Econ 121 FCIC Glossary

  1. a mortgage whose interest rate changes periodically over time
    adjustable-rate mortgage (ARM)
  2. goals originally set by the Department of Housing and Urban Development (now by the Federal Housing Finance Agency) for Fannie Mae and Freddie Mac to allocate a specified part of their mortgage business to serve low- and moderate-income borrowers
    affordable housing goals
  3. short-term debt secured by assets
    asset-backed commercial paper (ABCP)
  4. debt instrument secured by assets such as mortgages, credit card loans or auto loans
    asset-backed security (ABS)
  5. long-term bonds whose interest rate may be reset at regular short-term intervals by an auction process
    auction rate securities (ARS)
  6. company that controls a bank
    bank holding company
  7. a firm, often the subsidiary of an investment bank, that buys and sells securities for itself and others
  8. assets minus liabilities; what a firm owns minus what it owes. regulators often require financial firms to hold minimum levels of this
  9. TARP program providing financial assistance to 700-plus US financial institutions through the purchase of senior preferred shares in the corporations on standardized items
    Capital Purchase Program (CPP)
  10. CDO that holds other CDOs
    CDO squared
  11. type of security often composed of the riskier portions of mortgage-backed securities
    collateralized debt obligation (CDO)
  12. short-term unsecured corporate debt
    commercial paper (CP)
  13. emergency program created by the Federal Reserve in 2008 to purchase three-month unsecured and asset-backed commercial paper from eligible companies
    Commercial Paper Funding Facility
  14. independent federal agency that regulates trading in futures and options
    Commodity Futures Trading Commission (CFTC)
  15. a party to a contract
  16. a type of credit derivative allowing a purchaser of the swap to transfer loan default risk to a seller of the swap. The seller agrees to pay the purchaser if a default even occurs. The purchaser does not need to own the loan covered by the swap.
    credit default swap (CDS)
  17. insurance or other protection that may be purchased for a loan or pool of loans to offset losses in the event of default
    credit enhancement
  18. loss from delayed payments or defaults on loans
    credit loss
  19. private company that evaluates the credit quality of securities and provides ratings on those securities; the largest are Fitch Ratings, Moody's Investors Service, Standard & Poor's
    credit rating agency
  20. risk to a lender that a borrower will fail to repay the loan
    credit risk
  21. the number of loans for which borrowers fail to make timely loan payments divided by total loans
    delinquency rate
  22. financial institution, such as a commercial bank, thrift (savings and loan), or credit union, that accepts deposits, including deposits insured by the FDIC
    depository institution
  23. financial contract whose price is determined (derived) from the value of an underlying asset, rate, index, or event
  24. nickname for the Federal National Mortgage Association (FNMA), a government-sponsored enterprise providing financing for the home mortgage market
    Fannie Mae
  25. a measure of a borrower's creditworthiness based on the borrower's credit data; developed by the Fair Isaac Corporation
    FICO score
  26. legal process wherey a mortgage lender gains ownership of the real property securing a defaulted mortgage
  27. nickname for the Federal Home Mortgage Corporation (FHLMC), a government-sponsored enterprise providing financing for the home mortgage market
    Freddie Mac
  28. nickname for the Government National Mortgage Association (GNMA), a government-sponsored enterprise; guarantees pools of VA and FHA mortgages
    Ginnie Mae
  29. Banking Act of 1933 creating the FDIC to insure bank deposits; prohibited commercial banks from underwriting or dealing in most types of securities, barred banks from affiliating with securities firms, and introduced other banking reforms. In 1999, the Gramm-Leach-Bliley Act repeated the provisions of the ___ that prohibited affiliations between banks and securities firms
    Glass-Steagall Act
  30. 1999 legislation that lifted certain remaining restrictions established by the Glass-Steagall Act
    Gramm-Leach-Bliley Act
  31. the difference between the value of an asset and the amount borrowed against it
  32. in finance, a way to reduce exposure or risk by taking on a new financial contract
  33. a privately offered investment vehicle exempted from most regulation and oversight; generally open only to high-net-worth investors
    hedge fund
  34. a CDO backed by collateral found in both cash CDOs and synthetic CDOs
    hybrid CDO
  35. assets that cannot be easily or quickly sold
    illiquid assets
  36. loan that allows borrowers to pay interest without repaying principal until the end of the loan term
    interest-only loan
  37. a measure of how much debt is used to purchase assets; for example, a leverage ratio of 5:1 means that $5 of assets were purchased with $4 of debt and $1 of capital
  38. London Interbank Offered Rate, an interest rate at which banks are willing to lend to each other in the London interbank market
  39. holding cash and/or assets that can be quickly and easily converted to cash
  40. a contract allowing one party to compel to the other to by an asset under certain circumstances. it ensures that there will be a buyer for otherwise illiquid assets
    liquidity put
  41. ratio of the amount of a mortgage to the value of the house, typically expressed as a pecentage. "combined" ___ includes all debt secured by the house, including second mortgages
    loan-to-value ratio (LTV ratio)
