Glossary
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See weighted-average coupon.
The agreement of a lender to overlook a borrower’s failure
to meet one or more conditions attached to the granting of a credit
— conditions that would, in the absence of a waiver, give
the lender the right to declare the loan to be in default.
See average life.
See weighted-average loan age.
See weighted-average maturity.
A form of inventory financing in which goods are held in trust as
collateral for the loan. Warehouse financing may involve the use
of public warehouses in which the goods are held in locations owned
by third parties. Alternatively, warehouse financing may involve
the use of field warehouses in which the goods are located on the
borrower's premises but are controlled by an independent third party.
An informal name used by some bankers for lines of credit used to
finance a borrower's temporary ownership of long-term assets such
as mortgages.
Written evidence of goods held in a warehouse operated by a third
party. The goods may be in a public (i.e., general), private, or
field warehouse. Also known as collateral receipts. The receipts
may be negotiable or non-negotiable. Negotiable warehouse receipts
are bearer instruments. A negotiable warehouse receipt can be sold
to a buyer who then owns the inventory covered by the receipt.
(1) An order drawn by a payor directing its treasurer to pay a specified
amount to the person named or to the bearer. It may be payable upon
demand, in which case it usually circulates in the same way as a
bank check; or it may be payable only out of certain revenue when
and if received, in which case it does not circulate as freely.
(2) A financial instrument that gives the holder
the right, but not the obligation, to purchase a specified amount
of an asset at a specified price during a specified period of time.
A warrant may give its holder the right to buy shares of stock,
bonds, currencies, or commodities. The major difference between
warrants and options is that prices for warrants are usually published
with lists of the prices for the underlying assets.
A document that transfers title to real estate from a grantor to
a grantee. The distinguishing characteristic of a warranty deed
is that it guarantees the grantor's right to make such a conveyance
and that the grantor's title is free of all liens and debts not
specifically disclosed.
The contractual distribution of principal and interest cash flows
in a multi-tranche security such as an ABS, CMO or CDO. The contractually
specified allocation of cash to debt holders and other parties.
The priority of payments to holders of different classes of securities
created from a securitization.
The average interest rate charged to mortgage loan borrowers in
an MBS pool weighted by the size of each loan. Individual loans
in an MBS pool will not usually have the same rates of interest.
For example, FNMA pools may have mortgages with up to 250 basis
points spread between the highest-rate and the lowest-rate loans
in the pool. Investors must remember that the WAC may change over
time as some loans in the pool repay faster than others. Since loan
by loan information is not available, investors must rely on the
original WAC throughout the life of the pool.
See average life.
The average number of months since the date of origination for each
mortgage in a mortgage pass-through issued by Freddie Mac. The average
is weighted by the size of the loans in the pool.
The average of the time remaining until the contractual maturity
date for the loans in an MBS pool weighted by the size of each loan.
Expressed in months.
New securities issues announced by the issuer but not yet sold or
issued. Securities may be purchased or sold on a when-issued basis.
Such trades are negotiated on a yield basis since price cannot be
determined until the coupon rate is known. Price is usually calculated
for delivery on the date of issue. Many U.S. Treasury securities
are actively traded on a when-issued basis. Some corporate and municipal
issues are also purchased on a when-issued basis. Purchasing or
selling when-issued securities is a legitimate and acceptable practice
that should not be confused with the related practice of when-issued
trading. When-issued securities trading is the practice of agreeing
to buy an about-to-be-issued security on or after the announcement
of an offering and then selling the security before the date on
which the securities are issued and must be paid for. Such transactions
are regarded as trading activities by the banking regulators.
A form of life insurance that applies part of the premium payments
to build an investment or savings value for the policy owner. The
investment or savings value is called the cash surrender value of
the policy.
Mortgage-backed securities not issued by or guaranteed by a U.S
government agency or U.S. government sponsored enterprise. The mortgage
loans comprising whole loan pools are generally loans that do not
meet GNMA, FNMA, or FHLMC requirements. Whole loan pools may be
structured as fixed-rate pass-through securities, floating-rate
pass-through securities, or CMOs. Also known as private pools or
private label pools.
A phrase used to describe mortgage loans when the owner of the debt
also owns the servicing rights. In other words, mortgage loans that
have not had the servicing separated.
Banking business conducted exclusively or almost exclusively with
large corporations, governments, financial institutions, trusts,
etc.
When-issued.
The period of time between the expected first principal payment
and the last anticipated principal payment for a specific REMIC
tranche.
One of the two major methods of electronic funds transfer. Only
the payer can originate the remittance. A wire transfer’s
information format is completely flexible, but this flexibility
adds significantly to the bank’s labor costs and results in
much higher fees.
A lending expression that means the loans or leases that have been
acquired from an original lender or lessor are guaranteed by the
originator.
1) Any reduction in funds maintained in a deposit account or mutual
fund.
2) Funds of a proprietorship or a partnership that
are directly removed from the firm by the proprietor or partners.
These are distributions distinct from salary, commission, bonus,
or rent payments paid to proprietors or partners.
A lending expression that means loans or leases that have been acquired
from an original lender with no guaranty from the originator.
In accounting and finance, used to describe the amount, if any,
by which a business's current assets exceed its current liabilities.
Also used more loosely to describe the funds a firm has available
to run its day-to-day business affairs.
An accounting and financial phrase used to describe the dynamics
of short-term cash flows that occur during the normal operations
of a business. The working capital conversion cycle is the circular
process of borrowing money first to purchase inventory, then to
carry that inventory and finally to carry the resulting accounts
receivable that are the proceeds of the inventory. When the receivables
are paid, the firm can then use the proceeds to either repay the
borrowing or to start the cycle all over again by purchasing new
inventory.
A second mortgage that takes over the first. The first mortgage
loan is not paid off. Instead, the borrower makes payments to the
second mortgage lender for the debt service of both the first and
second liens. The second lien holder then makes the payments to
the first lien holder. This type of mortgage is used when the borrower
is unwilling or unable to refinance the first mortgage. Prepayment
of the first mortgage may be prohibited or may be subject to high
penalties. Alternatively, the first mortgage may have a very attractive
fixed rate of interest. The wraparound arrangement permits the borrower
to leave the first mortgage intact while giving more control to
the lender willing to make the second mortgage.
The party that sells an option contract. Also called the option
grantor or maker. |
