v3.21.2
Securitization Activities
 9 Months Ended
Sep. 30, 2021
Transfers and Servicing [Abstract]  
Securitization Activities
Note 16.
Securitization Activities
The firm securitizes residential and commercial mortgages, corporate bonds, loans and other types of financial assets by selling these assets to securitization vehicles (e.g., trusts, corporate entities and limited liability companies) or through a resecuritization. The firm acts as underwriter of the beneficial interests that are sold to investors. The firm’s residential mortgage securitizations are primarily in connection with government agency securitizations. 
The firm accounts for a securitization as a sale when it has relinquished control over the transferred financial assets. Prior to securitization, the firm generally accounts for assets pending transfer at fair value and therefore does not typically recognize significant gains or losses upon the transfer of assets. Net revenues from underwriting activities are recognized in connection with the sales of the underlying beneficial interests to investors.
The firm generally receives cash in exchange for the transferred assets but may also have continuing involvement with the transferred financial assets, including ownership of beneficial interests in securitized financial assets, primarily in the form of debt instruments. The firm may also purchase senior or subordinated securities issued by securitization vehicles (which are typically VIEs) in connection with secondary market-making activities.
The primary risks included in beneficial interests and other interests from the firm’s continuing involvement with securitization vehicles are the performance of the underlying collateral, the position of the firm’s investment in the capital structure of the securitization vehicle and the market yield for the security. Interests accounted for at fair value are primarily classified in level 2 of the fair value hierarchy. Interests not accounted for at fair value are carried at amounts that approximate fair value. See Notes 4 through 10 for further information about fair value measurements.
The table below presents the amount of financial assets securitized and the cash flows received on retained interests in securitization entities in which the firm had continuing involvement as of the end of the period.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
       
    Three Months
Ended September		           Nine Months
Ended September		  
           
$ in millions
  
 
2021
 
     2020               
 
2021
 
     2020  
Residential mortgages
  
 
$  9,888
 
     $  7,717            
 
$19,894
 
     $15,725  
Commercial mortgages
  
 
3,066
 
     6,279            
 
13,832
 
     14,062  
Other financial assets
  
 
2,353
 
     66    
 
 
 
  
 
4,017
 
     1,189  
Total financial assets securitized
  
 
$15,307
 
     $14,062    
 
 
 
  
 
$37,743
 
     $30,976  
 
Retained interests cash flows
  
 
$    
    
204
 
     $     130    
 
 
 
  
 
$    
    
452
 
     $     274  
The firm securitized assets of $266 million during the three months ended September 2021, $132 million during the three months ended September 2020, $679 million during the nine months ended September 2021 and $435 million during the nine months ended September 2020, in a
non-cash
exchange for loans and investments.
The table below presents information about nonconsolidated securitization entities to which the firm sold assets and had continuing involvement as of the end of the period.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
       
$ in millions
    
 		 Outstanding
Principal
Amount		  
 
 		     Retained
Interests		  
 		     Purchased
Interests		  
 
As of September 2021
                        
U.S. government agency-issued CMOs
  
 
$
  30,081
 
  
 
$
1,149
 
  
 
$    1
 
Other residential mortgage-backed
  
 
23,252
 
  
 
1,039
 
  
 
36
 
Other commercial mortgage-backed
  
 
47,283
 
  
 
1,083
 
  
 
88
 
Corporate debt and other asset-backed
  
 
7,650
 
  
 
352
 
  
 
42
 
Total
  
 
$
108,266
 
  
 
$
3,623
 
  
 
$167
 
 
As of December 2020
                        
U.S. government agency-issued CMOs
     $  20,841       $   906       $    4  
Other residential mortgage-backed
     24,262       1,170       23  
Other commercial mortgage-backed
     38,340       914       39  
Corporate debt and other asset-backed
     4,299       192       –  
Total
 
     $  87,742       $3,182       $  66  
In the table above:
 
•  
CMOs represents collateralized mortgage obligations.
 
•  
The outstanding principal amount is presented for the purpose of providing information about the size of the securitization entities and is not representative of the firm’s risk of loss.
 
•  
The firm’s risk of loss from retained or purchased interests is limited to the carrying value of these interests.
 
•  
Purchased interests represent senior and subordinated interests, purchased in connection with secondary market-making activities, in securitization entities in which the firm also holds retained interests.
 
•  
Substantially all of the total outstanding principal amount and total retained interests relate to securitizations during 2015 and thereafter.
 
•  
The fair value of retained interests was $3.64 billion as of September 2021 and $3.19 billion as of December 2020.
In addition to the interests in the table above, the firm had other continuing involvement in the form of derivative transactions and commitments with certain nonconsolidated VIEs. The carrying value of these derivatives and commitments was a net asset of $55 million as of September 2021 and $52 million as of December 2020, and the notional amount of these derivatives and commitments was $2.16 billion as of September 2021 and $1.43 billion as of December 2020. The notional amounts of these derivatives and commitments are included in maximum exposure to loss in the nonconsolidated VIE table in Note 17. 
The table below presents information about the weighted average key economic assumptions used in measuring the fair value of mortgage-backed retained interests.
 
 
 
 
 
 
 
 
 
 
   
    As of  
     
$ in millions
  
 
 
September
2021
 
 
     
 
 December
2020
  
 
Fair value of retained interests
  
 
$3,286
 
      $2,993  
Weighted average life (years)
  
 
5.8
 
      4.7  
Constant prepayment rate
  
 
11.9%
 
      15.0%  
Impact of 10% adverse change
  
 
$  
 
  
  
(7
) 
      $    (25 ) 
Impact of 20% adverse change
  
 
$
 
  
  
(34
) 
      $    (50 ) 
Discount rate
  
 
5.6%
 
      6.1%  
Impact of 10% adverse change
  
 
$  
    
(32
) 
      $    (42 ) 
Impact of 20% adverse change
  
 
$  
   
(84
) 
      $    (82 ) 
In the table above:
 
•  
Amounts do not reflect the benefit of other financial instruments that are held to mitigate risks inherent in these retained interests.
 
•  
Changes in fair value based on an adverse variation in assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value is not usually linear.
 
•  
The impact of a change in a particular assumption is calculated independently of changes in any other assumption. In practice, simultaneous changes in assumptions might magnify or counteract the sensitivities disclosed above.
 
•  
The constant prepayment rate is included only for positions for which it is a key assumption in the determination of fair value.
 
•  
The discount rate for retained interests that relate to U.S. government agency-issued CMOs does not include any credit loss. Expected credit loss assumptions are reflected in the discount rate for the remainder of retained interests.
The firm has other retained interests not reflected in the table above with a fair value of $352 million and a weighted average life of 3.4 years as of September 2021, and a fair value of $192 million and a weighted average life of 3.9 years as of December 2020. Due to the nature and fair value of certain of these retained interests, the weighted average assumptions for constant prepayment and discount rates and the related sensitivity to adverse changes are not meaningful as of both September 2021 and December 2020. The firm’s maximum exposure to adverse changes in the value of these interests is the carrying value of $352 million as of September 2021 and $192 million as of December 2020.