Fannie Mae 2013 Annual Report Download - page 164

159
“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
retained mortgage 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.
“Mortgage-backed securities” or “MBS” refers generally to securities that represent beneficial interests in pools of mortgage
loans or other mortgage-related securities. These securities may be issued by Fannie Mae or by others.
“Mortgage credit book of business” refers to the sum of the unpaid principal balance of: (1) mortgage loans of Fannie Mae;
(2) mortgage loans underlying Fannie Mae MBS; (3) non-Fannie Mae mortgage-related securities held in our retained
mortgage portfolio; and (4) 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, or generally perceived as being at risk. The notional amount is typically significantly greater than the
potential market or credit loss that could result from such transaction.
“Option-adjusted spread” 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 option-adjusted
spread 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 option-adjusted spread 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 option-adjusted spread reflects the exercise of the prepayment option by the homeowner, which
lowers the expected return of the mortgage investor. In other words, option-adjusted spread 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 option-adjusted spread to swaps. The option-adjusted spread of our debt and derivative instruments
are also frequently quoted to swaps. The option-adjusted spread 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 retained mortgage portfolio.
“Pay-fixed swap” refers to an interest rate swap trade under which we pay a predetermined fixed rate of interest based upon a
set notional amount and receive a variable interest payment based upon a stated index, with the index resetting at regular
intervals over a specified period of time. These contracts generally increase in value as interest rates rise and decrease in
value as interest rates fall.
“Private-label securities” or “PLS” refers to mortgage-related securities issued by entities other than agency issuers Fannie
Mae, Freddie Mac or Ginnie Mae.
“Receive-fixed swap” refers to an interest rate swap trade under which we make a variable interest payment based upon a
stated index, with the index resetting at regular intervals, and receive a predetermined fixed rate of interest based upon a set