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Z
or
See current face and original face.
An exact copy of something, such as a signature.
(1) The percent of the original face of an MBS pool that remains
outstanding at any given time is called the current factor. Principal
payments, made by the borrowers, reduce the original face every
month. Thus there is a new current factor each month. The current
face is always equal to the product of the original face times the
current factor.
(2) An individual or firm that purchases accounts
receivable from firms in need of working capital. Usually, a specialized
financial firm engaged exclusively or almost exclusively in factoring.
Providing working capital to businesses by buying their receivables
(usually at a discount) rather than lending against them. Factoring
is not lending; it is an outright purchase of the receivable assets,
usually on a nonrecourse basis.
The event of a securities purchase or sale transaction not settling
as intended by the parties.
An accounting term defined by FASB. The amount at which an asset
could be bought or sold in a current transaction between willing
parties, that is, other than in a forced or liquidation sale. Quoted
market prices in active markets are the best evidence of fair value
and should be used as the basis for the measurement, if available.
If a quoted market price is available, the fair value is the product
of the number of trading units times that market price. If a quoted
market price is not available, the estimate of fair value should
be based on the best information available in the circumstances.
The estimate of fair value should consider prices for similar assets
and the results of valuation techniques to the extent available
in the circumstances. Examples of valuation techniques include the
present value of estimated expected future cash flows using a discount
rate commensurate with the risks involved, option-pricing models,
matrix pricing, option-adjusted spread models, and fundamental analysis.
Valuation techniques for measuring assets should be consistent with
the objective of measuring fair value. Those techniques should incorporate
assumptions that market participants would use in their estimates
of values, including assumptions about interest rates, default,
prepayment, and volatility. (Note that the FASB definition in FAS
115 is replaced by the definition in FAS 133.
A type of hedge defined by FAS 133. An entity may designate a derivative
instrument as hedging the exposure to changes in the fair value
of an asset or a liability, or a portion of an asset or a liability.
Certain requirements must be met to qualify for fair value hedge
accounting. Changes in the fair market value of the derivative instrument
in qualifying fair value hedges are recorded and reported in earnings.
At the same time, gains or losses associated with the hedged risk
are also recognized in current earnings. The carrying value (book
value) of hedged asset/liability must be adjusted commensurately
with resulting basis adjustment, producing a prospective yield adjustment
thus offsetting the related derivative loss/gain in the same accounting
period. See FAS 133.
An informal name for the Federal National Mortgage Association (FNMA)
or for securities issued by it.
A category of goods defined by Article 9 of the UCC. Farm products
are crops, livestock, or supplies used or produced in farming operations.
In addition, this category includes products of crops or livestock
(such as milk and eggs or other things in the possession of a farmer)
in their unprocessed state.
An accounting rule formerly applicable to futures contracts. See
FAS 133.
Financial Accounting Standard No. 87. A rule promulgated by the
AICPA that requires firms to report prepaid pension assets or accrued
pension liabilities on their balance sheets. It also requires that
financial statement footnotes disclose a "statement of funded
status" and a "reconciliation of funded status" for
those plans.
Financial Accounting Standard No. 95, Statement of Cash Flows. A
rule promulgated by the AICPA that requires all audited financial
statements to include a statement of cash flows in the audited reports.
Under FAS 95 rules, firms may elect to prepare the required statement
of cash flows using either the direct or the indirect method defined
in the rule.
An accounting rule that previously required disclosures of information
about financial derivatives. Superseded by FAS 133.
Financial Accounting Standard No. 106, Employers' Accounting for
Post Retirement Benefits Other Than Pensions. A rule promulgated
by the AICPA . that requires firms to accrue postretirement benefit
costs during the periods of the active service of the covered employees.
Financial Accounting Standard No. 107, Disclosures About Fair Value
of Financial Instruments. A rule promulgated by the AICPA that requires
mark- to-market value disclosure of financial instruments. These
disclosures are made in footnotes to published financial statements.
FAS 133 amended FAS 107 to include the disclosure provisions about
concentrations of credit risk that were formerly in FAS 105.
Financial Accounting Standard No. 109, Accounting for Income Taxes.
