Fannie Mae 2004 Annual Report Download - page 43

“Multifamily” mortgage loan refers to a mortgage loan secured by a property containing five or more
residential dwelling units.
“Multifamily mortgage credit book of business” refers to the sum of the unpaid principal balance of: (1) the
multifamily mortgage loans we hold in our investment portfolio; (2) the Fannie Mae MBS and non-Fannie
Mae mortgage-related securities backed by multifamily mortgage loans we hold in our investment portfolio;
(3) Fannie Mae MBS backed by multifamily mortgage loans that are held by third parties; and (4) credit
enhancements that we provide on multifamily mortgage assets.
“Negative-amortizing loan” refers to a mortgage loan that allows the borrower to make monthly payments that
are less than the interest actually accrued for the period. The unpaid interest is added to the principal balance
of the loan, which increases the outstanding loan balance. Negative-amortizing loans are typically adjustable-
rate mortgage loans.
“Notional principal amount” refers to the hypothetical dollar amount in an interest rate swap transaction on
which exchanged payments are based. The notional principal amount in an interest rate swap transaction
generally is not paid or received by either party to the transaction and is typically significantly greater than the
potential market or credit loss that could result from such transaction.
“OFHEO” refers to the Office of Federal Housing Enterprise Oversight, our safety and soundness regulator.
“Option-adjusted spread” or “OAS” refers to the incremental expected return between a security, loan or
derivative contract and a benchmark yield curve (typically, U.S. Treasury securities, LIBOR and swaps, or
agency debt securities). The OAS provides explicit consideration of the variability in the security’s cash flows
across multiple interest rate scenarios resulting from any options embedded in the security, such as prepayment
options. For example, the OAS of a mortgage that can be prepaid by the homeowner is typically lower than a
nominal yield spread to the same benchmark because the OAS reflects the exercise of the prepayment option
by the homeowner, which lowers the expected return of the mortgage investor. In other words, OAS for
mortgage loans is a risk-adjusted spread after consideration of the prepayment risk in mortgage loans. The
market convention for mortgages is typically to quote their OAS to swaps. The OASs of our funding and
hedging instruments are also frequently quoted to swaps. The OAS of our net assets is therefore the
combination of these two spreads to swaps and is the option-adjusted spread between our assets and our
funding and hedging instruments.
“Outstanding Fannie Mae MBS” refers to the total unpaid principal balance of Fannie Mae MBS that is held
by third-party investors and held in our mortgage portfolio, without reflecting the impact of the consolidation
of variable interest entities.
“Private-label issuers” or “non-agency issuers” refers to issuers of mortgage-related securities other than
agency issuers Fannie Mae, Freddie Mac and Ginnie Mae.
“Private-label securities” or “non-agency securities” refers to mortgage-related securities issued by entities
other than agency issuers Fannie Mae, Freddie Mac or Ginnie Mae.
“Qualifying subordinated debt” refers to our subordinated debt that contains an interest deferral feature that
requires us to defer the payment of interest for up to five years if either: (1) our core capital is below 125% of
our critical capital requirement; or (2) our core capital is below our minimum capital requirement and the
U.S. Secretary of the Treasury, acting on our request, exercises his or her discretionary authority pursuant to
Section 304(c) of the Charter Act to purchase our debt obligations.
“REO” refers to real-estate owned by Fannie Mae, generally because we have foreclosed on the property or
obtained the property through a deed in lieu of foreclosure.
“Reverse mortgage” refers to a financial tool that provides seniors with funds from the equity in their homes.
Generally, no borrower payments are made on a reverse mortgage until the borrower moves or the property is
sold. The final repayment obligation is designed not to exceed the proceeds from the sale of the home.
“Risk-based capital requirement” refers to the amount of capital necessary to absorb losses throughout a
hypothetical ten-year period marked by severely adverse circumstances. Refer to “Item 7—MD&A—Liquidity
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