Sallie Mae 2007 Annual Report Download - page 100

Residual Interest in Securitized Receivables
The following tables summarize the fair value of our 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 securitization transactions that were treated as sales as of December 31, 2007 and 2006.
(Dollars in millions)
FFELP
Stafford and
PLUS
Consolidation
Loan
Trusts
(1)
Private
Education
Loan Trusts
(5)
Total
As of December 31, 2007
Fair value of Residual Interests
(2)
......... $ 390 $ 730 $ 1,924 $ 3,044
Underlying securitized loan balance
(3)
...... 9,338 15,968 14,199 39,505
Weighted average life .................. 2.7yrs. 7.4 yrs. 7.0 yrs
Prepayment speed (annual rate)
(4)
Interim status ........................ 0% N/A 0%
Repayment status ..................... 0-37% 3-8% 1-30%
Life of loan — repayment status .......... 21% 6% 9%
Expected credit losses (% of student loan
principal) ......................... .11% .21% 5.28%
Residual cash flows discount rate ......... 12.0% 9.8% 12.9%
(Dollars in millions)
FFELP
Stafford and
PLUS
Consolidation
Loan
Trusts
(1)
Private
Education
Loan Trusts Total
As of December 31, 2006
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 ......................... 0% n/a 0%
Repayment status ...................... 0-43% 3-9% 4-7%
Life of loan — repayment status ........... 24% 6% 6%
Expected credit losses (% of student loan
principal)........................... .06% .07% 4.36%
Residual cash flows discount rate ........... 12.6% 10.5% 12.6%
(1)
Includes $283 million and $151 million related to the fair value of the Embedded Floor Income as of December 31, 2007 and
2006, 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, 2007 and 2006, we had unrealized gains (pre-tax) in accumulated other comprehensive income of $301 million
and $389 million, respectively, that related to the Residual Interests.
(3)
In addition to student loans in off-balance sheet trusts, the Company had $65.5 billion and $48.6 billion of securitized student
loans outstanding (face amount) as of December 31, 2007 and 2006, respectively, in on-balance sheet FFELP loan securitization
trusts.
(4)
Effective December 31, 2006, we implemented CPR curves for Residual Interest valuations that are based on the number 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, we 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, we 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 Company adopted SFAS No. 155, effective January 1, 2007. As a result, the Company elected to carry the Residual Interest
on the Private Education Loan securitization which settled in the first quarter of 2007 at fair value with subsequent changes in
fair value recorded in earnings. The fair value of this Residual Interest at December 31, 2007 was $363 million inclusive of a net
$25 million fair value loss adjustment recorded since settlement.
99