  42. the process by which the reported amount of an asset is adjusted to reflect the market value
  43. insurance company, such as AMBAC and MBIA, whose single line of business is to guarantee financial products
  44. company that acts as an agent for mortgage holders, collecting and distributing payments from borrowers and handling defaults, modifications, settlements, and foreclosure proceedings
    mortgage servicer
  45. process of evaluating the credit characteristics of a mortgage and borrower
    mortgage underwriting
  46. debt instrument secured by a pool of mortgages, whether residential or commercial
    mortgage-backed security (MBS)
  47. loan that allows a borrower to make monthly payments that do not fully cover the interest payment, with the unpaid interest added to the principal of the loan
    negative amortization loan
  48. value of an asset minus any associated costs; for financial assets, typically changes each trading day
    net asset value (NAV)
  49. ratio of loan losses to total loans
    net charge-off rate
  50. mortgage-backed securities sponsored by private companies other than a government-sponsored enterprise (such as Fannie Mae o Freddie Mac); also known as private-label mortgage-backed securities
    non-agency mortgage-backed securities (private-label mortgage-backed securities (PLS))
  51. a measure of the outstanding amount of over-the-counter derivatives contracts, based on the amount of the underlying referenced assets
    notional amount
  52. a process by which counterparties may transfer derivatives positions
  53. when lenders make loans with the intention of selling them to other financial institutions or investors, as opposed to holding the loans through maturity
  54. when lenders make loans with the intention of holding them through maturity, as opposed to selling them to other financial institutions or investors
  55. process of making a loan, including underwriting, closing, and providing the funds
  56. fave value of a bond
  57. combining and packaging a group of loans to be held by a single entity
  58. program established by the Federal Reserve in March 2008 that allowed eligible companies to borrow cash overnight to finance their securities
    Primary Dealer Credit Facility (PDCF)
  59. amount borrowed
  60. insurance on the payment of a mortgage provided by a private firm at additional cost to the borrower to protect the lender
    private mortgage insurance
  61. a method of secured lending where the borrower sells securities to the lender as collateral and agrees to repurchase them at a higher price within a short period, often within one day
    repurchase agreement (repo)
  62. process of pooling debt assets such as mortgages, car loans, and credit card debt into a separate legal entity that then issues a new financial instrument or security for sale to investors
  63. financial institutions and activities that in some respects parallel banking activities but are subject to less regulation than commercial banks. institution include mutual funds, investment banks, and hedge funds
    shadow banking
  64. the sale of a home for less than the amount owed on the mortgage
    short sale
  65. to sell a borrowed security in the expectation of a decline in value
    short selling
  66. entity created to fulfill a narrow or temporary objective; typically holds a portfolio of assets such as mortgage-backed securities or other debt obligations; often used because of regulatory and bankruptcy advantages
    special purpose vehicle (SPV)
  67. leveraged special purpose vehicle, funded through medium-term notes and asset-backed commercial paper, that invested in highly rated securities
    structured investment vehicle (SIV)
  68. A CDO that holds credit default swaps that reference assets (rather than holding cash assets), allowing investors to make bets for or against those referenced assets
    synthetic CDO
  69. in financial terms, that which poses a threat to the financial system
    systemic risk
  70. clause in the Federal Deposit Insurance Corporation Improvement Act (FDICIA) under which the FDIC may commit its funds to rescue a financial institution
    systemic risk exception
  71. Federal Reserve program. supported by TARP funds, to aid securitization of asset-backed loans such as auto loans, student loans, and small business loans
    Term Asset-Backed Securities Loan Facility (TALF)
  72. program in which the Federal Reserve made funds available to all depository institutions at once through a regular auction
    Term Auction Facility (TAF)
  73. emergency program in which the Federal Reserve made up to $200 billion in Treasury securities available to banks or broker/dealers that traded directly with the Federal Reseve
    Term Securities Lending Facility (TSLF)
  74. from the French, meaning a slice; used to refer to the different types of mortgage-backed securities and CDO bonds that provide specified priorities and amounts of returns: "senior" tranches  have the highest priority of returns and therefore the lowest risk/interest rate; mezzanine tranches have mid levels of risk/return; and "equity" (also known as "residual" or "first loss") tranches typically receive any remaining cash flows
  75. government program to address the financial crisis, signed into law in October 2008 to purchase or insure up to $700 billion in assets and equity from financial and other institutions
    Troubled Asset Relief Program (TARP)
  76. condition in which a business does not have enough capital to meet its needs, or to meet its capital requirements if it is a regulated entity
  77. reducing the value of an asset as it is carried on a firm's balance sheet because the market value has fallen
Card Set
Econ 121 FCIC Glossary
FCIC Glossary edited