A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

AAA:  AAA is the current rating given to FHLB by Moody’s and Standard & Poor’s rating services. It suggests there is minimal risk to default. 

Adjustable Rate Mortgage (ARM):  A mortgage that features predetermined adjustments of the loan interest rate at regular intervals based on an established index.  The interest rate is adjusted at each interval to a rate equivalent to the index value plus a predetermined spread, or margin, over the index, usually subject to per-interval and to life-of-loan interest rate and/or payment rate caps.

Advance:  A term that describes a secured loan made to a member.  Advances are offered at fixed or floating rates with specific maturities or with embedded options for early redemption. 

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.

Actual Credit Enhancement:  Until the date a Master Commitment is filled, closed or expires, the cumulative amount of the PFI’s credit enhancement as determined by the MPF provider's system with respect to the mortgages then delivered under that Master Commitment.  On and after such date, the amount of the PFI’s credit enhancement as determined by such system with respect to all mortgages actually delivered under the Master Commitment in accordance with the applicable MPF mortgage product description, which may permit such credit enhancement to be reset from time to time by the MPF provider.  Further, if any mortgages are subsequently purchased or repurchased by the PFI pursuant to the PFI Agreement, the actual credit enhancement may at the option of the MPF bank be recalculated as if such mortgages had never been delivered under the Master Commitment.

Affordable:  The rent charge of a unit which is to be reserved for occupancy by a household with an income at or below 80 percent of the median income for the area, does not exceed 30 percent of the income of a household of maximum income and size expected, under the commitment made in the AHP application, to occupy the unit (assuming occupancy of 1.5 persons per bedroom or 1.0 person per unit without a separate bedroom), i.e., the rent does not exceed 30 percent of the applicable 50, 60, or 80 percent targeted median income level committed to in the application.

Affordable Housing Program (AHP):  An FHLB program that provides direct grants and subsidized loans to assist members in meeting their community's affordable housing needs.  Members partner with local housing organizations (project sponsors) to develop AHP projects.

Agent Fee:  The 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.

AMA:  Acquired member assets.

AMO:  Stands for either amortizing or amortizer, depending on usage.

Amortizing:  Regularly scheduled principal and interest payments on an advance, which reduces the principal balance, owed. 

Annual Percentage Rate (APR):  The cost of credit that consumers pay, expressed as a simple annual percentage.

Asset Swap:  A package of a cash credit instrument and a corresponding swap that transforms the cash flows of an asset (typically a fixed rate bond or loan) into a floating interest rate instrument, typically indexed to LIBOR.

At-The-Money:  An option whose strike is set at the same level as the prevailing market price of the underlying forward contract.

B

Basis Point (bp):  1/100th of 1% (0.01%).

Basis Swap:  An interest rate swap in which two streams of floating rate payments are exchanged.  For example, two counterparties may exchange 1 month LIBOR for 3 month LIBOR payments.

Bilateral Netting:  An agreement between two counterparties whereby the value of all in-the-money contracts is offset by the value of all out-of-the-money contracts, resulting in a single net exposure amount owed by one counterparty to the other.

Blanket Lien:  An agreement between an FHLBank and a member pledging all eligible collateral (otherwise not specifically pledged to a third party) to secure all outstanding advances.

Book Value:  The value at which an asset is carried on a balance sheet.

Brownfields:  Abandoned, idled, or underused industrial and commercial properties where expansion or redevelopment is complicated by real or perceived contamination.  These areas are eligible for the Brownfields Tax Incentive Deduction.

Bullet Rates:  A fixed rate and fixed term, non-amortizing advance whose principal is due at maturity, interest paid monthly.

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C

Callable: Bonds that may be redeemed by the issuer before their scheduled maturity.   The first dates when an issuer may call bonds are specified in the prospectus of every issue that has a call provision in its indenture.

Callable Advance:  An advance containing an option that grants the FHLB the right to cancel the advance at some specified future date.

Callable Swap: An interest rate swap in which the fixed-rate payer has the right to terminate the swap after a certain time if rates fall.  Often done in conjunction with callable debt issues where an issuer is more concerned with the cost of the debt than the maturity.

CAMELS:  The components of FDIC ratings, which stands for:  capital adequacy, asset quality, management, earnings, liquidity and sensitivity. 

Capped Floater: A floating-rate note, which pays a coupon only up to a specified maximum level of the reference note.  This is done by embedding a cap in a vanilla note where the investor effectively sells the issuer a cap.

Champion Community:  Communities that applied for, but were not awarded ED (Economic Development) or EZ (Empowerment Zone) status.  These communities received financial and technical assistance from the USDA.

Closed Loan/Closed Mortgage:  A 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.

