but not yet paid.
A mortgage loan with an interest rate and
payments that are subject to change periodically
over the life of the loan.
To repay a mortgage loan through a series
of periodic payments that cover both principal
(see Weighted-Average Life.)
An electronic issuance and transfer system
for securities transactions, such as those maintained
by the Federal Reserve system. Unless otherwise
stated in the prospectus supplement, Fannie
Mae MBS are issued in book-entry form.
The possibility that prepayments will increase
above an anticipated rate, causing earlier-than-expected
return of principal, usually occurring during
a time of falling interest rates.
The maximum rate of interest payable on
an adjustable-rate security or mortgage loan.
In the case of FannieMae MBS, assets that
back the MBS.
Maturity Treasury (CMT):
An index published by the Federal Reserve
Board calculated from the average yield of a
range of Treasury securities adjusted to constant
maturities of various time periods (six months,
one year, ten years).
Prepayment Rate (CPR):
A prepayment measure calculated by assuming
that a constant portion of the outstandingmortgage
loans will prepay each month. See also PSA Prepayment
of Funds index (COFi):
An index of the weighted-average interest
rate paid by savings institutions for funds,
usually by members of the 11th Federal Home
Loan Bank District.
The stated annualized percentage rate of
interest paid on an investment.
The possibility that an issuer or another
party may default on in its financial obligations
to the investor, may have its credit rating
downgraded by a rating agency, or may experience
changes in the market's perception of its creditworthiness.
The current amount of principal outstanding
on a security, which is calculated by multiplying
the original face value by the most recent factor.
A unique, nine-digit number assigned to
each publicly traded security maintained and
transferred on the Federal Reserve book-entry
Failure to perform an obligation.
(In the case of a note or mortgage loan, usually
by nonpayment of principal and interest installments.)
(See Prospectus and Prospectus Supplement)
The amount by which the purchase price of
a security is less than its face value, which
has the effect of raising the effective yield
of the security above the coupon rate.
The date on which payments from a security
to an investor are made (usually the 25th of
the month for Fannie Mae MBS).
The annual return on an investment, which
is calculated by dividing the coupon interest
rate by the amount invested expressed as a percent
of par value.
The possibility that prepayments will be
slower than an anticipated rate, causing later-than-expected
return of principal. This usually occurs during
times of rising interest rates. Face Value–The
principal amount of a security.
The decimal value, calculated monthly, that
represents the proportion of the original principal
amount outstanding at a given time.
Distribution Date or Maturity Date:
The latest possible date on which an MBS
receives payment. The actual final payment of
any MBS will likely occur earlier, and could
occur much earlier than the final distribution
date or maturity.
A mortgage loan with an interest rate and
payments that do not change over the life of
the loan. Floor–The minimum rate of interest
payable on an adjustable-rate mortgage.
A published interest rate used to determine
the interest rate payable on an adjustable-rate
The amount paid for the use of money, usually
expressed as an annual percentage rate.
A security that pays the investor some or
all of the interest payments on the underlying
assets and little or no principal. Declining
interest rates have an adverse effect on IOs.
The date as of which a security is originally
formed. LIBOR (London Interbank Offered Rate)–The
interest rate charged among banks for short-term
Eurodollar loans. A common index for adjustable-rate
The capability of ready conversion of an
asset or investment to cash.
The amount added to a reference index that
is used to determine interest rate changes on
an adjustable-rate mortgage.
The current price of a security in the market.
The possibility that the price of a security
will change over time.
(see Final Distribution Date)
A pledge of real property as security for
the repayment of a debt; the document that creates
and represents the lien upon the real property
that secures the debt.
An investment instrument that represents
ownership of an undivided interest in a group
of mortgages. Principal and interest from the
individual mortgages are used to pay principal
and interest on the MBS.
The possibility that a borrower may prepay
a mortgage in a time frame that adversely affects
the investor's yield.
The original principal amount of a security
on its issue date.
A security that usually does not bear interest
and is entitled to receive only payments of
principal from the underlying assets. Rising
interest rates will have an adverse effect on
A group of mortgages backing an individual
A price in excess of 100 percent of face
The unscheduled payment of all or part of
the outstanding principal of a mortgage loan,
including voluntary payments by the borrower
as well as liquidations from foreclosures, condemnations,
The possibility that the mortgages underlying
the security are repaid faster or slower than
The amount paid for a security, usually
stated as a percentage of its face value. A
par price is 100 percent, a premium price is
higher than par, and a discount price is lower
The remaining balance of a security or loan,
exclusive of accrued interest.
and Prospectus Supplement:
The legal documents that outline all material
details of an investment.
A measure of the rate of prepayment of mortgage
loans developed by the PSA. This model represents
an assumed rate of prepayment each month of
the then-outstanding principal balance of a
pool of newmortgage loans. A 100 percent
PSA assumes prepayment rates of 0.2 percent
per annum of the then unpaid principal balance
of mortgage loans in the first month after origination
and an increase of an additional 0.2 percent
per annum in each month thereafter (for example,
0.4 percent per annum in the second month) until
the 30th month. Beginning in the 30th
month and in each month thereafter, 100 percent
PSA assumes a constant annual prepayment rate
(CPR) of 6 percent. Multiples are calculated
from this prepayment rate; for example, 150
percent PSA assumes annual prepayment rates
will be 0.3 percent in month one, 0.6 percent
in month two, reaching 9 percent in month 30,
and remaining constant at 9 percent thereafter.
A zero percent PSA assumes no prepayments.
Securities Association (PSA):
The national trade association of banks,
dealers, and brokers that underwrite, trade,
and distribute mortgage-backed securities, U.S.
government and federal agency securities, and
The date used to determine the owner of
a security for purposes of distributing the
next scheduled payment.
(Real Estate Mortgage Investment Conduit):
A multiple-class mortgage cash flow security.
An examination of expected investment performance
over a variety of assumed economic conditions.
The market in which existing mortgages or
mortgage securities are bought and sold.
The date of the delivery of and payment
for a security.
Mortgage-backed Security (SMBS):
A mortgage security that separates principal
and interest payments from then underlying mortgage-backed
Weighted-Average Coupon (WAC):
The weighted average of the interest rates
on the mortgage loans underlying an MBS.
The average amount of time that will elapse
from the date of a security's issuance until
each dollar of principal is repaid to the investor.
The weighted-average life of an MBS is only
an assumption. The average amount of time that
each dollar of principal is actually outstanding
is influenced by, among other factors, the rate
at which principal, both scheduled and unscheduled,
is paid on the mortgage loans underlying the
The weighted average of the remaining terms
to maturity (expressed in months) of the
mortgage loans underlying the MBS.
The rate of return on an investment over
a given time, expressed as an annual percentage
rate. Yield is affected by the price paid for
the investment as well as the timing of principal
The annual percentage rate of return on
an investment, assuming it is held to maturity.