Adjustable-rate mortgage (ARM):

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

Callable debt:

        A debt security whose issuer has the right to redeem the security at a

        specified price on or after a specified date, but prior to its stated

        final maturity.

Charge-off:

        The portion of principal and interest due on a loan that is written off

        when deemed to be uncollectible.

Common stock:

        A security that represents ownership in a company but gives no legal claim

        to a definite dividend or to a return of capital.

Conventional mortgage:

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

Credit enhancement:    

        A method to reduce credit risk by requiring collateral, letters of credit,

        mortgage insurance, corporate guarantees, or other agreements to provide

        an entity with some assurance that it will be recompensed to some degree

        in the event of a financial loss.

Credit loss ratio:

        The ratio of credit-related losses to the dollar amount of MBS outstanding

        and total mortgages owned by the corporation.

Credit-related expenses:

        The sum of foreclosed property expenses plus the provision for losses.

Credit-related losses:

        The sum of foreclosed property expenses plus charge-offs.

Credit scoring:

        A process that uses recorded information about individuals and their loan

        requests to assess - in a quantifiable, objective, and consistent manner

        - their future performance regarding debt repayment.

Debt security:

        A security in which the issuing company generally agrees to repay the

        principal (typically, the original amount borrowed) and make interest

        payments according to an agreed schedule.

Default:

        The failure of a borrower to comply with the terms of a note or the provisions

        of a mortgage.

Delinquency:

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

Derivative:

        A financial instrument which derives its value from an underlying security

        or notional amount.

Duration:

        The weighted-average life of the present value of all future cash flows,

        both principal and interest, of a security. It is used as a measure of

        the sensitivity of the value of a security to changes in interest rates.

Earnings per share (EPS):

        The net earnings of a corporation divided by the average number of shares

        of its common stock outstanding during a period. A common method of expressing

        a corporation's profitability.

Fixed-rate mortgage:

        A mortgage loan in which the interest rate does not change during the

        entire term of the loan.

 Forbearance:

        The lender's postponement of legal action when a borrower is delinquent.

        It is usually granted when a borrower makes satisfactory arrangements

        to bring the overdue mortgage payments up to date.

Foreclosure:

        The legal process by which property that is mortgaged as security for

        a loan may be sold to pay a defaulting borrower's loan.

Global Debt Facility:

        A debt issuance facility through which U.S. dollar and foreign currency

        debt securities may be offered to investors worldwide with the feature

        of clearing and settlement through a variety of clearing systems.

Guaranty fee:

        Compensation paid by a lender to Fannie Mae for the guarantee of timely

        payments of principal and interest to MBS security holders.

Interest rate swap:

        A transaction between two parties in which each agrees to exchange payments

        tied to different interest rates or indices for a specified period of time, generally

        based on a notional principal amount.

Intermediate-term mortgage:

        A mortgage loan with a contractual maturity at time of purchase equal

        to or less than 20 years.

Lender option commitments:

        An agreement giving a lender the option to deliver loans or securities

        by a certain date at agreed-upon terms.

Loan servicing:

        The tasks a lender performs to protect a mortgage investment, including

        collecting monthly payments from borrowers and dealing with delinquencies.

Loan-to-value (LTV) ratio:

        The relationship between the dollar amount of a borrower's mortgage loan

        and the value of the property.

Loss mitigation:

        Activities designed to reduce either the likelihood of the corporation

        suffering financial losses on a loan or the final dollar value of those

        losses in the event of a borrower default.

Mandatory delivery commitment:

        An agreement that a lender will deliver loans or securities by a certain

        date at agreed-upon terms.

Medium-term notes:

        Unsecured general obligations of Fannie Mae with maturities of one day

        or more and with principal and interest payable in U.S. dollars.

Modification:

        Any change to the original terms of a mortgage.

Mortgage:

        A legal document that pledges property to a lender as security for the

        repayment of the loan. The term also is used to refer to the loan itself.

Mortgage-Backed Security (MBS):

        A Fannie Mae security that represents an undivided interest in a group

        of mortgages. Principal and interest payments from the individual mortgage

        loans are grouped and paid out to the MBS holders.

Multifamily housing:

        A building with more than four residential rental units.

Nonperforming asset:

        An asset such as a mortgage that is not currently accruing interest or

        on which interest is not being paid.

Notional principal amount:

        The hypothetical amount on which interest rate swap payments are based.

        The notional principal amount in an interest rate swap generally is not

        paid or received by either party.

Preferred stock:

        Stock that takes priority over common stock with regard to dividends and

        liquidation rights. Preferred stockholders typically have no voting rights.

Preforeclosure sale:

        A procedure in which the borrower is allowed to sell his or her property

        for an amount less than what is owed on it to avoid a foreclosure. This

        sale fully satisfies the borrower's debt.

Real Estate Mortgage Investment Conduit (REMIC):

        A security that represents a beneficial interest in a trust having multiple

        classes of securities. The securities of each class entitle investors

        to cash flows structured differently from the payments on the underlying

        mortgages.

Repayment plan:

        An agreement between a lender and a borrower who is delinquent on his

        or her mortgage payments, in which the borrower agrees to make additional

        payments to pay down past due amounts while still making regularly scheduled

        payments.

Return on average common equity:

        Net income available to common stockholders, as a percentage of average

        common stockholders' equity.

Reverse mortgage:

        A financial tool which provides seniors with funds from the equity in

        their homes. Generally, no payments are made on a reverse mortgage until

        the borrower moves or the property is sold. The final repayment obligation

        is designed to not exceed the proceeds from the sale of the home.

Risk-based capital:

        The amount of capital necessary to absorb losses throughout a hypothetical

        ten-year period marked by severely adverse circumstances.

Secondary mortgage market:

        The market in which residential mortgages or mortgage securities are bought

        and sold.

Security:

        A financial instrument showing ownership of equity (such as common stock),

        indebtedness (such as a debt security), a group of mortgages (such as

        MBS), or potential ownership (such as an option).

Serious delinquency:

        A single-family mortgage that is 90 days or more past due, or a multifamily

        mortgage that is two months or more past due.

Stockholders' equity:

        The sum of proceeds from the issuance of stock and retained earnings less

        amounts paid to repurchase common shares.

Stripped MBS (SMBS):

        Securities created by "stripping" or separating the principal and interest

        payments from the underlying pool of mortgages into two classes of securities,

        with each receiving a different proportion of the principal and interest

        payments.

Transfer agent:

        A bank or trust company charged with keeping a record of a company's stockholders

        and canceling and issuing certificates as shares are bought and sold.

Underwriting:

        The process of evaluating a loan application to determine the risk involved

        for the lender. It involves an analysis of the borrower's ability and

        willingness to repay the debt and the value of the property.