Fannie Mae 2001 Annual Report Download - page 81

{ 79 } Fannie Mae 2001 Annual Report
Glossary
Book of business: The total unpaid principal
balance of mortgage loans in Fannie Mae’s
net mortgage portfolio and backing MBS
outstanding.
Callable debt: A debt security whose issuer
has the right to redeem the security at a
specified price on or after a specified date,
prior to its stated final maturity.
Charge-off: The write-off of the portion of
principal and interest due on a loan that is
determined 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 loss ratio: The ratio of credit-related
losses to the total dollar amount of MBS
outstanding and mortgages held in portfolio.
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.
Debt security: A security in which the issuing
company agrees to repay the principal
(typically, the original amount borrowed)
and make interest payments according to an
agreed-upon schedule.
Default: The failure of a borrower to comply
with the terms of a note or the provisions of a
mortgage or contract.
Delinquency: An instance in which payment
on a mortgage loan has not been made by the
due date.
Derivative: A financial instrument which
derives its value from an underlying index
and a notional amount of principal.
Duration: The weighted-average life of the
present value of a security’s future cash flows.
It measures the sensitivity of a security’s value
to interest rate changes.
Earnings per share (EPS): The net earnings
of a corporation over a period of time, divided
by the average number of shares of its
common stock outstanding during that same
period. A common method of expressing a
corporation’s profitability.
Efficiency ratio: Total administrative
expenses divided by total taxable-equivalent
revenues. A common method of expressing
a corporation’s operating efficiency.
Forbearance: The lender’s postponement of
legal action when a borrower is delinquent in
payment. It is usually granted when a
borrower makes satisfactory arrangements to
bring 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.
Guaranty fee income: 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 derivative 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 amount
of principal.
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 divided by 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.
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.
Interest payments and principal repayments
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, or a group of
such buildings constituting a single property.
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 derivative
transactions are based. The notional principal
amount in a derivative transaction generally is
not paid or received by either party.
Option-embedded debt: Callable debt or
debt instruments linked with derivatives that
create effectively callable debt.
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. The sale
proceeds are paid to the lender and fully
satisfy 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.
Risk-based capital: The amount of capital
required to absorb losses throughout a
hypothetical ten-year period marked by
severely adverse credit and interest rate
conditions, plus an additional amount for
management and operations risk.
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 (such as an option).
Serious delinquency: A single-family
mortgage that is 90 days or more past due, or
a multifamily mortgage that is two months or
more past due.
Stockholders’ equity: The sum of proceeds
from the issuance of stock, accumulated
other comprehensive income (net of tax),
and retained earnings less amounts paid to
repurchase common or preferred shares.
Stripped MBS (SMBS): Securities created
by “stripping” or separating the principal and
interest payments from an underlying pool of
mortgages into two classes of securities, with
each receiving a different proportion of the
principal and interest payments.
Taxable-equivalent revenues: Total
revenues adjusted to reflect the benefits of
tax-exempt income and investment tax credits
based on applicable federal income tax rates.
Underwriting: The process of evaluating a
loan application to determine the risk involved
for the lender. It involves an analysis of the
borrower’s ability and willingness to repay the
debt, and of the value of the property.