Fannie Mae 2004 Annual Report Download - page 41

“ARM” or “adjustable-rate mortgage” refers to a mortgage loan with an interest rate that adjusts periodically
over the life of the mortgage based on changes in a specified index.
“Book of business” refers to the sum of: (1) the unpaid principal balance of the mortgage loans and mortgage-
related securities we hold in our mortgage portfolio and (2) the unpaid principal balance of Fannie Mae MBS
held by third parties.
“Business volume” refers to both the unpaid principal balance of the mortgage loans and mortgage-related
securities we purchase for our mortgage portfolio in a given period and the unpaid principal balance of the
mortgage loans we securitize into Fannie Mae MBS that are acquired by third parties in such period.
“Charter Act” or “our charter” refers to the Federal National Mortgage Association Charter Act, 12 U.S.C.
§1716 et seq.
“Conforming mortgage” refers to a conventional single-family mortgage loan with an original principal balance
that is equal to or less than the applicable conforming loan limit, which is the applicable maximum original
principal balance for a mortgage loan that we are permitted by our charter to purchase or securitize. The
conforming loan limit is established each year by OFHEO based on the national average price of a one-family
residence. The current conforming loan limit for a one-family residence in most geographic areas is $417,000.
“Conventional mortgage” refers to a mortgage loan that is not guaranteed or insured by the U.S. government
or its agencies, such as the VA, FHA or RHS.
“Conventional single-family mortgage credit book of business” refers to the sum of the unpaid principal
balance of: (1) the conventional single-family mortgage loans we hold in our investment portfolio; (2) the
Fannie Mae MBS and non-Fannie Mae mortgage-related securities backed by conventional single-family
mortgage loans we hold in our investment portfolio; (3) Fannie Mae MBS backed by conventional single-
family mortgage loans that are held by third parties; and (4) credit enhancements that we provide on
conventional single-family mortgage assets.
“Core capital” refers to a regulatory measure of our capital that represents the sum of the stated value of our
outstanding common stock (common stock less treasury stock), the stated value of our outstanding non-
cumulative perpetual preferred stock, our paid-in capital and our retained earnings, as determined in
accordance with GAAP.
“Credit enhancement” refers to a method to reduce credit risk by requiring collateral, letters of credit,
mortgage insurance, corporate guaranties, 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.
“Critical capital requirement” refers to the amount of core capital below which we would be classified by
OFHEO as critically undercapitalized and generally would be required to be placed in conservatorship. Our
critical capital requirement is generally equal to the sum of: (1) 1.25% of on-balance sheet assets; (2) 0.25%
of the unpaid principal balance of outstanding Fannie Mae MBS held by third parties; and (3) up to 0.25% of
other off-balance sheet obligations.
“Delinquency” refers to an instance in which a principal or interest payment on a mortgage loan has not been
made in full by the due date.
“Derivative” refers to a financial instrument that derives its value based on changes in an underlying, such as
security or commodity prices, interest rates, currency rates or other financial indices. Examples of derivatives
include futures, options and swaps.
“Duration” refers to the sensitivity of the value of a security to changes in interest rates. It can be calculated
for non-callable securities as the weighted-average maturity of a security’s future cash flows, both principal
and interest, where the present values of the cash flows serve as the weights.
“Fannie Mae mortgage-backed securities” or “Fannie Mae MBS” generally refer to those mortgage-related
securities that we issue and with respect to which we guarantee to the related trusts that we will supplement
mortgage loan collections as required to permit timely payment of principal and interest due on the related
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