Freddie Mac 2011 Annual Report Download - page 374

Conforming loan/Conforming jumbo loan/Conforming loan limit — A conventional single-family mortgage loan with
an original principal balance that is equal to or less than the applicable conforming loan limit, which is a dollar amount
cap on the size of the original principal balance of single-family mortgage loans we are permitted by law to purchase or
securitize. The conforming loan limit is determined annually based on changes in FHFA’s housing price index. Any
decreases in the housing price index are accumulated and used to offset any future increases in the housing price index so
that conforming loan limits do not decrease from year-to-year. Since 2006, the base conforming loan limit for a one-
family residence has been set at $417,000, and higher limits have been established in certain “high-cost” areas (currently,
up to $625,500 for a one-family residence). Higher limits also apply to two- to four-family residences, and for mortgages
secured by properties in Alaska, Guam, Hawaii and the U.S. Virgin Islands.
Actual loan limits are set by FHFA for each county (or equivalent), and the loan limit for specific high-cost areas may be
lower than the maximum amounts. We refer to loans that we have purchased with UPB exceeding the base conforming
loan limit (i.e., $417,000) as conforming jumbo loans.
Beginning in 2008, pursuant to a series of laws, our loan limits in certain high-cost areas were increased temporarily
above the limits that otherwise would have been applicable (up to $729,750 for a one-family residence). The latest of
these increases expired on September 30, 2011.
Conservator — The Federal Housing Finance Agency, acting in its capacity as conservator of Freddie Mac.
Convexity — A measure of how much a financial instrument’s duration changes as interest rates change.
Core spread income — Refers to a fair value estimate of the net current period accrual of income from the spread
between mortgage-related investments and debt, calculated on an option-adjusted basis.
Covered Officer — Those executives in the following positions, each of whom are compensated pursuant to the
Executive Management Compensation Program: (a) Chief Executive Officer; (b) Chief Operating Officer; (c) Chief
Financial Officer; (d) all Executive Vice Presidents; and (e) all Senior Vice Presidents. Each of the Named Executive
Officers is a Covered Officer.
Credit enhancement — Any number of different financial arrangements that are designed to reduce credit risk by
partially or fully compensating an investor in the event of certain financial losses. Examples of credit enhancements
include mortgage insurance, overcollateralization, indemnification agreements, and government guarantees.
Credit losses — Consists of charge-offs and REO operations income (expense).
Credit-related expenses — Consists of our provision for credit losses and REO operations income (expense).
Deed in lieu of foreclosure — An alternative to foreclosure in which the borrower voluntarily conveys title to the
property to the lender and the lender accepts such title (sometimes together with an additional payment by the borrower)
in full satisfaction of the mortgage indebtedness.
Delinquency — A failure to make timely payments of principal or interest on a mortgage loan. For single-family
mortgage loans, we generally report delinquency rate information for loans that are seriously delinquent. For multifamily
loans, we report delinquency rate information based on the UPB of loans that are two monthly payments or more past due
or in the process of foreclosure.
Derivative — A financial instrument whose value depends upon the characteristics and value of an underlying financial
asset or index, such as a security or commodity price, interest or currency rates, or other financial indices.
Directors’ Plan — 1995 Directors’ Stock Compensation Plan, as amended and restated
Dodd-Frank Act — Dodd-Frank Wall Street Reform and Consumer Protection Act.
DSCR — Debt Service Coverage Ratio — An indicator of future credit performance for multifamily loans. The DSCR
estimates a multifamily borrower’s ability to service its mortgage obligation using the secured property’s cash flow, after
deducting non-mortgage expenses from income. The higher the DSCR, the more likely a multifamily borrower will be
able to continue servicing its mortgage obligation.
Duration — Duration is a measure of a financial instrument’s price sensitivity to changes in interest rates.
Duration gap — One of our primary interest-rate risk measures. Duration gap is a measure of the difference between the
estimated durations of our interest rate sensitive assets and liabilities. We present the duration gap of our financial
instruments in units expressed as months. A duration gap of zero implies that the change in value of our interest rate
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