ABS, Asset-backed security: Debt security
that is backed by an underlying asset, such as mortgages,
auto loans, student loans or credit card debt.
Acquired mortgage: Any mortgage which
a PFI purchased and sold to the MPF Bank or for which
the PFI acquired the servicing and is servicing for
the MPF Bank.
Advance: Secured loan made to a member.
Advances are offered at fixed or floating rates, with
specific maturities or with embedded options for early
Agent fee: Fee payable to a PFI by
an MPF Bank in accordance with the Origination Guide;
in connection with the origination of a bank-funded
mortgage, which may be positive, negative or zero.
AHP, Affordable Housing Program: FHLBank
program that provides direct grants and subsidized loans
to assist members in meeting communities' affordable
housing needs. Each FHLBank sets aside approximately
10% of its net income to fund the program.
ALCO: Asset/Liability Management Committee.
AMA: Acquired member assets.
APBO: Accumulated Post-retirement
ARM, Adjustable-rate mortgage: Mortgage
that features predetermined adjustments of the loan
interest rate at regular intervals based on an established
Bank4Banks: FHLBank Pittsburgh's secure
transactional and informational Web site providing access
to various functions, transactions and reports, and
general FHLBank-related information.
Basis Risk: Uncertainty about the
spread relation between the hedge and the hedged instrument
at the time a hedge may be lifted.
BOB, Banking On Business: FHLBank
Pittsburgh program that assists eligible small businesses
with start-up and expansion.
Capital Plan: Capital structure
for FHLBanks, required by the GLB Act, that produces
a more permanent source of capital and facilitates compliance
with new risk-based capital requirements.
Capital stock: Comprises two classes:
Class A (redeemable on six month's notice) and Class
B (redeemable on five year's notice), per provisions
of the GLB Act.
CFI, Community financial institution:
FHLBank member that has deposits insured under FDIC
with total assets of $1 billion or less and
exempt from the requirement of having at least 10% of
total assets in residential mortgage loans.
CICA, Community investment cash advance:
General framework under which FHLBanks may offer an
array of specific standards for projects, targeted beneficiaries
and targeted income levels that the Finance Agency has
determined support community lending.
Closed loan/mortgage: Mortgage that
an MPF Bank purchases from a PFI, which is owned by
the PFI prior to such purchase and owned by the MPF
Bank after such purchase, and which was previously made
or purchased by the PFI.
CLP, Community Lending Program: FHLBank
Pittsburgh program that funds community and development
projects through a noncompetitive revolving loan pool.
When loans are repaid, the money is available to be
lent to other projects.
CMO, Collateralized mortgage obligation:
Type of bond that divides cash flows from a pool of
mortgages into multiple classes with different maturities
or risk profiles.
CMT, Constant maturity Treasury: Refers
to the par yield that would be paid by a Treasury bill,
note or bond that matures in exactly one, two, three,
five, seven, ten, 20 or 30 years.
CO, Consolidated obligation: Bonds
and discount notes that are the joint and several liability
of all twelve FHLBanks and issued and serviced through
the Office of Finance. These instruments are the primary
source of funds for FHLBanks.
COFI, 11th District Cost of Funds Index:
Weighted average of the cost of borrowings to members
of the FHLBank of San Francisco.
Collateral: Property that secures
the discharge of an obligation (e.g., mortgage or debt
obligation); a security interest that an FHLBank is
required by statute to obtain and thereafter maintain
beginning at the time of origination or renewal of an
Conforming mortgage: Loan eligible
for sale to GSEs based on specific qualifying characteristics
such as loan amount, debt ratio, LTV ratio, documentation,
Conventional loan/mortgage: Mortgage
that is neither insured nor guaranteed by the FHA, VA
or any other agency of the federal government.
Cost of funds: Estimated cost of issuing
FHLBank System consolidated obligations with maturities
comparable to that of the subsidized advance.
Credit enhancement fee: Fee payable
monthly by an MPF Bank to a PFI in consideration of
the PFI's obligation to fund the realized loss for a
Master Commitment; based on fee rate applicable to such
Master Commitment and subject to terms of the Master
Commitment and applicable MPF mortgage product, which
may include performance and risk participation features.