Collateral:  A security interest that an FHLB is required by statute to obtain and thereafter maintain beginning at the time of origination or renewal of an advance.  Traditionally, the FHLBanks have used three approaches to collateralizing advances: blanket lien against all eligible items pledged as collateral; specific listing of individual eligible items pledged as collateral and segregated from other borrower assets; or, physical possession of collateral documents.

Committee on Uniform Securities Identification Procedures (CUSIP):   A committee that assigns identifying numbers and codes for all securities.  The CUSIP numbers and symbols are used when recording all buy and sell orders.

Community Adjustment and Investment Program (CAIP):  Defined under 22 U.S.C. 290m-2 as areas with a significant number of lost jobs as a result of NAFTA.  These communities receive financial and technical assistance from USDA and SBA.

Community Financial Institution (CFI): A community financial institution is currently defined as a member who has: deposits insured under the Federal Deposit Insurance Act; and average total assets of less than $500 million based on regulatory reports for the three most recent calendar year-ends adjusted by CPI as determined by the FHFB.  The actual CFI limit for 2002 was $527 million, and is $538 million for 2003.

Community Housing Development Organization (CHDO):  A private nonprofit organization with a 501(c) federal tax exemption, a CHDO must also include providing decent, affordable housing to low-income households as its purpose in its charter, articles of incorporation, or by-laws.  It must serve a specific, delineated geographic area; a neighborhood, several neighborhoods, or the entire community.  Merely serving certain population groups (by ethnicity, race, age, or gender) does not qualify.

Community Investment Cash Advance (CICA):  A general framework under which the FHLBanks may offer an array of specific standards for projects, targeted beneficiaries and targeted income levels that the Finance Board has determined support community lending.

Community Investment Program (CIP): An FHLB program that supports lending for housing related programs targeted to households earning up to 115 percent of the area median income.  The programs include single family housing and multi-family or rental projects.

Community Reinvestment Act (CRA):  Enacted by Congress in 1977, the CRA encourages banks to help meet the credit needs of their communities for housing and other purposes, particularly in neighborhoods with low or moderate incomes, while maintaining safe and sound operations. 

Consolidated Mortgage Obligation (CMO):  A security backed by a pool of pass through rates, structured so that there are several classes of bondholders with varying maturities, called tranches.  The principal payments from the underlying pool of pass-through securities are used to retire the bonds on a priority basis as specified in the prospectus.

Consolidated Obligation (CO): These bonds and discount notes are the joint and several liability of all 12 FHLBanks and are issued and serviced through the FHLBank System Office of Finance, The FHLBank System’s fiscal agent.  These instruments are the primary source of funds for the FHLBanks.  Generally, discount notes are COs with maturities up to 360 days, and CO bonds have maturities of one year or longer.

Constant Maturity Swap Derivative: A form of over-the-counter swaps and options.

Constant Maturity Treasury Derivative (CMT): A form of over-the-counter swaps and options that use longer-term, Treasury-based instruments for their floating rate reference rather than money market indexes, such as LIBOR.  The term Constant Maturity Treasury refers to the par yield that would be paid by a treasury bill, note, or bond which matures in exactly one, two, three, five, seven, 10, 20, or 30 years.

Constant Prepayment Rate (CPR):  Typically, the result is stated as a percentage of the mortgage balance outstanding at the beginning of a period (for example, prior month or year) to a subsequent like period.  This number is referred to as the CPR.  The CPR includes only prepayments, not contractual amortization payments.

Conventional loan / conventional mortgage:  A mortgage that is neither insured nor guaranteed by the FHA, VA or any other agency of the federal government.

Convertible Advance:  An advance containing an option that grants the FHLB the right to convert the fixed coupon of the advance to a variable rate one at some specified future date.

Convexity: The amount that a bond’s price sensitivity differs from what is implied by its duration.

Cost of funds:  For the purpose of a subsidized advance, this is the estimated cost of issuing bank system consolidated obligations with maturities comparable to that of the subsidized advance.

Counseling Cost: These are costs that may be incurred in connection with assisting a homebuyer in the purchase of a home.  AHP subsidies may be used to pay for counseling costs only where such costs are incurred in the actual purchase of an AHP assisted unit, and the cost of counseling has not been covered by another funding source, including the member.

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.  Counterparty credit risk is managed through the use of an ISDA Master Agreement, which allows netting of all exposures related to all derivatives contracts between two counterparties, and an ISDA Credit Support Annex, which provides for the posting of collateral based on net exposure. 

Coupon (CPN):  A periodic interest payment made to the bondholders during the life of the bond.

Credit Enhancement Fee (CE Fee):  A 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.  It is based on the fee rate applicable to such Master Commitment and is subject to the terms of the Master Commitment and applicable MPF mortgage product, which may include performance and risk participation features.

