Fannie Mae 2005 Annual Report Download - page 38

“Conventional mortgage” refers to a mortgage loan that is not guaranteed or insured by the U.S. government
or its agencies, such as the VA, FHA or RHS.
“Conventional single-family mortgage credit book of business” refers to the sum of the unpaid principal
balance of: (1) the conventional single-family mortgage loans we hold in our investment portfolio; (2) the
Fannie Mae MBS and non-Fannie Mae mortgage-related securities backed by conventional single-family
mortgage loans we hold in our investment portfolio; (3) Fannie Mae MBS backed by conventional single-
family mortgage loans that are held by third parties; and (4) credit enhancements that we provide on
conventional single-family mortgage assets.
“Core capital” refers to a statutory measure of our capital that is the sum of the stated value of our
outstanding common stock (common stock less treasury stock), the stated value of our outstanding non-
cumulative perpetual preferred stock, our paid-in capital and our retained earnings, as determined in
accordance with GAAP.
“Credit enhancement” refers to a method to reduce credit risk by requiring collateral, letters of credit,
mortgage insurance, corporate guaranties, or other agreements to provide an entity with some assurance that it
will be recompensed to some degree in the event of a financial loss.
“Critical capital requirement” refers to the amount of core capital below which we would be classified by
OFHEO as critically undercapitalized and generally would be required to be placed in conservatorship. Our
critical capital requirement is generally equal to the sum of: (1) 1.25% of on-balance sheet assets; (2) 0.25%
of the unpaid principal balance of outstanding Fannie Mae MBS held by third parties; and (3) up to 0.25% of
other off-balance sheet obligations.
“Delinquency” refers to an instance in which a principal or interest payment on a mortgage loan has not been
made in full by the due date.
“Derivative” refers to a financial instrument that derives its value based on changes in an underlying, such as
security or commodity prices, interest rates, currency rates or other financial indices. Examples of derivatives
include futures, options and swaps.
“Duration” refers to the sensitivity of the value of a security to changes in interest rates. The duration of a
financial instrument is the expected percentage change in its value in the event of a change in interest rates of
100 basis points.
“Fannie Mae mortgage-backed securities” or “Fannie Mae MBS” generally refer to those mortgage-related
securities that we issue and with respect to which we guarantee to the related trusts that we will supplement
amounts received by the MBS trust as required to permit timely payment of principal and interest on the
related Fannie Mae MBS. We also issue some forms of mortgage-related securities for which we do not
provide this guaranty. The term “Fannie Mae MBS” refers to all forms of mortgage-related securities that we
issue, including single-class Fannie Mae MBS and multi-class Fannie Mae MBS.
“Fixed-rate mortgage” refers to a mortgage loan with an interest rate that does not change during the entire
term of the loan.
“GAAP” refers to generally accepted accounting principles in the United States.
“GSEs” refers to government-sponsored enterprises such as Fannie Mae, Freddie Mac and the Federal Home
Loan Banks.
“HUD” refers to the Department of Housing and Urban Development.
“Implied volatility” refers to the market’s expectation of potential changes in interest rates.
“Interest-only loan” refers to a mortgage loan that allows the borrower to pay only the monthly interest due,
and none of the principal, for a fixed term. After the end of that term the borrower can choose to refinance,
pay the principal balance in a lump sum, or begin paying the monthly scheduled principal due on the loan,
which results in a higher monthly payment at that time. Interest-only loans can be adjustable-rate or fixed-rate
mortgage loans.
33