DDA, Demand deposit account: Similar
to an individual's checking account, except interest
is paid daily on all balances. All incoming and outgoing
wires, advances credits and debits, as well as any P&I
payments from securities and advances are posted into
Debt service ratio: Ratio of a project's
annual net operating income divided by the total annual
Delivery commitment: Mandatory commitment
of the parties, evidenced by a written, machine- or
electronically generated transmission issued by an MPF
Bank to a PFI accepting the PFI's oral delivery commitment
Direct subsidy: AHP subsidy in the
form of direct cash payment but does not include homeownership
Disclosure Committee: Committee recommended
by the SEC to oversee adoption and execution of the
controls, procedures and disclosures called for by the
DTC, Depository Trust Corporation:
Central securities repository where stock and bond certificates
EITF: Emerging Issues Task Force.
Exempt securities: FHLBank securities
under Section 3(a)(2) of the Securities Exchange Act
Fannie Mae, Federal National Mortgage Association
(FNMA): GSE established in 1938 to expand the
flow of mortgage money by creating a secondary market.
FAS: Financial Accounting Standard.
FASB, Financial Accounting Standards Board:
Board created in 1973 responsible for establishing
and interpreting generally accepted accounting principles
and improving standards of financial accounting and
reporting for the guidance and education of the public,
including issuers, auditors and users of financial information.
FDIC, Federal Deposit Insurance Corporation:
Federal agency established in 1933 that guarantees
(with limits) funds on deposit in member banks and performs
other functions such as making loans to or buying assets
from member banks to facilitate mergers or prevent failures.
Federal Home Loan Bank Act (the Act):
Enacted by Congress in 1932 creating the FHLBank Board,
whose role was to supervise a series of discount banks
across the country. The intent was to increase the supply
of money available to local institutions that made home
loans and to serve them as a reserve credit resource.
Federal Housing Finance Agency:
Independent regulatory agency of the executive branch
ensuring FHLBanks operate in a safe and sound manner,
carry out their housing and community development finance
mission, and remain adequately capitalized and able
to raise funds in the capital markets.
FFD, First Front Door: FHLBank Pittsburgh
program developed to provide grant assistance to cover
down payment and closing costs to first-time homebuyers
at or below 80% area median income.
FHA, Federal Housing Administration:
Government agency established in 1934 and insures lenders
against loss on residential mortgages.
FICO: Financing Corporation.
FIN: FASB Interpretation No.
FIRF: Financial Institutions Retirement
FLA, First loss account: Contingent
liability account established by an MPF Bank for each
Master Commitment based on and in the amount required
under the applicable MPF mortgage product description.
Freddie Mac, Federal Home Loan Mortgage Corporation
(FHLMC): GSE chartered by Congress in 1970
to keep money flowing to mortgage lenders in support
of homeownership and rental housing.
GAAP, Generally Accepted Accounting Principles:
Conventions, rules and procedures that define accepted
accounting practice, including broad guidelines as well
as detailed procedures.
Ginnie Mae, Government National Mortgage Association
(GNMA): GSE established by Congress in 1968
that issues securities backed by a pool of mortgages,
which passes through to investors the principal and
interest payments of homeowners.
Gramm-Leach-Bliley (GLB) Act: Enacted in 1999 and set forth the following: FHLBanks may make long-term advances to institutions with less than $500 million in assets, secured by loans to small businesses, small farms, and small agribusinesses.
A new, permanent capital structure for FHLBanks is
established. Two classes of stock are authorized, redeemable
on six month's and five year's notice. FHLBanks must
meet a 5% leverage minimum tied to total capital and
a risk-based requirement tied to permanent capital.
Equalizes the stock purchase requirement for banks
Voluntary membership for federal savings associations
takes effect six months after enactment.
Annual $300 million funding formula for REFCORP obligations
of FHLBanks is changed to 20% of annual net earnings.
