Fannie Mae 2002 Annual Report Download - page 128

126 FANNIE MAE 2002 ANNUAL REPORT
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.
Outstanding MBS: MBS held by investors
other than Fannie Mae.
Preferred stock: Stock that takes priority over
common stock with regard to dividends and
liquidation rights. Preferred stockholders
typically have no voting rights.
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.
UPB: Unpaid principal balance.
Glossary