Credit Review Committee (CRC):  A committee that reviews the collateral status of FHLB members and determines collateral policies and procedures.

Credit Spread: A credit spread is the difference in yield between two debt issues of similar maturity and duration.  The credit spread is often used as a measure of relative creditworthiness, with reduction in the credit spread reflecting an improvement in the borrower’s perceived creditworthiness.

Custody: Maintaining possession of documents on behalf of another party or the bank.  The bank is entrusted with maintaining proper administration of documents and accounting for all items in its possession.

Custodial Account:  A demand deposit account maintained by a servicer into which principal and interest payments or escrow funds, as the case may be, are deposited.   The types of custodial accounts are: Principal and Interest (P&I) Custodial Account, Escrow (T&I) Custodial Account, and Buydown Custodial Account.

Custodial Collateral Services:  A service whereby the Bank takes possession of a member’s whole loan documents as collateral for Advances.  In some cases, the Bank requires delivery of collateral due to the financial condition of the member.

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D

Debt Service Ratio: The ratio of a project’s annual net operating income divided by the total annual debt service.

Delinquency:  Delinquency occurs when all or part of a borrower’s required monthly payment is unpaid after the due date.

Delinquency Advances:   Funds advanced by a servicer to cover any deficit in the principal and interest custodial account on the withdrawal date, which results from delinquent mortgage loan payments (for scheduled/scheduled remittance types only).

Delivery versus Payment (DVP):  Securities industry procedure whereby delivery of securities sold is made to the buying customer’s bank in exchange for payment, usually in the form of cash.

Delivery Commitment:  The mandatory commitment of the parties, evidenced by a written, or a machine or electronically-generated transmission, that is issued by an MPF Bank to a PFI accepting the PFI’s oral delivery commitment offer.  It can be made from time to time under the PFI Agreement and in accordance with the provisions of the guides.  Pursuant to such a commitment, the PFI commits to deliver mortgages to the MFP bank that satisfy the terms set forth in the commitment within the period set forth therein, and the MPF bank commits to fund or purchase such mortgages in accordance with the provisions of the guides.

Delta: The delta of an option describes its premium’s sensitivity to changes in the price of the underlying instrument.

Demand Deposit Account (DDA): Compares 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 principal and interest payments from securities and Advances are posted into the DDA. 

Department of Housing and Urban Development (HUD):  A Cabinet-level federal government agency founded in 1965 that is responsible for stimulating housing development in the United States. 

Department of Veterans Affairs (VA):  A federal government 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.

Deposit Auction: The Bank offers callable and non-callable deposits (collectively referred to as term deposits) which have maturities ranging from one week to 10 years.  The deposits are generally offered on a weekly basis via auctions that are conducted on SecureConnect.

Depository Trust Corporation (DTC):  A central securities repository where stock and bond certificates are exchanged.

Derivative:  An instrument or product whose value changes with changes in one or more underlying market variables, such as equity or commodity prices, interest rates or foreign exchange rates.

Direct Subsidy: An AHP subsidy in the form of direct cash payment, but does not include homeownership set-aside funds.

Disclosure Committee: The SEC recommends that companies establish a Disclosure Committee to oversee the adoption and execution of the controls and procedures and disclosures called for by the Sarbanes-Oxley Act.

Discount Note Advance (DNA):  A fixed rate advance for the term, priced off prevailing short term Discount Note market.

Disaster Relief Program (DRP): An FHLB program designed to provide financing to aid families and individuals whose homes or businesses were damaged or destroyed in an officially declared disaster area. 

Duration / Duration of Equity (DOE): The average life of the present values of all future cashflows from a bond.

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E

Economic Development Project (EDP): An FHLB program designed to finance economic development projects or activities in targeted income communities by providing favorably-priced advances to finance economic development or commercial revitalization projects.

Economic Development Project Plus (EDP Plus): An FHLB program designed to promote and enhance small business development; to foster business relationships between member institutions, small businesses, and small business development organizations; to create and retain jobs; and to assist member institutions in providing capital to underserved areas or to underserved populations.  It must be used in conjunction with an EDP grant.

8-K: An ad hoc report required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock, or in the Bank’s case, the value of its debt.

Embedded Option: An option, often an interest rate option, embedded in a debt instrument that affects its redemption.  Examples include mortgage-backed securities and callable and puttable bonds.

Empowerment Zone (EZ):  A distressed area in need of sustainable community development. EZ is designed to afford communities real opportunities for growth and revitalization.