Governance of FHLBanks is decentralized from the Finance
Board to the individual FHLBanks. Changes include the
election of a chairperson and vice chairperson of each
FHLBank by its directors rather than the Finance Board,
and a statutory limit on FHLBank directors' compensation.
GSE, Government-sponsored enterprise: A
private organization with a government charter whose
function is to provide liquidity for the residential
HOEPA, Home Ownership and Equity Protection
Act: Federal law designed to discourage predatory
lending in mortgages and home equity loans.
HUD, Department of Housing and Urban Development:
Federal agency founded in 1965 responsible
for stimulating housing development in the United States.
Joint and several liability: Obligation
for which multiple parties are liable for payment.
LFI, Large financial institution:
Member that has deposits insured under FDIC and average
total assets greater than $500 million based on regulatory
reports for the three most recent calendar year-ends
adjusted by CPI as determined by the Finance Board.
LIBOR, London Interbank Offer Rate: Offer
rate that a Euromarket bank demands to place a deposit
at (or equivalently, make a loan to) another Euromarket
bank in London. LIBOR is frequently used as the reference
rate for the floating-rate coupon in interest rate swaps
and option contracts such as caps and floors.
Loan level credit enhancement: Portion
of the credit enhancement pertaining to the risks of
an individual mortgage loan.
LOC, Letter of credit: Standby document
issued by FHLBanks on behalf of a member as a guarantee
against which funds can be drawn, that is used to facilitate
various types of business transactions the member may
have with third parties. "Standby" is defined
as the FHLBank standing by to make good on the obligation
made by the obligor to the beneficiary.
Lockout: Period of time during which
prepayment is prohibited.
Master Commitment: Documentation executed
by a PFI and an MPF Bank, which provides the terms under
which the PFI will deliver mortgages to the MPF Bank.
Master Servicer: Financial institution
that the MPF Provider has engaged to perform various
master servicing duties on its behalf in connection
with the MPF Program.
MBS, Mortgage-backed securities: Investment
instrument backed by prime-credit-quality first-mortgage
loans as security.
Mortgage Partnership Finance® (MPF®)
Program: FHLBank of Chicago (MPF Provider)
program offered by select FHLBanks (MPF Bank) to their
members to provide an alternative for funding mortgages
through the creation of a secondary market.
MPF Bank: FHLBank of which the subject
PFI is a member.
MPF Provider: FHLBank of Chicago,
in its capacity as manager and provider of services
to PFIs and MPF Banks in connection with the MPF Program.
MSRs, Mortgage servicing rights: Contractual
obligations undertaken by one party to provide servicing
for mortgage loans owned by another party, typically
for a fee.
NRSRO: Nationally recognized statistical
Office of Finance (OF): FHLBank System's
centralized debt issuance facility that also prepares
combined financial statements, selects/evaluates underwriters,
develops/maintains the infrastructure needed to meet
System goals, and administers REFCORP and FICO funding
OCC, Office of the Comptroller of the Currency:
Administrator of national banks and the primary
regulator of Treasury Bank, N.A.
OTS, Office of Thrift Supervision:
Primary regulator of all federally chartered and many
state-chartered thrift institutions, which include savings
banks as well as savings and loan associations.
OFHEO, Office of Federal Housing Enterprise
Oversight: Government agency established in
1992 and responsible for ensuring the financial safety
and soundness of Fannie Mae and Freddie Mac.
ORERC: Other real estate-related collateral.
Pair-off fee: A fee assessed against
a PFI when the aggregate principal balance of mortgages
funded or purchased under a delivery commitment falls
below the tolerance specified.
Permanent capital: Retained earnings
and Class B stock.
PFI, Participating financial institution: FHLBank
member participating in the MPF Program, which is legally
bound to originate, sell and/or service mortgages in
accordance with the PFI Agreement, which it signs with
the MPF Bank of which it is a member.
Real estate mortgage investment conduit (REMIC):
Multi-class bond backed by a pool of mortgage securities
or mortgage loans.
Real estate owned (REO): Mortgaged
property acquired by a servicer on behalf of the mortgage,
through foreclosure or deed in lieu of foreclosure.
