Fifth Third Bank 2011 Annual Report Download - page 109

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifth Third Bancorp 107
As of December 31, 2011 and 2010, the key economic assumptions used in measuring the interests that continued to be held by the Bancorp at
the date of sale or securitization resulting from transactions completed during the years ended December 31 were as follows:
2011 2010
Rate
Weighted-
A
verage Life
(in years)
Prepayment
Speed (annual)
Discount Rate
(annual)
Weighted-
Average
Default rate
Weighted-
A
verage Life
(in years)
Prepayment
Speed (annual)
Discount Rate
(annual)
Weighted-
Average
Default rate
Residential mortgage loans:
Servicing assets Fixed 7.2 8.8 % 10.5 % N/
A
6.7 10.7 % 10.3 % N/A
Servicing assets Adjustable 3.7 22.8 11.4 N/
A
3.6 23.3 11.3 N/A
Based on historical credit experience, expected credit losses for
residential mortgage loan servicing assets have been deemed
immaterial, as the Bancorp sold the majority of the underlying loans
without recourse. At December 31, 2011 and 2010, the Bancorp
serviced $57.1 billion and $54.2 billion, respectively, of residential
mortgage loans for other investors. The value of interests that
continue to be held by the Bancorp is subject to credit, prepayment
and interest rate risks on the sold financial assets. At December 31,
2011, the sensitivity of the current fair value of residual cash flows
to immediate 10% and 20% adverse changes in those assumptions
are as follows:
Prepayment Residual Servicing Weighted-Average
Speed Assumption Cash Flows Default
Fair
Weighted-
Average
Life (in
Impact of Adverse
Change on Fair
Value Discount
Impact of Adverse
Change on Fair
Value
Impact of Adverse
Change on Fair
Value
($ in millions) Rate Value years) Rate 10% 20% Rate 10% 20% Rate 10% 20%
Residential mortgage loans:
Servicing assets Fixed $ 649 5.0 17.9 % $ (36) (68) 10.6 % $ (23) (43) - % - -
Servicing assets Adjustable 32 3.0 28.7 (2) (3) 11.8 (1) (2) - - -
These sensitivities are hypothetical and should be used with caution.
As the figures indicate, changes in fair value based on a 10% and
20% variation in the assumptions typically cannot be extrapolated
because the relationship of the change in assumption to the change
in fair value may not be linear. Also, in the previous table, the effect
of a variation in a particular assumption on the fair value of the
interests that continue to be held by the Bancorp is calculated
without changing any other assumption; in reality, changes in one
factor may result in changes in another (for example, increases in
market interest rates may result in lower prepayments and increased
credit losses), which might magnify or counteract these sensitivities.