Freddie Mac 2009 Annual Report Download - page 332

Mandatory target capital surplus — A surplus over our statutory minimum capital requirement imposed by FHFA. The
mandatory target capital surplus, established in January 2004, was originally 30% and subsequently reduced to 20% in
March 2008. As announced by FHFA on October 9, 2008, this capital requirement will not be binding during the term of
conservatorship.
Monolines — Companies that provide credit insurance principally covering securitized assets in both the primary issuance
and secondary markets.
Mortgage assets — Refers to both mortgage loans and the mortgage-related securities we hold in our mortgage-related
investments portfolio.
Mortgage-related investments portfolio — Our investment portfolio, which consists principally of mortgage-related
securities and single-family and multifamily mortgage loans.
Mortgage-to-debt option-adjusted spread (OAS) — The net option-adjusted spread between the mortgage and agency debt
sectors. This is an important factor in determining the expected level of net interest yield on a new mortgage asset. Higher
mortgage-to-debt OAS means that a newly purchased mortgage asset is expected to provide a greater return relative to the
cost of the debt issued to fund the purchase of the asset and, therefore, a higher net interest yield. Mortgage-to-debt OAS
tends to be higher when there is weak demand for mortgage assets and lower when there is strong demand for mortgage
assets.
Multifamily mortgage — A mortgage loan secured by a property with five or more residential rental units.
Net worth — The amount by which our total assets exceed our total liabilities as reflected on our consolidated balance
sheets prepared in conformity with GAAP. With our adoption of an amendment to the accounting standards for consolidation
regarding noncontrolling interests in consolidated financial statements on January 1, 2009, our net worth is now equal to our
total equity (deficit).
Option-adjusted spread (OAS) — An estimate of the incremental yield spread between a particular financial instrument
(e.g., a security, loan or derivative contract) and a benchmark yield curve (e.g., LIBOR or agency or Treasury securities).
This includes consideration of potential variability in the instrument’s cash flows resulting from any options embedded in the
instrument, such as prepayment options.
Option ARM loan — Mortgage loans that permit a variety of repayment options, including minimum, interest only, fully
amortizing 30-year and fully amortizing 15-year payments. The minimum payment alternative for option ARM loans allows
the borrower to make monthly payments that may be less than the interest accrued for the period. The unpaid interest,
known as negative amortization, is added to the principal balance of the loan, which increases the outstanding loan balance.
Participation Certificates (PCs) — Securities that we issue as part of a securitization transaction. Typically we purchase
mortgage loans from parties who sell mortgage loans, place a pool of loans into a PC trust and issue PCs from that trust.
The PC trust agreement includes a guarantee that we will supplement the mortgage payments received by the PC trust in
order to make timely payments of interest and scheduled payments of principal to fixed-rate PC holders and timely payments
of interest and ultimate payment of principal to adjustable-rate PC holders. The PCs are generally transferred to the seller of
the mortgage loans in consideration of the loans or are sold to outside third party investors if we purchased the mortgage
loans for cash.
Portfolio Market Value Sensitivity (PMVS) — Our primary interest rate risk measurement. PMVS measures are estimates
of the amount of average potential pre-tax loss in the market value of our net assets due to parallel (PMVS-L) and non-
parallel (PMVS-YC) changes in LIBOR.
Primary mortgage market — The market where lenders originate mortgage loans and lend funds to borrowers. We do not
lend money directly to homeowners, and do not participate in this market.
Primary Mortgage Market Survey (PMMS) — Represents the national average mortgage commitment rate to a qualified
borrower exclusive of the fees and points required by the lender. This commitment rate applies only to conventional
financing on conforming mortgages with LTV ratios of 80% or less.
Purchase Agreement / Senior Preferred Stock Purchase Agreement — An agreement with Treasury entered into on
September 7, 2008, which was subsequently amended and restated on September 26, 2008 and further amended on May 6,
2009 and December 24, 2009.
Qualifying Special Purpose Entity (QSPE) — A term used within the accounting standards on transfers and servicing of
financial assets to describe a particular trust or other legal vehicle that is demonstrably distinct from the transferor, has
significantly limited permitted activities and may only hold certain types of assets, such as passive financial assets. The
securitization trusts that are used for the administration of cash remittances received on the underlying assets of our PCs and
Structured Securities are QSPEs. Generally, the trusts’ classification as QSPEs exempts them from the scope of previous
accounting guidance on consolidation of VIEs and therefore they are not recorded on our consolidated balance sheets.
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