A rule promulgated by the AICPA that requires the recognition of
unrealized income tax benefits as deferred tax assets on a firm’s
balance sheet. Also provides for the establishment of a valuation
reserve to offset some or all of the deferred tax assets when the
tax benefits are not likely to be realized.
Financial Accounting Standard No. 115, Accounting for Certain Investments
in Debt and Equity Securities. A rule promulgated by the AICPA that
requires different accounting treatment for unrealized gains and
losses incurred for securities held in portfolios. Unrealized gains
and losses from trading account securities must be reflected in
reported earnings. Unrealized gains and losses from securities deemed
available for sale must be netted to a single number that is shown
as a component of shareholders’ equity until realized. Gains
and losses for securities deemed to be held to maturity are not
reflected in either the income statements or balance sheets of the
holders.
An accounting rule that used to govern disclosures of financial
derivatives. Superseded by FAS 133.
Statement of Financial Accounting Standard No. 130, Reporting Comprehensive
Income. A rule promulgated by the AICPA that creates new procedures
for reporting certain changes in selected financial assets and liabilities.
Under FAS 130, these changes are not reflected in the traditional
income statement. See other comprehensive income.
Statement of Financial Accounting Standard No. 133, Accounting for
Derivative Instruments and Hedging Activities. A rule promulgated
by the AICPA that establishes accounting and reporting standards
for derivative instruments. The scope of the rule includes some
derivative features embedded in other contracts. The rule establishes
specific accounting and reporting requirements for derivatives used
for each of two kinds of hedging activities - fair value hedges
and cash flow hedges. This rule supersedes FAS 80, FAS 105, and
FAS 119. See cash flow hedge, comprehensive income, embedded option,
and fair value hedge.
Statement of Financial Accounting Standard No. 138, Accounting for
Certain Derivative Instruments Certain Hedging Activities A rule
promulgated by the Financial Accounting Standards Board (FASB) that
makes major changes to FAS 133.
Statement of Financial Accounting Standard No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities A
rule promulgated by the Financial Accounting Standards Board (FASB)
that makes major changes to FAS 133.
See Financial Accounting Standards Board.
An informal name for MBS pools that prepay rapidly.
Report of Foreign Bank and Financial Accounts. Each United States
person who has a financial interest in, or signature authority over,
any financial accounts including bank, securities or other types
of financial accounts, in a foreign country must report that relationship
by filing an FBAR if the aggregate value of these financial accounts
exceeds $10,000 at any time during the calendar year. The deadline
to file the FBAR with the Department of the Treasury for each calendar
year is on or before June 30th of the following year. The term "United
States person" means a citizen or resident of the United States,
domestic partnership, domestic corporation, or a domestic estate
or trust.
See Federal Deposit Insurance Corporation Improvement Act 305.
Federal Deposit Insurance Corporation Improvement Act (FDICIA) 305
A section in the FDICIA that requires the FDIC, the Office of the
Comptroller of Currency (OCC), Office of Thrift Supervision (OTS),
and the Federal Reserve to add an interest rate risk component to
bank and thrift capital requirements.
The time lag between when the proceeds of a check are available
to a bank according to the availability schedule and when the check
is actually presented for payment (clears against the payer’s
bank). The fed float represents the difference between available
and collected balances.
See federal funds.
An informal name for the Federal Reserve Communications System.
This is the electronic communication network interconnecting Federal
Reserve offices, the Federal Reserve Board, member banks, the U.S.
Treasury, and other government agencies. The Fed wire is used for
transferring member bank reserve account balances and government
securities, as well as for transmitting information from the Federal
Reserve System. See CHIPS and SWIFT.
See flood insurance.
A body comprising representatives from all of the federal banking
regulatory organizations (the Federal Reserve System, the FDIC,
the OCC, the OTS, and the National Credit Union Administration).
The FFIEC issues policy statements but has no power to mandate any
actions. Its policy decisions must be approved by its member organizations.
