Freddie Mac 2009 Annual Report Download - page 330

Charter — The Federal Home Loan Mortgage Corporation Act, as amended, 12 U.S.C. § 1451 et seq.
Commercial mortgage-backed security (CMBS) — A security backed by mortgages on commercial property (often
including multifamily rental properties) rather than one-to-four family residential real estate.
Conforming loan/Conforming loan limit — 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 a dollar amount cap on the size of the original
principal balance of single-family mortgage loans we are permitted by law to purchase or securitize. The conforming loan
limit is determined annually based on changes in FHFA’s housing price index. Any decreases in the housing price index are
accumulated and used to offset any future increases in the housing price index so that conforming loan limits do not
decrease from year-to-year. For 2006 to 2010, the base conforming loan limit for a one-unit single-family residence was set
at $417,000 with higher limits in certain “high-cost” areas.
Conservator — The Federal Housing Finance Agency, acting in its capacity as conservator of Freddie Mac.
Conventional mortgage — A mortgage loan not guaranteed or insured by the U.S. government.
Convexity — A measure of how much a financial instrument’s duration changes as interest rates change. Convexity is used
to measure the sensitivity of a financial instrument’s value to changes in interest rates.
Core spread income — Refers to a fair value estimate of the net current period accrual of income from the spread between
mortgage-related investments and debt, calculated on an option-adjusted basis.
Credit enhancement — Any number of different financial arrangements that are designed to reduce credit risk by partially
or fully compensating an investor in the event of certain financial losses. Examples of credit enhancements include mortgage
insurance, overcollateralization, indemnification agreements, and government guarantees.
Credit guarantee portfolio — The single-family and multifamily mortgage loans we securitize into Freddie Mac issued
securities that are acquired by third parties. Also includes other financial guarantees we provide on mortgage loans and
mortgage securities held by third parties.
Debt Service Coverage Ratio (DSCR) — An indicator of future credit performance. The DSCR estimates a multifamily
borrower’s ability to service its mortgage obligation using the secured property’s cash flow, after deducting non-mortgage
expenses from income. The higher the DSCR, the more likely a multifamily borrower will be able to continue servicing its
mortgage obligation.
Delinquency — A failure to make timely payments of principal or interest on a mortgage loan. We report single-family
delinquency information based on the number of single-family mortgages that are 90 days or more past due or in
foreclosure. For multifamily loans, we report delinquency based on the net carrying value of loans that are 90 days or more
past due or in foreclosure.
Department of Housing and Urban Development (HUD) — The government agency that was previously responsible for
regulation of our mission prior to the Reform Act, when FHFA became our regulator. HUD still has authority over Freddie
Mac with respect to fair lending.
Derivative — A financial instrument whose value depends upon the characteristics and value of an underlying financial asset
or index, such as a security or commodity price, interest or currency rates, or other financial indices.
Duration — The weighted average maturity of a financial instrument’s cash flows. Duration is used as a measure of a
financial instrument’s price sensitivity to changes in interest rates.
Duration gap — A measure of the difference between the estimated durations of our interest rate sensitive assets and
liabilities. We present the duration gap of our financial instruments in units expressed as months. A duration gap of zero
implies that the change in value of our interest rate sensitive assets from an instantaneous change in interest rates will be
accompanied by an equal and offsetting change in the value of our debt and derivatives, thus leaving the net fair value of
equity unchanged.
Fannie Mae — Federal National Mortgage Association.
Federal Housing Finance Agency (FHFA) — FHFA is an independent agency of the federal government established by the
Reform Act with responsibility for regulating Freddie Mac, Fannie Mae and the FHLBs.
Federal Reserve — Board of Governors of the Federal Reserve System.
FICO score — A credit scoring system developed by Fair, Isaac and Co. FICO scores are the most commonly used credit
scores today. FICO scores are ranked on a scale of approximately 300 to 850 points with a higher value indicating a lower
likelihood of credit default.
Fixed-rate mortgage — Refers to a mortgage originated at a specific rate of interest that remains constant over the life of
the loan.
327 Freddie Mac