Sallie Mae 2007 Annual Report Download - page 166

9. Student Loan Securitization (Continued)
Residual Interest in Securitized Receivables
The following tables summarize the fair value of the Company’s Residual Interests, included in the
Company’s Retained Interest (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, 2007 and 2006.
FFELP
Stafford and
PLUS
Consolidation
Loan
Trusts
(1)
Private
Education
Loan Trusts
(5)
Total
As of December 31, 2007
(Dollars in millions)
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%
FFELP
Stafford and
PLUS
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 ..................................... 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, the Company had unrealized gains (pre-tax) in accumulated other comprehensive income of
$301 million and $389 million, respectively, that related to the Retained 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 securitization trusts.
(4)
Effective December 31, 2006, the Company implemented CPR curves for Residual Interest valuations that are based on season-
ing (the number of months since entering repayment). 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, and, in the case of
FFELP Stafford and PLUS loans, the Company applied a vector approach, irrespective of seasoning. Repayment status CPR used
is based on the number of months since first entering repayment (seasoning). Life of loan CPR is related to repayment status
only and does not include the impact of the loan while in interim status. 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.
The Company recorded impairment charges to the Retained Interests of $254 million, $157 million and
$260 million, respectively, for the years ended December 31, 2007, 2006 and 2005. The impairment charges
were the result of FFELP loans prepaying faster than projected through loan consolidation ($110 million,
F-45
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, unless otherwise stated)