MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OFF-BALANCE SHEET ARRANGEMENTS  In the ordinary course of business, the Bancorp enters into  financial transactions to extend credit and various forms of  commitments and guarantees that may be considered off-balance  sheet arrangements. These transactions involve varying elements  of market, credit and liquidity risk. Conforming residential mortgage loans sold to unrelated third  parties are generally sold with representation and warranty  recourse provisions. Such provisions include the loan’s compliance with applicable loan criteria, including certain documentation standards per agreements with the unrelated third  parties. Additional reasons for the Bancorp having to repurchase  the loans include appraisal standards with the collateral, fraud  related to the loan application and the rescission of mortgage  insurance. Under these provisions, the Bancorp is required to  repurchase any previously sold loan for which the representation  or warranty of the Bancorp proves to be inaccurate, incomplete or  misleading. As of December 31, 2010, and 2009, the Bancorp  maintained reserves related to these loans sold with the  representation and warranty recourse provisions totaling $85  million and $37 million, respectively. For the years ended December 31, 2010 and 2009, the  Bancorp paid $47 million and $19 million, respectively, in the  form of make whole payments and repurchased approximately  $83 million and $61 million, respectively, of loans to satisfy third  party representation and warranty claims. Total repurchase  demand requests during 2010 were $365 million compared to  $210 million during 2009. Total outstanding repurchase demand  inventory was $162 million at December 31, 2010, compared to  $119 million at December 31, 2009. The Bancorp previously sold certain residential mortgage  loans in the secondary market with credit recourse. In the event of  any customer default, pursuant to the credit recourse provided,  the Bancorp is required to reimburse the third party. The  maximum amount of credit risk in the event of nonperformance  by the underlying borrowers is equivalent to the total outstanding  balance. In the event of nonperformance, the Bancorp has rights  to the underlying collateral value securing the loan. At December  31, 2010 and 2009, the outstanding balances on these loans sold  with credit recourse were approximately $916 million and $1.1  billion, respectively. At December 31, 2010 and 2009, the Bancorp  maintained an estimated credit loss reserve on these loans sold  with credit recourse of approximately $16 million and $21 million,  respectively, recorded in other liabilities in the Consolidated  Balance Sheets. To determine the credit loss reserve, the Bancorp  used an approach that is consistent with its overall approach in  estimating credit losses for various categories of residential  mortgage loans held in its loan portfolio. For further information  on residential mortgage loans sold with recourse, see Note 18 of  the Notes to Consolidated Financial Statements.  For certain mortgage loans originated by the Bancorp, borrowers  may be required to obtain PMI provided by third-party insurers.  In some instances, these insurers cede a portion of the PMI  premiums to the Bancorp, and the Bancorp provides reinsurance  coverage within a specified range of the total PMI coverage. The  Bancorp’s reinsurance coverage typically ranges from 5% to 10%  of the total PMI coverage. During the second quarter of 2009, the  Bancorp suspended the practice of providing reinsurance of  private mortgage insurance for newly originated mortgage loans. The Bancorp’s maximum exposure in the event of nonperformance by the underlying borrowers is equivalent to the  Fifth Third Bancorp 63  Through 2008, the Bancorp had transferred at par, subject to  credit recourse, certain primarily floating-rate, short-term investment grade commercial loans to a VIE, which prior to  January 1, 2010, was an unconsolidated QSPE that was wholly  owned by an independent third-party. Generally, the loans  transferred to the VIE provided a lower yield due to their  investment grade nature and, therefore, transferring these loans  allowed the Bancorp to reduce its interest rate exposure to these  lower yielding loan assets while maintaining the customer  relationships. The outstanding balance of these loans at December  31, 2009 was $771 million. These loans may have been transferred  back to the Bancorp upon the occurrence of certain specified  events. These events included borrower default on the loans  transferred, ineligible loans transferred by the Bancorp to the VIE,  the inability of the VIE to issue commercial paper, and in certain  circumstances, bankruptcy preferences initiated against underlying  borrowers. The maximum amount of credit risk in the event of  nonperformance by the underlying borrowers was approximately  equivalent to the total outstanding balance. At December 31,  2009, the Bancorp’s loss reserve related to the credit enhancement  provided to the VIE was $45 million and was recorded in other  liabilities in the Consolidated Balance Sheets. During the year  Upon adoption on January 1, 2010 of the FASB guidance on  the accounting for QSPEs and VIEs, the Bancorp determined it  was the primary beneficiary (and therefore consolidator) of these  QSPEs. Refer to Note 1 of the Notes to Consolidated Financial  Statements for further details regarding the guidance and the  related impact of adoption by the Bancorp. The Bancorp utilizes securitization trusts, formed by independent  third parties to facilitate the securitization process of residential  mortgage loans, certain automobile loans and other consumer  loans. During 2008, the Bancorp sold $2.7 billion of automobile  loans in three separate transactions. Each transaction isolated the  related loans through the use of a securitization trust or a conduit,  formed as QSPEs, to facilitate the securitization process in  accordance with U.S. GAAP. The QSPEs issued asset-backed  securities with varying levels of credit subordination and payment  priority. The investors in these securities have no credit recourse  to the Bancorp’s other assets for failure of debtors to pay when  due. During 2008 and 2009, required repurchases of previously  transferred automobile loans from the QSPE were immaterial to  the Bancorp’s Consolidated Financial Statements. For further  information on these automobile securitizations, see Note 12 of  the Notes to Consolidated Financial Statements.  Bancorp’s total outstanding reinsurance coverage, which was $122  million and $182 million, respectively, at December 31, 2010 and  2009. As of December 31, 2010 and 2009, the Bancorp  maintained a reserve of $42 million and $44 million, respectively,  related to exposures within the reinsurance portfolio. The reserve  was flat year over year as increases to the reserve resulting from  estimated losses outpacing paid claims were offset by a decrease  relating to a reinsurance agreement termination. In the third  quarter of 2010, the Bancorp allowed one of its third-party  insurers to terminate its reinsurance agreement with the Bancorp.  This resulted in the Bancorp releasing collateral to the insurer in  the form of investment securities and other assets with a carrying  value of $19 million, and the insurer assuming the Bancorp’s  obligations under the reinsurance agreement, resulting in a  decrease to the Bancorp’s reserve liability of $20 million and a  decrease to the Bancorp’s maximum exposure of $53 million.  Residential Mortgage Loan Sales  Loan Securitizations  Commercial Loan Sales to a QSPE  Private Mortgage Insurance 