Navy Federal Credit Union 2015 Annual Report Download - page 48

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Financial Section 29
2015—SHARED SUCCESS
Financial Guarantees Related to Recourse Provided in Assets Transferred
Representations and Warranties: For mortgage loans transferred in sale transactions or
securitizations to FNMA, FHLMC and GNMA, Navy Federal has made representations and
warranties that the loans meet their requirements. These requirements typically relate to
collateral, underwriting standards, validation of certain borrower representations in connection
with the loan and the use of standard legal documentation. In connection with the sale of loans
to FNMA, FHLMC and GNMA, Navy Federal may be required to repurchase loans or indemnify
the respective entity for losses due to breaches of these representations and warranties.
Navy Federal recognizes a liability for estimated losses related to representations and warranties
from the inception of the obligation when the loans are sold. This liability is included in Other
liabilities in the Consolidated Statements of Financial Condition. In the Consolidated Statements
of Income, the related expense is included as an oset to Net gains on mortgage loan sales for
loans sold during the current period, or in Loan servicing expenses for re-measurement of the
liability on loans sold in prior periods. Navy Federal’s estimated representations and warranties
liability at December 31, 2015 and 2014 was $33.2 million and $30.9 million, respectively.
Management believes the recognized liability for representations and warranties appropriately
reflects the estimated probable losses on indemnification and repurchase claims for all loans sold
and outstanding as of December 31, 2015 and 2014. In making these estimates, Navy Federal
considers the losses expected to be incurred over the life of the sold loans. While management
seeks to obtain all relevant information in estimating this liability, the estimation process is
inherently uncertain and imprecise and, accordingly, it is reasonably possible future losses could
be more or less than Navy Federal’s established liability. At December 31, 2015, Navy Federal
estimates it is reasonably possible it could incur additional losses in excess of its accrued liability
of up to approximately $44.9 million.
The total UPB subject to representations and warranties was $22.1 billion and $19.8 billion as of
December 31, 2015 and 2014, respectively.
FHLMC Loss-Sharing Agreements: Navy Federal sold mortgage loans to FHLMC under loss-
sharing agreements from years 2011 to 2015, whereby Navy Federal must indemnify FHLMC
for losses related to loans with higher LTV ratios and no private mortgage insurance that occur
during a period of three to four years from the applicable settlement date. The following table
summarizes proceeds received for sales of loans and payments made for losses under these
agreements during the years ended December 31, 2015 and 2014:
FHLMC
(dollars in
thousands)
Outstanding UPB of
Loans Sold to FHLMC
as of 12/31
Maximum Future
Exposure Under Loss-
Sharing Agreements
Losses Paid to FHLMC
during the year ended
12/31
Liability for
Estimated Losses
as of 12/31
2015 $ 527,765 $ 10,930 $ 140 $ 71
2014 826,312 30,434 350 324