Sallie Mae 2006 Annual Report Download - page 160

9. Student Loan Securitization (Continued)
Residual Interest in Securitized Receivables
The following tables summarize the fair value of the Company’s Residual Interests (and the assumptions
used to value such Residual Interests), along with the underlying off-balance sheet student loans that relate to
those securitizations in transactions that were treated as sales as of December 31, 2006 and 2005.
FFELP
Stafford and
PLUS
FFELP
Consolidation
Loan
Trusts
(1)
Private
Education
Loan Trusts Total
As of December 31, 2006
(Dollars in millions)
Fair value of Residual Interests
(2)
.......................... $ 701 $ 676 $ 1,965 $ 3,342
Underlying securitized loan balance
(3)
....................... 14,794 17,817 13,222 45,833
Weighted average life ................................. 2.9yrs. 7.3 yrs. 7.2 yrs.
Prepayment speed (annual rate)
(4)
Interim status
(5)
.................................... 0% N/A 0%
Repayment status
(5)
................................. 0-43% 3-9% 4-7%
Life of loan — repayment status
(5)
....................... 24% 6% 6%
(7)
Expected credit losses
(% of student loan principal) ........................... .06% .07% 4.36%
Residual cash flows discount rate . . . ....................... 12.6% 10.5% 12.6%
FFELP
Stafford and
PLUS
FFELP
Consolidation
Loan
Trusts
(1)
Private
Education
Loan Trusts Total
As of December 31, 2005
(Dollars in millions)
Fair value of Residual Interests
(2)
......................... $ 774 $ 483 $ 1,149 $ 2,406
Underlying securitized loan balance
(3)
...................... 20,372 10,272 8,946 39,590
Weighted average life . . .............................. 2.7yrs. 8.0 yrs. 7.8 yrs.
Prepayment speed (annual rate)
(4)
......................... 10%-20%
(6)
6% 4%
Expected credit losses
(% of student loan principal) . ......................... .14% .23% 4.74%
Residual cash flows discount rate ......................... 12.3% 10.3% 12.4%
(1)
Includes $151 million and $235 million related to the fair value of the Embedded Floor Income as of December 31, 2006 and
2005, respectively. Changes in the fair value of the Embedded Floor Income are primarily due to changes in the interest rates
and the paydown of the underlying loans.
(2)
At December 31, 2006 and 2005, the Company had unrealized gains (pre-tax) in accumulated other comprehensive income of
$389 million and $370 million, respectively.
(3)
In addition to student loans in off-balance sheet trusts, the Company had $48.6 billion and $40.9 billion of securitized student
loans outstanding (face amount) as of December 31, 2006 and 2005, respectively, in on-balance sheet FFELP Consolidation Loan
securitization trusts.
(4)
Effective December 31, 2006, the Company implemented CPR curves for Residual Interest valuations that are based on the num-
ber of months since entering repayment that better reflect the CPR as the loan seasons. Under this methodology, a different CPR
is applied to each year of a loan’s seasoning. Previously, the Company applied a CPR that was based on a static life of loan
assumption, irrespective of seasoning, or, in the case of FFELP Stafford and PLUS loans, the Company used a vector approach
in applying the CPR. The change in CPR methodology resulted in an immaterial change in the fair value of the Residual Interest.
The CPR assumption used for all periods includes the impact of projected defaults.
(5)
The repayment status CPR depends on the number of months since first entering repayment or as the loan seasons through the
portfolio. Life of loan CPR is related to repayment status only and does not include the impact of the loan while in interim
status.
(6)
The CPRs used for December 31, 2005 FFELP Stafford and PLUS valuations were 20 percent for 2006, 15 percent for 2007 and
10 percent thereafter.
(7)
During 2006, the Company and others in the industry began consolidating Private Education Loans. As a result, the Company
experienced an increase in actual prepayment speeds primarily related to this new consolidation activity. The Company expects
such consolidation activity to continue going forward and, as a result, the CPR assumption was increased from 4 percent to 6 per-
cent as of December 31, 2006. As of December 31, 2006, $304 million of the $389 million in the accumulated other comprehen-
sive income relates to the Private Education Loan trusts.
F-41
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts, unless otherwise stated)