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Adjustable-rate mortgage (ARM):
A mortgage with an interest rate and payment that change periodically
over the life of the loan based on changes in a specified index.
Callable debt:
A debt security whose issuer has the right to redeem the security
at a specified price on or after a specified date, but prior to
its stated final maturity.
Charge-off:
The portion of principal and interest due on a loan that is written
off when deemed to be uncollectible.
Common stock:
A security that represents ownership in a company but gives no legal
claim to a definite dividend or to a return of capital.
Conventional mortgage:
A mortgage loan that is not insured or guaranteed by the federal
government.
Credit enhancement:
A method to reduce credit risk by requiring collateral, letters
of credit, mortgage insurance, corporate guarantees, or other agreements
to provide an entity with some assurance that it will be recompensed
to some degree in the event of a financial loss.
Credit loss ratio:
The ratio of credit-related losses to the dollar amount of MBS outstanding
and total mortgages owned by the corporation.
Credit-related expenses:
The sum of foreclosed property expenses plus the provision for losses.
Credit-related losses:
The sum of foreclosed property expenses plus charge-offs.
Credit scoring:
A process that uses recorded information about individuals and their
loan requests to assess - in a quantifiable, objective, and consistent
manner - their future performance regarding debt repayment.
Debt security:
A security in which the issuing company generally agrees to repay
the principal (typically, the original amount borrowed) and make
interest payments according to an agreed schedule.
Default:
The failure of a borrower to comply with the terms of a note or
the provisions of a mortgage.
Delinquency:
A mortgage loan on which a payment has not been made by the due
date.
Derivative:
A financial instrument which derives its value from an underlying
security or notional amount.
Duration:
The weighted-average life of the present value of all future cash
flows, both principal and interest, of a security. It is used as
a measure of the sensitivity of the value of a security to changes
in interest rates.
Earnings per share (EPS):
The net earnings of a corporation divided by the average number
of shares of its common stock outstanding during a period. A common
method of expressing a corporation's profitability.
Fixed-rate mortgage:
A mortgage loan in which the interest rate does not change during
the entire term of the loan.
Forbearance:
The lender's postponement of legal action when a borrower is delinquent.
It is usually granted when a borrower makes satisfactory arrangements
to bring the overdue mortgage payments up to date.
Foreclosure:
The legal process by which property that is mortgaged as security
for a loan may be sold to pay a defaulting borrower's loan.
Global Debt Facility:
A debt issuance facility through which U.S. dollar and foreign currency
debt securities may be offered to investors worldwide with the feature
of clearing and settlement through a variety of clearing systems.
Guaranty fee:
Compensation paid by a lender to Fannie Mae for the guarantee of
timely payments of principal and interest to MBS security holders.
Interest rate swap:
A transaction between two parties in which each agrees to exchange
payments tied to different interest rates or indices for a specified
period of time, generally based on a notional principal amount.
Intermediate-term mortgage:
A mortgage loan with a contractual maturity at time of purchase
equal to or less than 20 years.
Lender option commitments:
An agreement giving a lender the option to deliver loans or securities
by a certain date at agreed-upon terms.
Loan servicing:
The tasks a lender performs to protect a mortgage investment, including
collecting monthly payments from borrowers and dealing with delinquencies.
Loan-to-value (LTV) ratio:
The relationship between the dollar amount of a borrower's mortgage
loan and the value of the property.
Loss mitigation:
Activities designed to reduce either the likelihood of the corporation
suffering financial losses on a loan or the final dollar value of
those losses in the event of a borrower default.
Mandatory delivery commitment:
An agreement that a lender will deliver loans or securities by a
certain date at agreed-upon terms.
Medium-term notes:
Unsecured general obligations of Fannie Mae with maturities of one
day or more and with principal and interest payable in U.S. dollars.
Modification:
Any change to the original terms of a mortgage.
Mortgage:
A legal document that pledges property to a lender as security for
the repayment of the loan. The term also is used to refer to the
loan itself.
Mortgage-Backed Security (MBS):
A Fannie Mae security that represents an undivided interest in a
group of mortgages. Principal and interest payments from the individual
mortgage loans are grouped and paid out to the MBS holders.
Multifamily housing:
A building with more than four residential rental units.
Nonperforming asset:
An asset such as a mortgage that is not currently accruing interest
or on which interest is not being paid.
Notional principal amount:
The hypothetical amount on which interest rate swap payments are
based. The notional principal amount in an interest rate swap generally
is not paid or received by either party.
Preferred stock:
Stock that takes priority over common stock with regard to dividends
and liquidation rights. Preferred stockholders typically have no
voting rights.
Preforeclosure sale:
A procedure in which the borrower is allowed to sell his or her
property for an amount less than what is owed on it to avoid a foreclosure.
This sale fully satisfies the borrower's debt.
Real Estate Mortgage Investment Conduit (REMIC):
A security that represents a beneficial interest in a trust having
multiple classes of securities. The securities of each class entitle
investors to cash flows structured differently from the payments
on the underlying mortgages.
Repayment plan:
An agreement between a lender and a borrower who is delinquent on
his or her mortgage payments, in which the borrower agrees to make
additional payments to pay down past due amounts while still making
regularly scheduled payments.
Return on average common equity:
Net income available to common stockholders, as a percentage of
average common stockholders' equity.
Reverse mortgage:
A financial tool which provides seniors with funds from the equity
in their homes. Generally, no payments are made on a reverse mortgage
until the borrower moves or the property is sold. The final repayment
obligation is designed to not exceed the proceeds from the sale
of the home.
Risk-based capital:
The amount of capital necessary to absorb losses throughout a hypothetical
ten-year period marked by severely adverse circumstances.
Secondary mortgage market:
The market in which residential mortgages or mortgage securities
are bought and sold.
Security:
A financial instrument showing ownership of equity (such as common
stock), indebtedness (such as a debt security), a group of mortgages
(such as MBS), or potential ownership ( | |