Short-term investments/borrowings between banks, usually called
fed funds. The investing/lending bank refers to the transaction
as fed funds sold while the borrowing bank refers to the transaction
as fed funds purchased. Despite its name, these transactions are
not loans to or from the federal government. Nor do they include
any guarantee or backing from the federal government. They are only
called federal funds because the parties exchange the funds by transferring
balances from the lender's account with its Federal Reserve District
Bank to the borrower's account with its Federal Reserve District
Bank. Fed funds investments are usually overnight loans. See term
fed funds.
The rate for which overnight federal funds are traded.
A U.S. government-sponsored enterprise. Twelve district banks and
a Federal Housing Finance Board created by the U.S. government and
owned by member financial institutions. The main purpose of the
system is to provide loans to members for the accommodation of home
lending.
A U.S. government-sponsored enterprise. FHLMC is owned by member
financial institutions and is not an agency of the U.S. government.
It provides financial products and services in the mortgage market
that enhance liquidity. Informally but widely known as Freddie Mac.
An agency within the Department of Housing and Urban Development
(HUD) that provides insurance for single-family and multifamily
residential mortgages.
A U.S. government sponsored enterprise. FNMA is a private corporation
created by the U.S. government to facilitate financing for housing.
Informally but widely known as Fannie Mae.
An individual qualified under federal rules to perform real estate
appraisals. Unlike a staff appraiser, a fee appraiser is not employed
by the financial institution contemplating the extension of credit
to be secured by the property to be appraised.
See adjusted trading.
Federal Emergency Management Agency. See flood insurance.
See Federal Financial Institutions Examination Council.
See Federal Housing Administration.
A statistical publication of the FHA that shows the proportion of
FHA-insured and VA mortgage loans that terminate each year. Mortgage
loan mortality tables.
See Federal Home Loan Bank System.
Loans granted to member financial institutions by Federal Home Loan
Banks. FHLB advances are structured to meet a wide variety of borrower
needs. Common structures include bullet advances, puttable advances,
and principal reducing credit advances.
See Federal Home Loan Mortgage Corporation.
A name used by a proprietorship, partnership, or corporation to
conduct business that is different from the legal name of the proprietorship,
partnership, or corporation.
or
Insurance protecting an employer from losses resulting from the
deliberate misappropriation of the firm’s assets by one or
more of its employees. Fidelity insurance is obtained by most financial
institutions.
Any on-site inspection of the bank's collateral may be referred
to as a field audit. However the phrase is most often used to refer
to on-site audits of a borrower's records related to sales, accounts
receivable, accounts payable, customer records, and shipping documents.
Field audits are often conducted by specially trained bank employees
but may be done by internal bank auditors, external accounting firms
hired by the bank, or firms specializing in this service. Written
field audit reports contain significant information for secured
lenders.
A method of financing inventories in which the inventory is held
in custody for the lender by an agent of the lender at the borrower's
place of business.
See first in, first out.
The latest possible date on which an MBS holder receives payment.
Because mortgage loans tend to be repaid sooner than their contractual
maturity dates, the actual final payment is likely to occur earlier
than the final distribution date.
The maturity date of the single loan in a pool of mortgage loans
that has the maturity date furthest in the future. Because mortgage
loans tend to be repaid sooner than their contractual maturity dates,
the actual final payment is likely to occur earlier than the final
maturity date.
A term used in UCC Article 2A. A lease in which the lessor is not
the supplier or manufacturer of the leased goods. In a finance lease,
the lessor must not have any involvement in the selection of the
leased goods and it must be serving only as a conduit for the lessee
to obtain the goods. Finally, the lessor must acquire the goods
or the right to possess the goods in connection with the lease.
An accounting industry organization; part of the Financial Accounting
Foundation. FASB issues Statements of Financial Accounting Standards
that define and govern GAAP for nongovernment entities in the United
States. FASB also publishes Interpretations and Technical Bulletins
that govern the application of their accounting standards.
A federal law enacted in 1989. FIRREA primarily addresses the operation
of savings and loan associations; however, it includes a number
of important provisions affecting commercial banks. Arguably the
most important FIRREA provisions affecting banks are those that
address requirements for real estate appraisals.
Cash, evidence of ownership in an entity (e.g., stock), a contract
that creates a right or obligation to receive or deliver cash (e.g.,
notes and bonds), or a contract that creates a right or obligation
to receive or deliver another financial instrument or commodity
(e.g., options and futures).