Enterprise Community (EC):  A designation by USDA (rural) or HUD (urban) based on four key principals: economic opportunity, sustainable community development, community-based partnerships, and strategic vision for change.  In addition to tax benefits and grants, these communities receive special consideration for and assistance from federal programs.

Exotic Option: Any option with a more complicated pay-out structure than a plain vanilla put or call option.

Extendible Swap: A swap in which the fixed-rate payer has an option to extend the swap.

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F

FAS 115:  This statement addresses the accounting and reporting requirements for investments in equity securities that have readily determinable fair values and for all investments in debt securities.  This statement does not apply to unsecuritized loans.  However, after mortgage loans are converted to mortgage-backed securities, they are subject to its provisions.

FAS 133:  This statement addresses accounting for derivative instruments and hedging activities.  It requires that all interest rate derivatives be recorded on the statements of condition at their fair values, and that periodic changes in their fair values be recorded in either current earnings or other comprehensive income.

Fed Funds Rate: The rate of interest at which Fed funds are traded.

Federal Deposit Insurance Corporation (FDIC):  Federal agency established in 1933 which 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 Housing Finance Board (FHFB):  An independent regulatory agency of the executive branch of the U.S. Government with a five member board that regulates the 12 FHLBanks and the Office of Finance.

Federal Housing Administration (FHA):  A government agency, which is a part of the Department of Housing and Urban Development (HUD).  It was established in 1934 and insures lenders against loss on residential mortgages. 

Federal Home Loan Mortgage Corporation (FHLMC) (Freddie Mac):  A publicly owned, government-sponsored enterprise that buys qualifying residential mortgages from lenders, packages them into new securities backed by those pooled mortgages, provides certain guarantees, and then resells the securities in the open market. 

Federal National Mortgage Association (FNMA) (Fannie Mae):   A publicly owned, government-sponsored enterprise that purchase mortgages from lenders and resells them to investors. 

Federal Open Market Committee (FOMC):  The committee in the Federal Reserve System, which sets short-term monetary policy for the Federal Reserve.

Federal Reserve Bank:  One of the 12 member banks constituting the Federal Reserve System that is responsible for overseeing the commercial and savings banks of its region to ensure their compliance with regulation.

Federal Reserve Bank System (FED):  The monetary authority of the US, established in 1913, and governed by the Federal Reserve Board located in Washington, D.C.  The system includes 12 Federal Reserve Banks and is authorized to regulate monetary policy in the US as well as to supervise Federal Reserve member banks, bank holding companies, international operations of US banks, and US operations of foreign banks.

FHA Loan / FHA Mortgage:  A mortgage loan insured by the Federal Home Administration.

Financial Accounting Standards Board (FASB):  A board established in 1973 which is responsible for establishing and interpreting generally accepted accounting principles.

First Loss Account (FLA):  A 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.  This account is the liability of the MPF Bank with respect to the realized loss arising under such Master Commitment.

Fixed Rate / Fixed Term Advance (FRFT):  Type of advance in which the principal is paid at maturity but interest is collected monthly.

Fixed Rate Mortgage (FRM):  A mortgage whose rate is fixed for the life of the loan.

Forward Rate Agreement (FRA):  This agreement allows purchasers/sellers to fix the interest rate for a specified period in advance.

Future: A future is a contract to buy or sell a standard quantity of a given instrument, at an agreed price, on a given date.

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G

Gamma: The rate of change in the delta of an option for a small change in the underlying.

Generally Accepted Accounting Principles (GAAP):  Conventions, rules, and procedures that define accepted accounting practice, including broad guidelines as well as detailed procedures.  The basic doctrine was set forth by the Accounting Principles Board of the American Institute of Certified Public Accountants, which was superseded in 1973 by the Financial Accounting Standards Board (FASB), an independent self-regulatory organization.

Government National Mortgage Association (GNMA) (Ginnie Mae):  A federal government-sponsored enterprise that issues securities backed by a pool of mortgages and guaranteed by GNMA, which passes through to investors the principal and interest payments of homeowners.

Government Sponsored Enterprises (GSE):  Federal government-sponsored enterprises that currently include Fannie Mae (FNMA), Freddie Mac (FHLMC), Ginnie Mae (GNMA), the Federal Home Loan Banks (FHLB) and their successors.

