Fannie Mae 2011 Annual Report Download - page 200

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.
“HomeSaver Advance loan” refers to a 15-year unsecured personal loan in an amount equal to all past due
payments relating to a borrower’s first-lien mortgage loan, generally up to the lesser of $15,000 or 15% of the
unpaid principal balance of the delinquent first-lien loan. The advance is used to bring the first-lien mortgage
loan current. This workout option was retired in 2010.
“Implied volatility” refers to the market’s expectation of the magnitude of future changes in interest rates.
“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.
“LIHTC partnerships” refer to low-income housing tax credit limited partnerships or limited liability companies.
“Loans,” “mortgage loans” and “mortgages” refer to both whole loans and loan participations, secured by
residential real estate, cooperative shares or by manufactured housing units.
“Mortgage assets,” when referring to our assets, refers to both mortgage loans and mortgage-related securities
we hold in our investment portfolio.
“Mortgage credit 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) non-Fannie Mae mortgage-
related securities held in our investment portfolio; (4) Fannie Mae MBS held by third parties; and (5) other credit
enhancements that we provide on mortgage assets.
“Multifamily mortgage loan” refers to a mortgage loan secured by a property containing five or more residential
dwelling units.
“Notional amount” refers to the hypothetical dollar amount in an interest rate swap transaction on which
exchanged payments are based. The notional amount in an interest rate swap transaction generally is not paid or
received by either party to the transaction and is typically significantly greater than the potential market or credit
loss that could result from such transaction.
“Option-adjusted spread” or “OAS” refers to the incremental expected return between a security, loan or
derivative contract and a benchmark yield curve (typically, U.S. Treasury securities, LIBOR and swaps, or
agency debt securities). The OAS provides explicit consideration of the variability in the security’s cash flows
across multiple interest rate scenarios resulting from any options embedded in the security, such as prepayment
options. For example, the OAS of a mortgage that can be prepaid by the homeowner without penalty is typically
lower than a nominal yield spread to the same benchmark because the OAS reflects the exercise of the
prepayment option by the homeowner, which lowers the expected return of the mortgage investor. In other
words, OAS for mortgage loans is a risk-adjusted spread after consideration of the prepayment risk in mortgage
loans. The market convention for mortgages is typically to quote their OAS to swaps. The OAS of our debt and
derivative instruments are also frequently quoted to swaps. The OAS of our net mortgage assets is therefore the
combination of these two spreads to swaps and is the option-adjusted spread between our assets and our funding
and hedging instruments.
“Outstanding Fannie Mae MBS” refers to the total unpaid principal balance of Fannie Mae MBS that is held by
third-party investors and held in our mortgage portfolio.
“Pay-fixed swap” refers to an agreement under which we pay a predetermined fixed rate of interest based upon a
set notional principal amount and receive a variable interest payment based upon a stated index, with the index
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