A party such as a bank or other financial institution that accepts
funds from a provider and places those funds with a user. The intermediary's
investment from the user is usually for a longer term, usually has
less liquidity, and usually has more credit risk than the intermediary's
liability to the provider.
Collective name for historical financial reports of assets, liabilities,
capital, income, and expense.
Forms, usually standard UCC-1 forms, that are required by Article
9 of the UCC to be recorded in a designated public location in order
to perfect a creditor’s lien in personal property collateral.
The financing statement is used as a vehicle for a public recording
that establishes lien priority — it does not normally constitute
the actual agreement between the secured party and the debtor. For
that reason, the financing statement by itself does not create a
security interest and must therefore be supported by a separate
security agreement or pledge agreement.
An agreement with an unrelated party that is binding on both parties
and that is usually legally enforceable. In FAS 133, FASB specifies
that the following are both satisfied for a firm commitment: a)
The agreement specifies all significant terms, including the quantity
to be exchanged, the price at which the quantity will be exchanged,
and the timing of the transaction. b) The agreement includes a disincentive
for nonperformance that is sufficiently large to make performance
probable.
See Financial Institutions Reform, Recovery, and Enforcement Act.
A method of accounting for business inventory permitted by GAAP.
MBSs that are fixed-rate instruments for an initial period and floating-rate
securities thereafter. The initial, fixed-rate period may be 3,
5, 7, or 10 years. After the expiration of the fixed-rate period,
a typical fixed-period ARM may adjust annually at a margin over
the one-year Treasury index. Some fixed-period ARMs have rates tied
to LIBOR.
Fixtures are items that become attached to real property. Examples
are heating and air conditioning systems, wall-mounted shelving,
and security alarm systems. Lenders must be extremely cautious about
what constitutes a fixture. As a general rule, an item may be considered
goods before it becomes attached to a building, but becomes a fixture
after it is attached. Once affixed to real property, goods may be
subject to laws governing real estate collateral rather than rules
under Article 9 of the UCC.
See yield curve slope.
A term repo/reverse transaction that allows for the investor to
sell some of the collateral securities back to the borrower before
the final maturity date of the transaction. Flex repos are well
suited to construction projects for which bond proceeds need to
be invested until payment is due for each stage of construction.
Usually, the timing of the loan payments is subject to considerable
uncertainty. The flex repo investment has a draw-down schedule for
reducing the size of the investment; however, the investor is not
required to adhere to it rigidly. In return for the added flexibility,
investors in flex repos almost always receive slightly lower rates
of return than investors in repos with terms that are more traditional.
The situation in which many investors sell or reduce purchases of
less creditworthy investments and simultaneously buy or increase
purchases of the most creditworthy investments. Flights to quality
often occur suddenly after a major unexpected default or a major
political event.
The use of funds generated as a result of timing differences in
the check-clearing system. For banks, float occurs because debits
given by the Federal Reserve to a bank's reserve account for checks
being cleared can be received prior to the time that the bank allows
the customer who presented the check to use the funds. For depositors,
float occurs because credits may be given for checks deposited or
tendered for payment before the depositor's accounts are debited.
See bank float, check-clearing float, collection float, delivery
float, disbursement float, fed float, and processing float.
An analysis of an organization’s disbursements to determine
the approximate number of days between issuance of a check and presentation
of the check for payment at the organization’s bank.
An informal name for a security with a variable coupon rate. Particularly
used to refer to floating-rate CMO tranches.
The name for and the nature of a creditor's interest in a debtor's
accounts receivable and inventory. In the natural operation of any
business, the specific receivables and inventory owned at one point
in time are replaced over time by new receivables and new inventory.
Thus a creditor’s security interest in accounts receivable
and inventory floats from the specific accounts and inventory held
today to that held next week, next month, and thereafter.
A medium-term instrument with a coupon rate that floats up or down
based upon changes to an index or reference rate. Often, FRNs are
tied to LIBOR.