Gramm-Leach-Bliley Act (GLB):  Banking legislation enacted in 1999 that set forth the following: (1) Banks with less than $500 million in assets may use long-term advances for loans to small businesses, small farms and small agri-businesses.  (2) A new, permanent capital structure for the Federal Home Loan Banks is established.  Two classes of stock are authorized, redeemable on 6-months and 5-years notice.  Federal Home Loan Banks must meet a 5% leverage minimum tied to total capital and a risk-based requirement tied to permanent capital. (3)   Equalizes the stock purchase requirement for banks and thrifts. (4) Voluntary membership for Federal savings associations takes effect six months after enactment. (5)  The current annual $300 million funding formula for REFCORP obligations of the Federal Home Loan Banks is changed to 20% of annual net earnings. (6)  Governance of the Federal Home Loan Banks is decentralized from the Federal Housing Finance Board to the individual Federal Home Loan Banks.  Changes include the election of a chairperson and vice chairperson of each Federal Home Loan Bank by its directors rather than the Finance Board, and a statutory limit on Federal Home Loan Bank directors’ compensation.

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H

Haircut: The difference between the actual market value of a security and the value the Bank is willing to loan to collateralize a member’s advance.

Hedge:  Strategy used to offset investment risk.  A hedge reduces or eliminates the possibility of future gain or loss.

Helping Hand (HH):  Advances granted from April 1996 to December 1997 for members to use to facilitate home ownership for families at or below 80% of the area median income.

Historical Volatility: A measure of the volatility of an underlying instrument over a past period.

Homeowner Equity Leverage Partnership (HELP): An FHLB program that supports first-time home buyers by matching their savings to cover a down payment and/or closing costs.

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I

Implied Volatility: The value of volatility embedded in an option price.

Independent Bankers Association of Texas (IBAT):  An industry association comprised of community bankers that is based in Austin.

Index Amortizing Swap:  An interest rate swap whose principal amortizes on the back of movements in an index, such as LIBOR or constant maturity treasuries.  The fixed-rate received in the swap effectively grants an option to the fixed-rate payer to amortize the swap. 

Indian Area:  A term defined by the Native American Housing Assistance and Self-Determination Act of 1996 (25 U.S.C. 4101 et seq.), that also encompasses Alaskan Native Village and Native Hawaiian Home Land.

Interest Rate Cap: A contract whereby the seller agrees to pay the purchaser, in return for an upfront premium or a series of annuity payments, the difference between a reference rate and an agreed strike rate when the reference exceeds the strike.  Commonly, the reference rate is three- or six-month LIBOR.  An interest rate cap is typically used to protect the purchaser from an increase in market interest rates.

Interest-Rate Exchange Agreements: Agreements that include interest-rate swaps, swaptions, rate caps and floor agreements that are used to manage exposure to changes in interest rates.

Interest Rate Floor: A contract whereby the seller agrees to pay the purchaser, in return for an upfront premium or a series of annuity payments, the difference between a reference rate and an agreed strike rate, should the strike rate exceed the reference rate.  Commonly, the reference rate is three-month LIBOR, six-month LIBOR, five-year CMS or 10-year CMS.

In-The-Money:  Describes an option whose strike price is advantageous compared to the current forward market price of the underlying.  The more an option is in-the-money, the higher its intrinsic value and the more expensive it becomes.

Interest Rate Swap: An agreement to exchange interest payments for a specific period of time on a given principal amount.  The most common interest rate swap is a fixed-for-floating coupon swap, with the floating rate coupon indexed to LIBOR.  The notional principal is typically not exchanged in a swap.

Intrinsic Value: The amount by which an option is in-the-money.

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L

LACE:  A credit reporting term that stands for Liquidity, Asset, Capital, and Earnings.

Large Financial Institution (LFI):  A member, which has deposits insured under the Federal Deposit Insurance Act (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 FHFB.  The actual LFI limit for 2002 was $527 million, and is $538 million for 2003.

Letter of Credit (LOC):  A standby document issued by the Bank 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 Bank standing by to make good on the obligation made by the obligor to the beneficiary.

Liability Swap: A package of an interest bearing liability (typically a fixed rate consolidated obligation) and a corresponding swap that transform the liability cash flows into a floating rate instrument, typically indexed to LIBOR.

Liquidity Risk: The risk associated with transactions made in illiquid markets.  Such markets are characterized by wide bid/offer spreads, lack of transparency and large movements in price after a deal of any size.

Loan Level Credit Enhancement:  With respect to certain MPF Mortgage Products, the portion of the Credit Enhancement pertaining to the risks of an individual mortgage loan.

Loan-to-Value Ratio (LTV):  The ratio, expressed as a percentage, of the principal balance of a mortgage loan (the numerator) to the value or sales price of the related mortgage property (the denominator).

Lockout:  The period of time during which prepayment is prohibited.

London Interbank Offer Rate (LIBOR): The offer rate that a Euromarket bank demands in order to place a deposit at (or equivalently, make a loan to) another Euromarket bank in London.  Rates are offered on deposits maturing in one month, two months, three months, etc.  LIBOR is frequently used at the reference rate for the floating rate coupon in interest rate swaps and option contracts such as caps and floors. 

