NIMS Derivative Assets and NIMS VIE Debt NIMS derivative assets primarily represent derivative assets related to NIMS trusts that we are required to consolidate.  NIMS VIE debt represents the debt of consolidated NIMS trusts, which we account for at fair value.  The estimated fair value  amounts of these financial instruments are derived from internally-generated discounted cash flow models.  We estimate losses  in each securitization underlying NIMS derivative assets or NIMS  VIE debt by applying expected default rates separately to  loans that are delinquent and those that are paying currently . These default rates are based on historical experience of similar  transactions. We then estimate the rate of prepayments on the underlying collateral in each securitization, incorporating  historical prepayment experience. The estimated loss and rate of prepayments are used to estimate the cash flows for each  underlying securitization and NIMS bond, and ultimately , to produce the projected credit losses for each NIMS bond.  The  NIMS derivative assets and NIMS VIE debt are all categorized in Level III of the fair value hierarchy .  The gross expected principal credit losses were $13.5 million and $18.0 million as of December 31, 2012 and 2011,  respectively. Our fair value estimate incorporates a discount rate that is based on our CDS spread, which has resulted in a fair  value amount that is $5.2 million and $10.2 million less than the expected principal credit losses at December 31, 2012 and  2011, respectively.  The fair value of our CPS  VIE debt, in the absence of observable market data, is estimated based on the present value of  the spread differential between the current market rate of issuing a perpetual preferred security and the maximum contractual  rate of our perpetual preferred security . In determining the current market rate, consideration is given to any relevant market  observations that are available. We purchased substantially all of the securities issued by the three trusts, and we consolidated  the assets and liabilities of those trusts during 2010.As of December 31, 2011, there is no consolidated CPS VIE debt because  we had purchased all of the CPS in the three trusts.  During the first quarter of 2012, Radian Group and its subsidiaries converted the custodial trusts to corporations that are  wholly-owned consolidated subsidiaries of Radian Group and are no longer considered  VIEs. The amount of income and  expense, as well as cash flows associated with these trusts, was immaterial during 2012 and 201 1. CPS VIE Debt 202 Radian Group Inc. Notes to Consolidated Financial Statements - (Continued)