Adjustable-rate mortgage (ARM):
A mortgage with an interest rate and payment that change periodically over the life of
the loan based on changes in a specified index.

Callable debt:
A debt security whose issuer has the right to redeem the security at a specified price
on or after a specified date, but prior to its stated final maturity.

Charge-off:
The portion of principal and interest due on a loan that is written off when deemed to
be not collectible.

Common stock:
A security that represents ownership in a company but gives no legal claim to a
definite dividend or to a return of capital.

Conventional mortgage:
A mortgage loan that is not insured or guaranteed by the federal government.

Credit enhancement:
A method 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 recompensed to some degree in the event of a financial loss.

Credit loss ratio:
The ratio of credit-related losses to the dollar amount of MBS outstanding and total
mortgages owned by the corporation.

Credit-related expenses:
The sum of foreclosed property expenses plus the provision for losses.

Credit-related losses:
The sum of foreclosed property expenses plus charge-offs.

Credit scoring:
A process that uses recorded information about individuals and their loan requests to
assess - in a quantifiable, objective, and consistent manner - their future performance
regarding debt repayment.

Debt security:
A security in which the issuing company generally agrees to repay the principal
(typically, the original amount borrowed) and make interest payments according to an
agreed schedule.

Default:
The failure of a borrower to comply with the terms of a note or the provisions of a
mortgage.

Delinquency:
A mortgage loan on which a payment has not been made by the due date.

Derivative:
A financial instrument which derives its value from an underlying security or notional
amount.

Duration:
The weighted-average life of the present value of all future cash flows, both principal
and interest, of a security. It is used as a measure of the sensitivity of the value of a
security to changes in interest rates.

Earnings per share (EPS):
The net earnings of a corporation divided by the average number of shares of its
common stock outstanding during a period. A common method of expressing a
corporation's profitability.

Fixed-rate mortgage:
A mortgage loan in which the interest rate does not change during the entire term of
the loan.

Forbearance:
The lender's postponement of legal action when a borrower is delinquent. It is usually
granted when a borrower makes satisfactory arrangements to bring the overdue
mortgage payments up to date.

Foreclosure:
The legal process by which property that is mortgaged as security for a loan may be
sold to pay a defaulting borrower's loan.

Global Debt Facility:
A debt issuance facility through which U.S. Dollar and foreign currency debt securities
may be offered to investors worldwide with the feature of clearing and settlement
through a variety of clearing systems.

Guaranty fee:
Compensation paid by a lender to Fannie Mae for the guarantee of timely payments of
principal and interest to MBS security holders.

Interest rate swap:
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.

Intermediate-term mortgage:
A mortgage loan with a contractual maturity at time of purchase equal to or less than
20 years.

Lender option commitments:
An agreement giving a lender the option to deliver loans or securities by a certain date
at agreed-upon terms.

Loan servicing:
The tasks a lender performs to protect a mortgage investment, including collecting
monthly payments from borrowers and dealing with delinquencies.

Loan-to-value (LTV) ratio:
The relationship between the dollar amount of a borrower's mortgage loan and the
value of the property.

Loss mitigation:
Activities designed to reduce either the likelihood of the corporation suffering financial
losses on a loan or the final dollar value of those losses in the event of a borrower
default.

Mandatory delivery commitment:
An agreement that a lender will deliver loans or securities by a certain date at
agreed-upon terms.

Medium-term notes:
Unsecured general obligations of Fannie Mae with maturities of one day or more and
with principal and interest payable in U.S. Dollars.

Modification:
Any change to the original terms of a mortgage.

Mortgage:
A legal document that pledges property to a lender as security for the repayment of
the loan. The term also is used to refer to the loan itself.

Mortgage-Backed Security (MBS):
A Fannie Mae security that represents an undivided interest in a group of mortgages.
Principal and interest payments from the individual mortgage loans are grouped and
paid out to the MBS holders.

Multifamily housing:
A building with more than four residential rental units.

Nonperforming asset:
An asset such as a mortgage that is not currently accruing interest or on which interest
is not being paid.

Notional principal amount:
The hypothetical amount on which interest rate swap payments are based. The
notional principal amount in an interest rate swap generally is not paid or received by
either party.

Preferred stock:
Stock that takes priority over common stock with regard to dividends and liquidation
rights. Preferred stockholders typically have no voting rights.

Preforeclosure sale:
A procedure in which the borrower is allowed to sell his or her property for an amount
less than what is owed on it to avoid a foreclosure. This sale fully satisfies the
borrower's debt.

Real Estate Mortgage Investment Conduit (REMIC):
A security that represents a beneficial interest in a trust having multiple classes of
securities. The securities of each class entitle investors to cash flows structured
differently from the payments on the underlying mortgages.

Repayment plan:
An agreement between a lender and a borrower who is delinquent on his or her
mortgage payments, in which the borrower agrees to make additional payments to pay
down past due amounts while still making regularly scheduled payments.

Return on average common equity:
Net income available to common stockholders, as a percentage of average common
stockholders' equity.

Reverse mortgage:
A financial tool which provides seniors with funds from the equity in their homes.
Generally, no payments are made on a reverse mortgage until the borrower moves or
the property is sold. The final repayment obligation is designed to not exceed the
proceeds from the sale of the home.

Risk-based capital:
The amount of capital necessary to absorb losses throughout a hypothetical ten-year
period marked by severely adverse circumstances.

Secondary mortgage market:
The market in which residential mortgages or mortgage securities are bought and sold.

Security:
A financial instrument showing ownership of equity (such as common stock),
indebtedness (such as a debt security), a group of mortgages (such as MBS), or
potential ownership (such as an option).

Serious delinquency:
A single-family mortgage that is 90 days or more past due, or a multifamily mortgage
that is two months or more past due.

Stockholders' equity:
The sum of proceeds from the issuance of stock and retained earnings less amounts
paid to repurchase common shares.

Stripped MBS (SMBS):
Securities created by "stripping" or separating the principal and interest payments from
the underlying pool of mortgages into two classes of securities, with each receiving a
different proportion of the principal and interest payments.

Transfer agent:
A bank or trust company charged with keeping a record of a company's stockholders
and canceling and issuing certificates as shares are bought and sold.

Underwriting:
The process of evaluating a loan application to determine the risk involved for the
lender. It involves an analysis of the borrower's ability and willingness to repay the debt
and the value of the property.
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