liability is amortized in securitization revenues over the term of the
transferred loan.
For some of our securitizations, we are required to purchase
subordinated interests or to maintain cash amounts deposited with
the securitization vehicle that are considered retained interests in
the securitized assets. This provides the securitization vehicle with a
source of funds in the event that the sum of interest and fees collected
on the loans is not sufficient to pay the interest owed to investors.
We record these retained interests at their fair values in available-for-
sale securities in our Consolidated Balance Sheet. These interests,
together with our deferred purchase price, represent our exposure with
respect to these securitizations. Investors have no further recourse
against us in the event that cash flows from the transferred loans are
inadequate to service the interest related to the investor certificates.
During the year ended October 31, 2007, we securitized residential
mortgages totalling $3,400 million ($3,629 million in 2006) for total
cash proceeds of $3,330 million ($3,569 million in 2006) and recog-
nized a gain of $11 million (loss of $1 million in 2006). There are no
expected credit losses as the mortgages are guaranteed by third parties.
We retained responsibility for servicing these mortgages. We recorded
deferred purchase price of $125 million ($111 million in 2006) and ser-
vicing liability of $26 million ($28 million in 2006) in our Consolidated
Balance Sheet when these mortgages were securitized.
During the year ended October 31, 2006, we securitized credit
card loans totalling $1,500 million for total cash proceeds of $1,425 million
and recognized a gain of $27 million. We retained responsibility for
servicing these credit card loans. We recorded deferred purchase price
of $36 million, investment in securitization vehicles of $73 million
and servicing liability of $6 million when these credit card loans
were securitized.
The key weighted-average assumptions used to value the deferred
purchase price for these securitizations were as follows:
Residential mortgages Credit card loans
2007 2006 2007 2006
Weighted-average life (years) 4.6 4.6 n/a 0.35
Prepayment rate 9.70% 9.36% n/a 41.04%
Interest rate 5.24% 4.95% n/a 19.98%
Expected credit losses n/a n/a n/a 1.90%
Discount rate 4.62% 4.32% n/a 10.97%
n/a –not applicable
BMO Financial Group 190th Annual Report 2007 105
Notes
The impact of securitizations on our Consolidated Statement of Income for the three years ended October 31, 2007, 2006 and 2005 was as follows:
Consumer instalment
(Canadian $ in millions) Residential mortgages and other personal loans Credit card loans Total
2007 2006 2005 2007 2006 2005 2007 2006 2005 2007 2006 2005
Gain (loss) on sales of loans
from new securitizations $11 $ (1) $ 30 $ – $ – $ – $ – $ 27 $ – $11 $ 26 $ 30
Gain on sales of new loans sold to
existing securitization vehicles 28 22 32 ––– 163 21 20 191 43 52
Other securitization revenue (23) (22) 3 513 4 46 10 1 28 18
Amortization of servicing liability 36 30 23 ––– 30 –– 66 30 23
Total $52 $ 29 $ 88 $5 $ 13 $ 4 $239 $ 58 $ 21 $ 296 $ 100 $ 113
Cash flows received from securitization vehicles for the three years ended October 31, 2007, 2006 and 2005 were as follows:
Consumer instalment
(Canadian $ in millions) Residential mortgages and other personal loans Credit card loans Total
2007 2006 2005 2007 2006 2005 2007 2006 2005 2007 2006 2005
Proceeds from new securitizations $ 3,330 $ 3,569 $ 3,130 $ – $ – $ – $ – $ 1,425 $ – $ 3,330 $ 4,994 $ 3,130
Proceeds from collections reinvested
in existing securitization vehicles 2,187 1,770 1,895 ––– 8,198 1,236 1,343 10,385 3,006 3,238
Servicing fees collected 21 15 8 ––– 35624 20 14
Receipt of deferred purchase price 104 93 88 ––– 240 25 20 344 118 108
The impact of securitizations on our Consolidated Balance Sheet as at October 31, 2007 and 2006 was as follows:
Consumer instalment
(Canadian $ in millions) Residential mortgages and other personal loans Credit card loans Total
2007 2006 2007 2006 2007 2006 2007 2006
Retained interests
Investment in securitization vehicles $ – $ – $ – $ 6 $74 $ 73 $74 $ 79
Deferred purchase price 266 238 –– 36 40 302 278
Cash deposits with securitization vehicles 12 12 –––– 12 12
Servicing liability 70 62 –– 6676 68