A geographic area officially designated under Federal law as an
area that might experience damage from flooding. Under the National
Flood Insurance Reform Act of 1994, lenders taking an interest in
real property are required to complete a standard flood hazard determination
form developed by the Federal Emergency Management Agency (FEMA).
Flood hazard forms must be retained in the lender’s records.
If the form indicates that the property is in a designated flood
hazard zone, the lender is required to have flood insurance protection.
Lenders may also have notice requirement obligations for collateral
located in flood hazard zones.
Insurance protection against damage caused by floods. For applicable
parcels of real estate, lenders with a security interest in that
real estate are required by law to either require that borrowers
obtain flood insurance or to obtain flood insurance for their borrowers.
See flood hazard zone.
A lower limit for a variable, such as the lower limit on an interest
rate paid or received in a transaction. For example, an adjustable-rate
loan may have a floor of 5 percent. In that example, the rate can
adjust however loan terms provide, but it can never fall below 5
percent. The term "floor" is often used with its converse,
a cap. A floor may be an embedded option, such as the floor on the
rate for a floating-rate loan, or a stand-alone option contract.
A form of inventory financing involving loans or advances for specific
items of inventory.
An option that grants the holder the right to purchase a floor.
U.S. Treasury bonds that can be applied at par toward the payment
of U.S. inheritance taxes. The Treasury stopped issuing flower bonds
in 1977. The last flower bond matured in 1998.
A measure of the sensitivity of CMO cash flows to changes in the
prepayment rate of the underlying MBS collateral. Derived from flow
uncertainty index. Developed by the National Association of Insurance
Commissioners to create a standard measure of CMO volatility. A
flux score is a composite of two elements that indicate the impact
of six prepayment scenarios on a bond’s present value and
on the timing of its cash flows. That impact is expressed in terms
of variation from a base case. Flux scores are calculated once each
year in January. A flux score of 0 indicates no cash flow uncertainty.
(Rather than a lack of interest rate risk, this score indicates
that the amount and timing of the cash flows are known.) There is
no upper limit for flux scores.
See Federal National Mortgage Association.
A Federal law that preempts state laws including the UCC as they
apply to farm products. The law allows certain buyers to obtain
clear title to farm products regardless of security interests that
the seller previously granted to secured lenders.
An agreement between a creditor and a debtor. A forbearance agreement
is utilized when a debtor has defaulted or is likely to default.
Under the terms of the forbearance agreement, the debtor is given
more time to make loan payments, a reduction in the amount of loan
payments due each month or both. Typically, the lender agrees not
to exercise rights to foreclose or accelerate during the forbearance
period. In return, the debtor agrees not to contest any actions
taken by the creditor to collect the debt in the event that the
debtor fails to comply with the payment schedule or other terms
specified in the forbearance agreement. In some forbearance agreements,
the debtor may grant the creditor a deed in lieu of foreclosure
if the terms of the forbearance agreement are not met. Sometimes
called a drop dead agreement.
Insurance purchased by a creditor covering personal or real property
owned by debtor. In some cases, forced placed flood insurance is
required by law. In other cases, creditors are granted the right
to force place insurance by provisions in loan agreements, security
agreements, and/or mortgages. Forced placed insurance is almost
exclusively purchased when the debtor refuses to obtain or renew
required insurance coverage.
An accounting term defined by FASB in FAS 133. A transaction that
is expected to occur but for which there is no firm commitment.
Because no transaction or event has yet occurred and because the
transaction or event, when it occurs, will be at the current prevailing
market price, a forecasted transaction does not give an entity any
present rights to future benefits or a present obligation for future
sacrifices.
A remedy provided by state law for creditors secured by an interest
in real property to obtain title to the property under certain conditions.
One of nine risks defined by the OCC. The risk to earnings or capital
arising from adverse movement of foreign exchange rates. The Federal
Reserve includes this risk in its definition of market risk.
A term sometimes used to describe the quantity of a financial institution's
liquidity risk. See "counterbalancing capacity".
The transfer of commodities or foreign exchange at a specified date
subsequent to the date of the contract that provides for the transfer.
The informal (nonexchange) trading of foreign exchange or commodities
to be delivered at a future date. Contracts for forward delivery
are not standardized. Instead, the delivery time and amount are
negotiated by the parties.