REFCORP, Resolution Funding Corporation: Government
agency created by Congress in 1989 to issue "bailout"
bonds and raise industry funds to finance activities
of the Resolution Trust Corporation, and merge or close
"sick" institutions inherited from the disbanded
Federal Savings and Loan Insurance Corporation.
RHFA: Residential housing finance
Basis risk: Uncertainty about the
basis the time a hedge may be lifted.
Counterparty credit risk: The risk
of financial loss arising out of holding a particular
contract or portfolio of contracts as a result of
one or more parties to the relevant contract(s) failing
to fulfill its financial obligations under the contract.
Credit risk: The chance of loss
to an investor, arising from the loan default of a
borrower who fails to make promised interest and/or
principal payments when due, or the corporate default
of a business partner or other counterparty.
Default risk: The chance that a
borrower will fail to make promised interest and/or
principal payments when due.
Funding risk: The possibility that
interest rates will rise, making it more expensive
for investors to fund mortgages or more costly for
investors to hold financial instruments yielding fixed
rates of return when higher-yielding opportunities
Interest rate risk: The risk that
the value or cash flows of an asset, liability or
commitment will change as a result of changes in interest
Liquidity risk: The chance of loss
due to a firm's inability to quickly convert non-cash
assets into cash or to obtain cash to pay upcoming
Market risk: The chance of loss
due to changes in interest rates, exchange rates,
commodity prices or stock prices.
Operating/operations risk: The chance
of loss attributable to human error, internal or external
systems failures, fraud or inadequate internal controls
Prepayment risk: The possibility
of receiving full or partial principal payments before
they are due.
Systemic risk: The risk that a market
crisis places on the financial system as a whole.
Sarbanes-Oxley Act: Legislation passed
largely because of a number of corporate accounting
scandals to protect shareholders and the public from
accounting errors and fraudulent practices in the enterprise.
The Sarbanes-Oxley Act:
- Sets deadlines for compliance and publishes rules
- Defines which records are to be stored and for how
- States that all business records, including electronic
records and electronic messages, must be saved for
'not less than five years.' Consequences for noncompliance
are fines, imprisonment or both. IT departments are
increasingly faced with the challenge of creating
and maintaining a corporate records archive in a cost-effective
fashion that satisfies the requirements put forth
by the legislation.
SERP: Supplemental Employee Retirement
Servicer: Institution approved to
service mortgages funded or purchased by an MPF Bank.
The term "servicer" refers to a servicer acting
in its capacity as a servicer of mortgages for an MPF
Bank under a PFI Agreement.
Small business: In general, any business
with revenue under $500,000/year qualifies, but many
larger agricultural and commercial businesses may also
apply. The definition is found in section 3(a) of the
Small Business Act (15 U.S.C. 632(a)) and implemented
by the Small Business Administration under 13 CFR part
121, or any successor provisions.
Supplemental mortgage insurance (SMI) policy:
Any and all supplemental or pool mortgage guarantee
insurance policies applicable to mortgages delivered
under the Master Commitment.
Third-party pledge: Service offered
by an FHLBank's Safekeeping Department whereby the member
may deliver securities into the custody of the FHLBank
for the benefit of a member's depositor. The member
requests in writing that the FHLBank provisionally segregate
the specified collateral, in essence pledging the collateral
to the depositor.
Underlying: A specified interest rate,
security price, commodity price, foreign exchange rate,
index of prices or rates or other variable. An underlying
may be the price or rate of an asset or liability, but
is not the asset or liability itself.
VA, Department of Veterans Affairs:
Federal agency with oversight for programs created for
veterans of the U.S. armed forces. Mortgage loans granted
by a lending institution to qualified veterans or to
their surviving spouses may be guaranteed by the VA.
Weighted average coupon: Weighted average of the interest
rates of loans within a pool or portfolio.
Weighted average maturity: For a mortgage-backed
security, the weighted average of the remaining terms
to maturity of the mortgages underlying the collateral
pool at the date issue, using as the weighting factor
the balance of each of the mortgages as of the issue