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M

Market Risk: Exposure to a change in the value of some market variable, such as interest rates or foreign exchange rates, equity, or commodity prices.

Marking-to-Market: To calculate the value of a financial instrument or portfolio of instruments based on the current market rates or prices of the underlying asset.

Master Commitment:  A document (including any addenda or attachments thereto) 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:  A financial institution that the MPF Provider has engaged to perform various master servicing duties on its behalf in connection with the MPF Program.

Material: Information which would be likely to affect a stock’s price (or the value of the debt instrument) once it becomes known to the public.  Companies must report material information by filing SEC forms such as an 8-K, 10-K, or 10-Q, or through other SEC approved means designed to achieve broad dissemination of the information.

Maximizer (MAX):  A SecureConnect overnight fixed rate advance that is priced daily based on the Fed Funds Market.  The advance must be executed by 9:00 a.m. CST and no cap is associated with this advance type.

Maximizer-Floating Rate Advance:  An advance entered via SecureConnect that adjusts daily based on the Fed Funds rate for the term of the advance.

Membership Cooperative:  An organization owned by its members.

Mortgage Guaranty Insurance Corporation (MGIC):  The leading private mortgage insurance (PMI) company, which helps lenders put families in homes with low-down-payment mortgages.

Military Base Closing:  Areas affected by military closings as defined by the Department of Defense at 32 CFR part 176.

Mortgage Identification Number (MIN):  A permanent number assigned by the Mortgage Electronic Registration System (MERS). 

MOM:  Loans in which the Mortgage Electronic Registration System (MERS) serves as original mortgagee.

Monitoring:  Each institution and sponsor receiving AHP advances or subsidies is monitored to ensure compliance with program objectives.

Mortgage Backed Security (MBS):  A type of security backed by mortgages.

Mortgage Electronic Registration System (MERS):  A system, which enables mortgage lenders to record MERS as mortgagee of record (as nominee for the lender) in county land records, and thereafter to electronically track changes in servicing and beneficial ownership rights over the life of the loan.

Mortgage Partnership Finance ® (MPF):  A program developed by the Federal Home Loan Bank of Chicago (MPF provider) and offered by selected FHLBanks (MPF Bank) to their members to provide an alternative for funding mortgages through the creation of a secondary market.

Mortgage Swap:  An asset swap attached to fixed-rate mortgage payments.

MPF Bank:  The Federal Home Loan Bank of which the subject PFI is a member.

MPF Provider:  The Federal Home Loan Bank of Chicago, in its capacity as manager and provider of services to PFI’s and MPF Banks in connection with the MPF Program.

Mutual Savings Bank (MSB):  A savings bank organized under state charter for the ownership and benefit of its depositors.

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N

Native American Housing Assistance and Self-Determination Act (NAHASDA):  An act passed in 1996 to provide federal assistance for Indian tribes in a manner that recognizes the right of tribal self-governance.  NAHASDA reorganized the system of Federal housing assistance to Native Americans by eliminating several separate programs of assistance and replacing them with a single block grant program.

National Credit Union Administration (NCUA):  The federal agency that oversees and insures the federal credit union system, and is funded by its members.

Neighborhood/Community:  A census tract or block numbering area; a unit of local government with a population of 25,000 or less; a rural county; or a geographic location designated in comprehensive plans, ordinances, or other local documents as a neighborhood that is within the boundary of, but does not encompass the entire area of a unit of general local government.

Net Interest Margin (NIM):  Interest income less interest expense. 

Net Present Value: A technique for assessing the worth of future payments by looking at the present value of those future cashflows discounted at today’s cost of capital.

Note:  In connection with a mortgage loan, the document that evidences the borrower’s obligation to pay a specified sum of money at a stated interest rate during a specified term, which is secured by a security instrument.

Notional Amount:  The amount of principal underlying an interest rate exchange agreement, and upon which is based the calculation of payments.

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O

Office of Comptroller of the Currency (OCC):  Regulator for national chartered banks.

Office of Finance (OF): The Office of Finance (OF) is operated on behalf of the 12 regional FHLBanks to issue and service all debt securities for the FHLBanks, while obtaining the most cost-effective terms possible, given the needs of investors and dealers. 

Office of Thrift Supervision (OTS):  The primary regulator of all federally chartered and many state-chartered thrift institutions, which include savings banks and savings and loan associations.  OTS was established as a bureau of the U.S. Department of the Treasury on August 9, 1989.

OPS:  A term that stands for operations. 

Option:  A contract that gives the purchaser the right, but not the obligation, to buy or sell an underlying instrument at a certain price (the exercise, or strike price) on or before an agreed date (the exercise period).  For this right, the purchaser pays a premium to the seller.

