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PNC » Topics » N OTE 10 S ECURITIZATION A CTIVITY

This excerpt taken from the PNC 10-K filed Mar 2, 2009.

NOTE 10 SECURITIZATION ACTIVITY

We contributed commercial mortgage loans to securitizations with servicing retained of $.4 billion in 2008 and $2.2 billion in 2007 for cash in loan sales transactions. All loan amounts are derecognized from our Consolidated Balance Sheet at the time of transfer. Mortgage servicing rights continue to be held by us as transferor.

These transactions resulted in a pretax net loss including valuation adjustments of $22 million in 2008 and a pretax net gain including valuation adjustments of $20 million in 2007. We continue to perform servicing and recognized servicing assets of $3 million in 2008 and $14 million in 2007 at the time of sale.

In securitizations, loans are typically transferred to a qualifying special purpose entity (“QSPE”) that is demonstrably distinct from the transferor to transfer the risks from our Consolidated Balance Sheet. A QSPE is a bankruptcy-remote trust allowed to perform only certain passive activities. In addition, these entities are self-liquidating and typically structured as Real Estate Mortgage Investment Conduits (“REMICs”) for tax purposes. The QSPEs are generally financed by issuing certificates for various levels of senior and subordinated tranches. QSPEs are exempt from consolidation under the provisions of FIN 46R.

These sale and servicing transactions are structured without recourse to us. Our exposure is limited to standard representations and warranties as seller of the loans and responsibilities as servicer of the QSPE’s assets. In certain circumstances as a servicer for these entities, we advance principal and interest payments to the securitization trust. We have a risk of loss if the borrower does not ultimately make the principal and interest payment. However, the advance is senior secured above the highest rated tranche in the securitization.

Also, in certain situations, we are named as special servicing asset manager. The overall objective of the special servicer is to restore the defaulted loan to performing status or to develop


 

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a disposition strategy that results in the highest recovery on a net present value basis, thus protecting the interests of the trust and its investors.

See Note 9 Goodwill and Other Intangible Assets for additional information regarding servicing assets.

With our acquisition of National City on December 31, 2008, we acquired residual and other interests associated with National City’s credit card, automobile, mortgage, and SBA loans securitizations. In addition, we also assumed certain continuing involvement activities in these securitization transactions.

The credit card, automobile, and mortgage securitizations were transacted through QSPEs sponsored by National City. These QSPEs were financed primarily through the issuance and sale of beneficial interests to independent third parties and were not consolidated on National City’s balance sheet. Consolidation of these QSPEs could be considered if circumstances or events subsequent to the securitization transaction dates would cause the entities to lose their “qualified” status. No such events have occurred. Qualitative and quantitative information about these securitizations follows.

The following summarizes the assets and liabilities of the National City-sponsored securitization QSPEs at December 31, 2008.

 

(In millions)    Credit Card    Automobile    Mortgage

Assets (a)

    $ 2,129    $ 250    $ 319

Liabilities

      1,824      250      319
(a) Represents period-end outstanding principal balances of loans transferred to the securitization QSPEs.
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