The interest rate for a specified maturity of a fixed-income security
for a future date. For example, the forward rate for six-month Treasury
bills one month from today. See spot rate for contrast.
A customized agreement between two parties specifying the rate to
be paid at some future date. Usually tied to LIBOR.
The sale of an investment position when the sale proceeds are used
to acquire a new position that is very similar to the one that was
sold.
See yield curve.
Contracts for the sale/purchase of a specified quantity of a financial
instrument, currency, or commodity at an agreed-upon price on a
given future date. Unlike an option, a forward contract obligates
both parties to consummate the transaction. Forwards are very similar
to futures - the principal difference is that futures are almost
always exchange traded while forwards are traded over the counter.
See forward rate agreement.
A transfer of an interest of the debtor made within one year prior
to the filing of bankruptcy that is either made by the debtor with
the intent to defraud its creditors or for which the debtor receives
less than reasonable consideration. A fraudulent transfer may be
set aside (reversed) by a bankruptcy judge.
An informal name for the Federal Home Loan Mortgage Corporation
(FHLMC) or for securities issued by it.
Cash flow from operations minus capital expenditures and dividends.
Cash flow from operations is reduced by those adjustments to generate
a measure of cash available to meet other corporate purposes. While
the above definition is commonly used by equity investors, bank
credit analysts create similar measures of free cash flow that may
involve more or different adjustments to cash flow from operations.
See floating-rate note.
A form of sales charge imposed by some mutual funds. A front-end
load is an initial charge that is deducted from each investment
made in the fund. The amount of the charge is usually a percentage
of the amount of the investment. See back-end load, load, and no
load.
See funds transfer price.
A pledge of the general taxing power for the payment of debt obligations.
Bonds carrying such pledges are referred to as general obligation
bonds or full-faith-and-credit bonds.
A phrase used to describe personal property leases that are structured
such that the bank/lessor receives its total repayment from one
customer/lessee and that the total repayment comes from the proceeds
of rents, tax advantages, and the residual value assumption.
A fiscal and accounting entity with a self-balancing set of accounts
in which cash and other financial resources, all related liabilities
and residual equities, or balances, and charges therein, are recorded
and segregated to carry on specific activities or attain certain
objectives in accordance with special regulations, restrictions,
or limitations.
A term used to describe either the excess or shortfall of pension
assets in relation to pension liabilities. When pension liabilities
exceed the assets, the funded status is a shortfall. When a plan
liquidation or termination is being analyzed, the funded status
is calculated using the accumulated benefit obligation (ABO) as
the liability value. When a plan's funded status is calculated to
analyze the plan on a going concern basis, the projected benefit
obligation (PBO) is used as the liability value.
See liquidity mismatch.
or
The potential that an institution will be unable to meet its obligations
as they come due because of an inability to liquidate a sufficient
quantity of assets or to obtain a sufficient quantity of new liabilities.
An internal cost accounting system or methodology that transfers
a cost of funds expense to profit centers that generate assets and
a credit for funds to profit centers that provide funding. Most
funds transfer pricing systems are matched maturity systems that
attempt to reflect the term structure of interest rates in their
transfer rates. Transfer rates may be allocated to pools of similar
assets or liabilities, may be specifically allocated to individual
assets or liabilities, or may employ a combination of those two
approaches.
Property that is indistinguishable from other property of the same
type. Fungibles are completely substitutable or interchangeable.
Two examples of fungibles are pork bellies and dollar bills.
Provisions in mortgages or security agreements that attempt to extend
the secured party’s interest in the collateral to cover future
extensions of credit made by that creditor to the debtor.
Contracts for the sale/purchase of a specified quantity of a financial
instrument, currency, or commodity at an agreed-upon price on a
given future date. First developed for agricultural commodities,
actively traded futures are available for foreign currencies, stocks,
stock indexes, U.S. Treasury debt, Eurodollar deposits, and other
financial instruments. Futures are often used in hedging. Unlike
an option, a futures contract obligates both parties to consummate
the transaction. Futures are very similar to forwards - the principal
difference is that futures are almost always exchange traded while
forwards are traded over the counter. |