Option Styles:  There are various styles of options.  For example, the purchaser of a European-style option has the right to exercise it on a predetermined expiry date.  In contrast, the holder of an American-style option has the right to exercise it at any time during its lifetime, up to and including its expiry date.  A variation on these styles is the Bermudan option, which falls between American and European style options.

Other Qualifying Area:  Other areas designated for targeted economic development area that qualifies for assistance under another federal or state targeted economic development program with prior approval of the FHLB Dallas.

Out-of-the-Money:  Describes an option for which the current forward market price is below the strike price in the case of a call, or above it in the case of a put.

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P

P&I:  This term stands for principal and interest.

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.

Participating Financial Institution (PFI):  A financial institution 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.

Partnership Grant Program:  An FHLB Dallas program created to provide grants that enhance the capacity of non-profit organizations that provide affordable housing alternatives.

Prepayable Advance w/ Prepayment Option (Prepay):  An advance with the option to prepay after five years without a fee.  The cost for the prepayment option is approximately 25 bps added to the lowest advance rate applicable.

Prime:  The interest rate banks charge to their most creditworthy customers.  The rate is determined by the market forces affecting a bank’s cost of funds and the rates.

Principal Amortizing Advance (PRAM):   A type of advance.

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R

Real Estate Owned (REO):  Mortgaged property acquired by a servicer on behalf of the mortgagee, through foreclosure or Deed in Lieu of Foreclosure.

Recapture:  Unused or improperly used funds recovered by the Bank in cases where it is determined that AHP grant funds are no longer being used for the purpose approved by the Bank.

Receive versus Payment (RVP):  Securities industry procedure whereby receipt of securities purchased is made to the selling customer’s bank in exchange for payment, usually in the form of cash.

Red Hot Special:  Special offerings that the Bank offers to all members, which is publicized through the mail, on its website, SecureConnect, and by telephone.

Regulation FD (Fair Disclosure): An SEC rule that prohibits selective disclosure by requiring public companies (and certain other enterprises) to disclose material, non-public information by certain prescribed methods that are designed to achieve broad dissemination.  If information is inadvertently released, the company must take steps to broaden the dissemination of the information within 24 hours of discovering the disclosure.

Rep:  This term stands for representative.

Replacement Cost:  The replacement cost of a financial instrument is its current value in the market.  In the context of interest rate derivatives, it is the cost to replace a given contract should the counterparty to the contract default.

Report of Condition (RCON):  Identifies the line items on the report of condition (call report) filed by financial institutions on a quarterly basis.

Repurchase Agreement (Repo):  A holder of securities sells these securities to an investor with an agreement to repurchase them at a fixed price on a fixed date.  The security “buyer” in effect lends the “seller” money for the period of the agreement, and the terms of the agreement are structured to compensate him for this.   Dealers use repos extensively to finance their positions.  An exception is when the Federal Reserve does a repo; it is lending money, that is, increasing bank reserves.

Resolution Funding Corporation (REFCORP):  A U.S. government agency created by Congress in 1989 to issue “bailout” bonds and raise industry funds to finance activities of the Resolution Trust Corporation (RTC), and merge or close sick institutions inherited from the disbanded Federal Savings and Loan Insurance Corporation (FSLIC).

Return on Capital Stock (ROCS):  The Bank’s net income for a given period expressed as an annualized rate of return on members’ investment in the Bank’s capital stock.  Calculated as earnings for a period (e.g., a quarter or a year) divided by the average balance of capital stock outstanding during the period, and adjusted to an annualized rate.

Return on Equity (ROE):  The Bank’s net income for a given period expressed as an annualized rate of return on the Bank’s total capital.  Calculated as earnings for a period (e.g., a quarter or a year) divided by the average balance of total capital outstanding during the period, and adjusted to an annualized rate.

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S

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 act is administered by the SEC, which sets deadlines for compliance and publishes rules on requirements.  Sarbanes-Oxley is not a set of business practices and does not specify how a business should store records; rather, it defines which records are to be stored and for how long.  The legislation not only affects the financial side of corporations, but also affects the IT departments whose job it is to store a corporation’s electronic records.  The Sarbanes-Oxley Act states that all business records, including electronic records and electronic messages, must be saved for “not less than five years”.  The consequences for non-compliance 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.

Savings & Loan (S&L):  A depository financial institution, federally or state chartered, that obtains the bulk of its deposits from consumers and holds the majority of its assets as home mortgage loans.

Section 302: A section of the Sarbanes-Oxley Act that requires certifications by the CEO and CFO for 10-Ks and 10-Qs.

Section 404: A section of the Sarbanes-Oxley Act that requires, in addition to other things, an annual evaluation of and attestation to the adequacy of internal controls by auditors.

