Navy Federal Credit Union 2013 Annual Report Download - page 48

Navy Federal Credit Union • 2013 Financial Section
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2013 ANNUAL REPORT
Of that total, $1 million was initially set aside by NFFG as non-current restricted cash with a designated
financial institution. For the remaining $7.5 million exposure, Navy Federal issued an irrevocable,
transferable standby letter of credit to Charlie Mac as part of the initial agreement. In 2004, the
aggregate amount of credit-enhanced mortgage loans purchased by Charlie Mac had reached the
$200 million limit. All loans purchased pursuant to the agreement had better FICO credit scores,
loan-to-value (LTV) ratios, and debt-to-income ratios than required by the agreement at the time of
origination. In 2009, NCUA placed U.S. Central Credit Union into conservatorship. NCUA’s Oce of
Asset Management and Assistance Center has assumed the management of U.S. Central’s remaining
assets, including its credit-enhanced mortgage loans.
As of December 31, 2013, NFFG had $2.8 million of non-current restricted cash at a designated financial
institution and a remaining maximum total exposure of $7.8 million. As of December 31, 2013 and 2012,
the remaining UPB of these loans was $17.1 million and $28.7 million, respectively. Navy Federal had
an accrued estimated loss of $0.2 million as of December 31, 2013 related to these credit-enhanced
mortgage loans, representing a liability it considers probable and reasonably estimable. Any further
liability that could be reasonably expected to result from this agreement is not expected to be material
to Navy Federal.
FHLMC Loss Sharing Agreement: Navy Federal sold mortgage loans to FHLMC under an August
2008 loss-sharing agreement, whereby Navy Federal must indemnify FHLMC for losses related to
loans with higher LTV ratios and no private mortgage insurance. Under this agreement, Navy Federal
received proceeds of $775.0 million and $618.9 million from the sale of mortgage loans during the years
ended December 31, 2013 and 2012, respectively. As of December 31, 2013 and 2012, the UPB of these
loans was $749.5 million and $595.7 million, respectively. Under this contract, Navy Federal paid
FHLMC $0.2 million and $0.3 million in 2013 and 2012, respectively, for losses incurred on these loans.
As of December 31, 2013 and 2012, Navy Federal had recognized a liability for estimated losses of
$0.6 million and $2.6 million, respectively. This liability is included in Other liabilities on the Consolidated
Statements of Financial Condition. On the Consolidated Statements of Income, the related provision
expense is included as an oset to Net gains on mortgage loan sales for new loans sold during the
period, or in Loan servicing expenses for any re-measurement of the liability related to loans sold in a
prior period. Navy Federal’s estimated maximum future exposure to FHLMC as of December 31, 2013
and 2012 was approximately $29.0 million and $23.1 million, respectively.
FNMA Loss Sharing Agreement: Navy Federal sold mortgage loans to FNMA under an August 2008
loss-sharing agreement, whereby Navy Federal agreed to indemnify FNMA for loans having high LTV
ratios. The balance of these loans as of December 31, 2013 and 2012 was $2.2 billion and $3.8 billion,
respectively. Under this contract, Navy Federal paid FNMA $23.4 million and $20.3 million in 2013 and
2012, respectively. As of December 31, 2013 and 2012, Navy Federal recognized a liability for estimated
losses of $33.1 million and $25.3 million, respectively. This liability is included in Other liabilities on the
Consolidated Statements of Financial Condition. In the Consolidated Statements of Income, the related
provision expense is included as an oset to Net gains on mortgage loan sales for new loans sold during
the period, or in Loan servicing expenses for any re-measurement of the liability on loans sold in a prior
period. Navy Federal’s estimated maximum future exposure to FNMA as of December 31, 2013 and 2012
was approximately $387.3 million and $559.1 million, respectively.