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Appendix A: Glossary 543

origination Process of making a loan, including underwriting, closing, and providing the funds.
OTS see Office of Thrift Supervision.
par Face value of a bond.
payment-option adjustable-rate mortgage (also called payment ARM or option ARM) Mort-
gages that allow borrowers to pick the amount of payment each month, possibly low enough to
increase the principal balance.
PDCF see Primary Dealer Credit Facility.
PLS see private-label mortgage-backed securities.
pooling Combining and packaging a group of loans to be held by a single entity.
Primary Dealer Credit Facility Program established by the Federal Reserve in March  that al-
lowed eligible companies to borrow cash overnight to finance their securities.
principal Amount borrowed.
private mortgage insurance Insurance on the payment of a mortgage provided by a private firm
at additional cost to the borrower to protect the lender.
private-label mortgage-backed securities see non-agency mortgage-backed securities.
repurchase agreement (repo) 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.
SEC see Securities and Exchange Commission.
section () Section of the Federal Reserve Act under which the Federal Reserve may make se-
cured loans to nondepository institutions, such as investment banks, under “unusual and exi-
gent” circumstances.
Securities and Exchange Commission Independent federal agency responsible for protecting in-
vestors by enforcing federal securities laws, including regulating stock and security options ex-
changes and other electronic securities markets, the issuance and sale of securities,
broker-dealers, other securities professionals, and investment companies.
securitization 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 in-
vestors.
shadow banking Financial institutions and activities that in some respects parallel banking activi-
ties but are subject to less regulation than commercial banks. Institutions include mutual
funds, investment banks, and hedge funds.
short sale The sale of a home for less than the amount owed on the mortgage.
short selling To sell a borrowed security in the expectation of a decline in value.
SIV see structured investment vehicle.
special purpose vehicle 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 be-
cause of regulatory and bankruptcy advantages.
SPV see special purpose vehicle.
structured investment vehicle Leveraged special purpose vehicle, funded through medium-term
notes and asset-backed commercial paper, that invested in highly rated securities.
synthetic CDO 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.
systemic risk In financial terms, that which poses a threat to the financial system.
systemic risk exception Clause in the Federal Deposit Insurance Corporation Improvement Act
(FDICIA) under which the FDIC may commit its funds to rescue a financial institution.
TAF see Term Auction Facility.
TALF see Term Asset-Backed Securities Loan Facility.
TARP see Troubled Asset Relief Program.