Fannie Mae 2012 Annual Report Download - page 166

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We classify certain loans as Alt-A so that we can discuss our exposure to Alt-A loans in this Form 10-K and elsewhere.
However, there is no universally accepted definition of Alt-A loans. In reporting our Alt-A exposure, we have classified
mortgage loans as Alt-A if and only if the lenders that delivered the mortgage loans to us classified the loans as Alt-A, based
on documentation or other product features. We have loans with some features that are similar to Alt-A mortgage loans that
we have not classified as Alt-A because they do not meet our classification criteria. We do not rely solely on our
classifications of loans as Alt-A to evaluate the credit risk exposure relating to these loans in our single-family conventional
guaranty book of business. For more information about the credit risk characteristics of loans in our single-family guaranty
book of business, see “Note 3, Mortgage Loans” and “Note 6, Financial Guarantees.” We have classified private-label
mortgage-related securities held in our investment portfolio as Alt-A if the securities were labeled as such when issued.
“Business volume” or “new business acquisitions” refers to the sum in any given period of the unpaid principal balance of:
(1) the mortgage loans and mortgage-related securities we purchase for our investment portfolio; (2) the mortgage loans we
securitize into Fannie Mae MBS that are acquired by third parties; and (3) credit enhancements that we provide on our
mortgage assets. It excludes mortgage loans we securitize from our portfolio and the purchase of Fannie Mae MBS for our
investment portfolio.
“Buy-ups” refer to upfront payments we make to lenders to adjust the monthly contractual guaranty fee rate on a Fannie Mae
MBS so that the pass-through coupon rate on the MBS is in a more easily tradable increment of a whole or half percent.
“Buy-downs” refer to upfront payments we receive from lenders to adjust the monthly contractual guaranty fee rate on a
Fannie Mae MBS so that the pass-through coupon rate on the MBS is in a more easily tradable increment of a whole or half
percent.
“Charge-off” refers to loan amounts written off as uncollectible bad debts. These loan amounts are removed from our
consolidated balance sheet and charged against our loss reserves when the balance is deemed uncollectible, which is
generally at foreclosure.
“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, the FHA or the Rural Development Housing and Community Facilities Program of the Department of
Agriculture.
“Credit enhancement” refers to an agreement used to reduce credit risk by requiring collateral, letters of credit, mortgage
insurance, corporate guarantees, or other agreements to provide an entity with some assurance that it will be compensated to
some degree in the event of a financial loss.
“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.
“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.
“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. For purposes of the senior preferred stock purchase agreement, the definition of mortgage assets is
based on the unpaid principal balance of such assets and does not reflect market valuation adjustments, allowance for loan
losses, impairments, unamortized premiums and discounts and the impact of our consolidation of variable interest entities.
We disclose the amount of our mortgage assets for purposes of the senior preferred stock purchase agreement on a monthly
basis under the caption “Gross Mortgage Portfolio” in our Monthly Summaries, which are available on our Web site and
announced in a press release.