SecureConnect:  This is FHLB Dallas’ confidential and secure communication channel between a member’s desktop and FHLB Dallas.  Members have access to complete various transactions and print reports.

SecureConnect Saver (SCS):  The SecureConnect fixed rate overnight advance, which is priced daily, based on Fed Funds market.  The maximum amount is $50 million per institution.

Servicer:  An institution approved to service mortgages funded or purchased by an MPF Bank.  The term “servicer” as used refers to a servicer acting in its capacity as a servicer of mortgages for an MPF Bank under a PFI Agreement.

Short Option Advance (SOA):   An advance in which the borrower grants the Bank one or more types of options to terminate, convert or otherwise restructure the terms of the advance, as well as advances in which the borrower agrees to the automatic termination, conversion, or restructuring of the terms of the advance based on interest rate levels or other similar criteria.

Single Family Dwelling (SFD):  “Owner-occupied unit” means a unit in an owner-occupied project.  Housing with two to four dwelling units consisting of one owner-occupied unit and one or more rental units shall be considered a single owner-occupied unit.

Small Business (SB):  The Small Business Administration has many definitions of a small business.  In general, any business with revenue under $500,000 per year will qualify, 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. 

Standard & Poor’s (S&P):  A rating service that rates stocks and bonds according to risk.

Standby Line of Credit (SLC):  A one-year commitment to funding with a floating rate, adjusted daily based on the overnight Fed Funds market.

Supplemental MI Policy / Supplemental Mortgage Insurance Policy:  With respect to a Master Commitment, any and all supplemental or pool mortgage guaranty insurance policies applicable to mortgages delivered under the Master Commitment.

Swaption:  An option to enter an interest rate swap.  A payer swaption gives the purchaser the right to pay fixed), a receive swaption gives the purchaser the right to received fixed.

Systemic Risk: The risk that a market crisis places on the financial system as a whole.

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T

T&I:  This term stands for taxes and insurance.

10-K: Annual report required by the SEC each year.  Provides a comprehensive overview of a company’s state of business.  Must be filed within 90 days after fiscal year-end.

10-Q: Quarterly report required by the SEC each quarter.  Provides a comprehensive overview of a company’s state of business.

Texas Bankers Association (TBA):  An industry association comprised of Texas banks.

Texas Savings & Community Bankers Association (TSCBA):  An industry association comprised of Texas savings and loan institutions and community bankers.

Third Party Pledge:  The Bank’s Safekeeping Department offers a service whereby the member may deliver securities into the custody of the Bank for the benefit of a member’s depositor.  The member requests in writing that the Bank provisionally segregate the specified collateral, in essence pledging the collateral to the depositor.

Tranche:  Risk maturity or other classes into which a multi-class security, such as a Collateralized Mortgage Obligation (CMO) or a Real Estate Mortgage Investment Conduits (REMIC) is split.

Tribal Designated Housing Entity (TDHE):  Any Indian tribe that authorizes an entity other than the tribal government to receive grant amounts and provide assistance for affordable housing for Indians, 

Troubled Institution:  Member’s creditworthiness significantly deteriorates and the member is determined to be a “troubled institution” by the Bank’s Credit Review Committee.  Such institutions carry a credit rating of “E*” in the Bank’s customer information system.

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U-V-W-X-Y-Z

Underlying: The variable on which a futures or option contract is based.

Uniform Performance Bank Report (UPBR):  A report used by risk management in the credit review process of member banks.

Value-at-Risk (VaR):  Measures the worst expected loss over a given time interval under normal market conditions at a given confidence level.

Variable Pay Program (VPP):  A performance-based incentive program for employees that is based on the Bank’s achievement of annual goals.

Vega:  A measure of the change in an option’s price caused by changes in volatility.

Volatility: A measure of the variability (but not the direction) of the price of underlying instruments.  It is defined as the annualized standard deviation of the natural log of the ratio of two successive prices.

Weighted Average Coupon (WAC):  The weighted average of the gross interest rate of mortgages underlying a pool as of the pool issue date; the balance of each mortgage is used as the weighing factor.

Weighted Average Maturity (WAM):  For an MBS, this is 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 date.

Whole Loan Advance (WLA):   An overnight to 35 day fixed rate advance that is priced daily based on the prevailing short term Fed Funds and Discount Note market.  The overnight advance is capped at $50 million per institution.

Yield: The interest rate that will make the present value of cashflows from an investment equal to the price (or cost) of the investment.  It is also called the internal rate of return.

Yield to Maturity (YTM):  Concept used to determine the rate of return an investor will receive if a long-term, interest bearing investment such as a bond is held to its maturity date.

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