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Navy Federal Credit Union • 2013 Financial Section
26
2013 ANNUAL REPORT
NOTE 8:

Navy Federal may have continuing involvement in residential mortgage loans that it has transferred
in sale transactions or securitizations through retained servicing, investment, indemnification against
credit losses, or provisions that allow or require the transferred loans to be reacquired.
Navy Federal originates and sells mortgage loans to FNMA and FHLMC, who securitize those loans
through special purpose entities into mortgage-backed securities, which are sold on the secondary
market to third-party investors.
Navy Federal also originates and securitizes qualifying mortgage loans into GNMA mortgage-backed
securities that are either sold to third-party investors or retained by Navy Federal for investment.
Prior to securitization, all loans to be transferred in sale transactions or securitizations are classified
as MLAS.
Continuing involvement—non-recourse related
Servicing: Navy Federal retains mortgage servicing rights on loans transferred in sale transactions or
securitizations. See Note 7 for details.
Retained investment in GNMA securities: GNMA securities backed by Navy Federal loans may be
retained by Navy Federal and held in the AFS portfolio for investment. AFS investments are carried at
fair value with changes in fair value recorded in AOCI. See Note 3 for details.
In accordance with ASC 860-20, Secured Borrowing and Collateral, the eect of two negative changes in
each of the key assumptions used to determine the fair value of Navy Federal’s retained interest in GNMA
securities must be disclosed. The negative eect of each key assumption change must be calculated
independently, holding all other assumptions constant. The first table below details the key assumptions
used in Navy Federal’s analysis—specifically, constant prepayment rate (CPR), anticipated credit losses,
and weighted-average life. The second table below details the potential impacts on the fair value of the
securities of 10 percent and 20 percent adverse changes to the CPR.

 
Weighted-average constant prepayment rate (CPR) (1) 7.8% 8.6%
Anticipated credit losses (2) 0 0
Weighted-average life (years) 5.96 6.28
(1) CPR is based on the average of the CPR for all GNMA securities.
(2) GNMA securities are collateralized by government-insured loans, and there is no anticipation of significant credit losses.

(dollars in thousands)  
Constant prepayment rate
Adverse fair value change of 10% $ 1,687 $ 7,166
Adverse fair value change of 20% 3,528 13,929