Page 571 - untitled

542 Appendix A: Glossary

leverage A measure of how much debt is used to purchase assets; for example, a leverage ratio of
: means that  of assets were purchased with  of debt and  of capital.
LIBOR London Interbank Offered Rate, an interest rate at which banks are willing to lend to each
other in the London interbank market.
liquidity Holding cash and/or assets that can be quickly and easily converted to cash.
liquidity put A contract allowing one party to compel the other to buy an asset under certain cir-
cumstances. It ensures that there will be a buyer for otherwise illiquid assets.
loan-to-value ratio Ratio of the amount of a mortgage to the value of the house, typically ex-
pressed as a percentage. “Combined” loan-to-value includes all debt secured by the house, in-
cluding second mortgages.
LTV ratio see loan-to-value ratio.
mark-to-market The process by which the reported amount of an asset is adjusted to reflect the
market value.
monoline Insurance company, such as AMBAC and MBIA, whose single line of business is to
guarantee financial products.
mortgage servicer Company that acts as an agent for mortgage holders, collecting and distribut-
ing payments from borrowers and handling defaults, modifications, settlements, and foreclo-
sure proceedings.
mortgage underwriting Process of evaluating the credit characteristics of a mortgage and bor-
rower.
mortgage-backed security Debt instrument secured by a pool of mortgages, whether residential
or commercial.
NAV see net asset value.
negative amortization loan 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.
net asset value Value of an asset minus any associated costs; for financial assets, typically changes
each trading day.
net charge-off rate Ratio of loan losses to total loans.
non-agency mortgage-backed securities Mortgage-backed securities sponsored by private compa-
nies other than a government-sponsored enterprise (such as Fannie Mae or Freddie Mac); also
known as private-label mortgage-backed securities.
notional amount A measure of the outstanding amount of over-the-counter derivatives contracts,
based on the amount of the underlying referenced assets.
novation A process by which counterparties may transfer derivatives positions.
OCC see Office of the Comptroller of the Currency.
Office of Federal Housing Enterprise Oversight Created in  to oversee financial soundness
of Fannie Mae and Freddie Mac; its responsibilities were assumed in  by its successor, the
Federal Housing Finance Agency.
Office of the Comptroller of the Currency Independent bureau within Department of Treasury
that charters, regulates, and supervises all national banks and certain branches and agencies of
foreign banks in the United States.
Office of Thrift Supervision Independent bureau within Treasury that regulates all federally
chartered and many state-chartered savings and loans/thrift institutions and their holding
companies.
OFHEO see Office of Federal Housing Enterprise Oversight.
originate-to-distribute When lenders make loans with the intention of selling them to other fi-
nancial institutions or investors, as opposed to holding the loans through maturity.
originate-to-hold When lenders make loans with the intention of holding them through maturity,
as opposed to selling them to other financial institutions or investors.