Navy Federal Credit Union 2015 Annual Report Download - page 47

Download and view the complete annual report

Please find page 47 of the 2015 Navy Federal Credit Union annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 78

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78

Navy Federal Credit Union28
Retained investment in GNMA Securities: GNMA securities backed by Navy Federal loans may
be retained as investments by Navy Federal and classified as AFS securities. AFS investments
are carried at fair value with changes in fair value recognized in AOCI. See Note 3: Investments
for details.
In accordance with ASC 860-20, Secured Borrowing and Collateral, the eect of two negative
changes in each of the key assumptions used to determine the fair value of Navy Federal’s
investment 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 of a 10% and 20% adverse change to the CPR on the fair
value of the securities.
GNMA Securities
2015 2014
Weighted-average constant prepayment rate (CPR)(1) 9.1% 8.8%
Anticipated credit losses(2) 0 0
Weighted-average life 5.36 years 5.38 years
(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.
GNMA Securities
(dollars in thousands) 2015 2014
Constant prepayment rate
Decline in fair value from 10% adverse change $ 1,306 $ 1,928
Decline in fair value from 20% adverse change 2,549 3,739
The sensitivities in the table above are hypothetical and may not be indicative of actual results.
The eect of a variation in a particular assumption on the fair value is calculated independently of
changes in other assumptions. Further, changes in fair value based on variations in assumptions
generally cannot be extrapolated because the relationship of the change in assumption on the
fair value may not be linear.
Fair value of GNMA securities held by Navy Federal was $1.2 billion and $1.4 billion as of
December 31, 2015 and 2014, respectively.
GNMA Early Pool Buyback Program: Navy Federal has the option to repurchase pooled loans
out of GNMA securities when members fail to make payments for three consecutive months
(pursuant to the GNMA Early Pool Buyback Program). Since Navy Federal has the unilateral
ability to repurchase these delinquent loans, its eective control over the loans has been regained.
Navy Federal recognizes an asset and a corresponding liability regardless of whether it has the
actual intent to repurchase the loans. At December 31, 2015 and 2014, unpaid principal balances
recognized in MLAS and Other liabilities associated with the Early Pool Buyback Program totaled
$52.5 million and $34.3 million, respectively.