HR Block 2005 Annual Report Download - page 122

or the seller’s rights to call certain obligations, the first call date,
put date or auction date for municipal bonds and notes is
considered the contractual maturity date.
NOTE 6: MORTGAGE BANKING ACTIVITIES
We originate mortgage loans and sell most non-prime loans the and receive cash flows on our residual interest generally after the
same day the loans are funded to Trusts. These Trusts meet the bonds issued to the third-party investors are paid in full. Residual
criteria of QSPEs and are therefore not consolidated. The sale is interests retained from NIM securitizations may also be bundled
recorded in accordance with Statement of Financial Accounting and sold in a subsequent securitization. These residual interests
Standards No. 140, ‘‘Accounting for Transfers and Servicing of are classified as available-for-sale securities. See note 5.
Financial Assets and Extinguishments of Liabilities’’ Prime mortgage loans are sold in whole loan sales, servicing
(‘‘SFAS 140’’). The Trusts purchase the loans from us using five released, to third-party buyers.
warehouse facilities we arrange. As a result of the whole loan Activity related to residual interests in securitizations consists
sales to the Trusts, we remove the mortgage loans from our of the following:
(in 000s)
balance sheet and record the gain on the sale, cash and a
beneficial interest in Trusts, which represents the ultimate Restated
April 30, 2005 2004
expected outcome from the disposition of the loans. The
beneficial interest in Trusts was $215.4 million and $153.8 million Balance, beginning of year $ 210,973 $ 264,337
Additions (resulting from NIM transactions) 16,914 9,007
at April 30, 2005 and 2004, respectively.
Cash received (136,045) (193,606)
The Trusts, as directed by their third-party beneficial interest Cash received on sales of residual interests (16,485) (53,391)
holders, either sell the loans directly to third-party investors or Accretion 137,610 184,253
back to us to pool the loans for securitization. The decision to Impairments of fair value (12,235) (26,063)
complete a whole loan sale or a securitization is dependent on Other –(6,203)
market conditions. If the Trusts choose to sell the mortgage Change in unrealized holding gains arising
during the period 5,204 32,639
loans, we receive cash for our beneficial interest in Trusts. In a
securitization transaction, the Trusts transfer the loans to one of Balance, end of year $ 205,936 $ 210,973
our consolidated subsidiaries, and we transfer our beneficial We sold $31.0 billion and $23.2 billion of mortgage loans in
interest in Trusts and the loans to a securitization trust. The whole loan sales to the Trusts and other buyers during the years
securitization trust meets the definition of a QSPE and is ended April 30, 2005 and 2004, respectively. Gains totaling
therefore not consolidated. The securitization trust issues bonds, $772.1 million and $915.6 million were recorded on these sales,
which are supported by the cash flows from the pooled loans, to respectively.
third-party investors. We retain an interest in the loans in the Residual interests initially valued at $115.7 million and
form of a residual interest and usually assume the first risk of loss $328.0 million were securitized in NIM transactions during the
for credit losses in the loan pool. As the cash flows of the years ended April 30, 2005 and 2004, respectively. Net cash
underlying loans and market conditions change, the value of our proceeds of $98.7 million and $310.4 million were received from
residual interest may also change, resulting in either additional the NIM transactions for the years ended April 30, 2005 and 2004,
unrealized gains or impairment of the value of the residual respectively. Total net additions to residual interests for the years
interests. These residual interests are classified as trading ended April 30, 2005 and 2004 were $16.9 million and $9.0 million,
securities. We held no trading residual interests as of April 30, respectively.
2005 and 2004, as all trading residuals had been securitized. Cash flows from the residual interests of $136.0 million and
To accelerate the cash flows from our residual interests, we $193.6 million were received from the securitization trusts for the
securitize the majority of our residual interests in NIM years ended April 30, 2005 and 2004, respectively. An additional
transactions. In a NIM transaction, the residual interests are $16.5 million and $53.4 million was received during fiscal years
transferred to another QSPE (‘‘NIM trust’’), which then issues 2005 and 2004, respectively, as a result of the sale of previously
bonds to third-party investors. The proceeds from the bonds are securitized residuals, as discussed below. Cash received on the
returned to us as payment for the residual interests. The bonds residual interests is included in investing activities on the
are secured by the pooled residual interests and are obligations of consolidated statements of cash flows.
the NIM trust. We retain a subordinated interest in the NIM trust,
H&R BLOCK 2005 Form 10K
60