BB&T 2007 Annual Report Download - page 96

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BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BB&T uses assumptions and estimates in determining the fair value of capitalized mortgage servicing rights.
These assumptions include prepayment speeds, net charge-off experience and discount rates commensurate with
the risks involved and comparable to assumptions used by market participants to value and bid servicing rights
available for sale in the market. At December 31, 2007, the sensitivity of the current fair value of the residential
mortgage servicing rights to immediate 10% and 20% adverse changes in key economic assumptions are included
in the accompanying table.
Residential
Mortgage Servicing Rights
December 31, 2007
(Dollars in millions)
Fair Value of Residential Mortgage Servicing Rights $ 472
Composition of Residential Loans Serviced for Others:
Fixed-rate mortgage loans 96.7%
Adjustable-rate mortgage loans 3.3
Total 100.0%
Weighted Average Life 6.1 yrs
Prepayment Speed 16.3%
Effect on fair value of a 10% increase $ (24)
Effect on fair value of a 20% increase (46)
Expected Credit Losses .01%
Effect on fair value of a 10% or 20% increase $ —
Weighted Average Discount Rate 9.6%
Effect on fair value of a 10% increase $ (15)
Effect on fair value of a 20% increase (29)
The sensitivity calculations above are hypothetical and should not be considered to be predictive of future
performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be
extrapolated because the relationship of the change in assumption to the change in fair value may not be linear.
Also, in this table, the effect of an adverse variation in a particular assumption on the fair value of the mortgage
servicing rights is calculated without changing any other assumption; while 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 the effect of the change.
The Company also has securitized residential mortgage loans and retained the resulting securities available
for sale. As of December 31, 2007 the fair value of the securities available for sale still owned by BB&T was $665
million and the remaining unpaid principal balance of the underlying loans totaled $669 million. Based on the
performance of the underlying loans and general liquidity of the securities, the Company’s recovery of the cost
basis in the securities has not been significantly impacted by changes in interest rates, prepayment speeds or
credit losses.
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