Fannie Mae 2007 Annual Report Download - page 174

“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 asset,
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 structured 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.
“Guaranty book of business” refers to the sum of the unpaid principal balance of: (1) mortgage loans held in
our mortgage portfolio; (2) Fannie Mae MBS held in our mortgage portfolio; (3) Fannie Mae MBS held by
third parties; and (4) other credit enhancements that we provide on mortgage assets. It excludes non-Fannie
Mae mortgage-related securities held in our investment portfolio for which we do not provide a guaranty.
“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.
“Interest rate swap” refers to a 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 principal
amount. An interest rate swap is a type of derivative.
“Intermediate-term mortgage” refers to a mortgage loan with a contractual maturity at the time of purchase
equal to or less than 15 years.
“LIHTC partnerships” refer to low-income housing tax credit limited partnerships or limited liability
companies. For a description of these partnerships, refer to “Business Segments—Housing and Community
Development Business—Affordable Housing Investments” above.
“Liquid assets” refers to our holdings of non-mortgage investments, cash and cash equivalents, and funding
agreements with our lenders, including advances to lenders and repurchase agreements.
152