The following table provides a brief description of the common terms used in connection with the NGN Program.
30 Days Delinquent – The percentage of loans underlying a Security that are 30 to 59 days behind on their scheduled payments.
60 Days Delinquent – The percentage of loans underlying a Security that are 60 to 89 days behind on their scheduled payments.
90 Days Delinquent – The percentage of loans underlying a Security that are 90 to 180 days behind on their scheduled payments.
Agency Mortgage-Backed Security (MBS) – A type of Mortgage-Backed Security backed by government guaranteed mortgage loans.
Alt-A Loans – Loans extended to borrowers who have a high credit quality but whose characteristics fall outside the margins of Conforming Loan guidelines, such as higher loan-to-value (LTV) ratios or inadequate documentation.
Asset-Backed Security (ABS) – A security whose value and payments are derived from and collateralized (or backed) by the expected cash flows of pools of income-generating assets. The asset pools may include credit card payments and auto loans, or esoteric cash flows such as aircraft leases, royalty payments and movie revenues.
Asset Management Estate (AME) – Estate that holds the assets of a failed institution. Commonly administered by NCUA's Asset Management and Assistance Center, to which the NCUA Board has delegated statutory authorities providing broad supervisory and management powers over the credit union's assets and operations. These powers include the ability to facilitate funding and disposition of assets. Also known as a liquidation estate.
Collateral – Properties or assets that are offered to secure a loan and become subject to seizure upon default.
Commercial Mortgage-Backed Securities (CMBS) – A type of Mortgage-Backed Security backed by commercial mortgage loans.
Coupon Rate – The scheduled interest earned on a security, expressed as a percentage of the outstanding balance.
Credit Enhancement – A form of guarantee, insurance, or other characteristic (e.g. Overcollateralization) of a security that improves its credit quality.
Conforming Loans – Mortgage loans that satisfy agency (i.e. Fannie Mae, Freddie Mac, and Ginnie Mae) underwriting criteria, in terms of maximum loan balance, loan-to-value (LTV) ratio, debt-to-income requirements, etc.
Cumulative Loss – Total Realized Losses as of a measurement date. This does not include implied writedowns, which are not recognized as losses.
Default – Default occurs when a debtor is unable to meet the legal obligation of debt repayment, one form of which is the failure to promptly pay interest or principal when due.
Default Rate – The annualized rate at which the loans underlying a security have defaulted. Also known as the Conditional Default Rate, or CDR.
Excess Spread – The extent to which the Weighted Average Coupon on the assets underlying an asset-backed security exceeds the coupon rate of that security plus any relevant fees (i.e. servicing, administration, trustee, etc...). Since multiple securities can be issued from the same trust, this measure is security specific.
Foreclosure – The legal proceedings initiated by a creditor to repossess the collateral for a loan that is in default, usually with the intent to liquidate the seized assets in an auction.
Home Price Appreciation (HPA) – The rate by which house prices increase (or decrease) for a specified area, usually quoted on an annual basis.
Implied Writedown – Calculated based on the under-collateralization of a security, or any shortfall between a security's collateral pool balance and the aggregate unpaid balance of all pari passu obligations and senior securities backed by the same collateral pool.
Investment Grade – A security with a rating of BBB- or above.
Legacy Assets – The Legacy Assets are a portfolio of debt securities held by the Asset Management Estates (AMEs) of failed corporate credit unions. Legacy Assets include those assets that were securitized through the NCUA Guaranteed Note (NGN) Program in late 2010 and early 2011, assets that were retained by the AMEs, and assets that were sold outright in late 2010 and early 2011. Legacy Assets primarily consists of:
- Private label, residential mortgage-backed securities (Non-Agency RMBS);
- Agency mortgage-backed securities (Agency MBS);
- Commercial mortgage-backed securities (CMBS);
- Student loan asset-backed securities;
- Other asset-backed securities (ABS); and
- Corporate bonds.
Liquidation – The process through which the assets backing a defaulted loan are sold for cash.
Loan-to-Value (LTV) – The ratio of the outstanding principal amount of a mortgage loan to the appraised value of the mortgaged property. Original LTV is the LTV as of the date the property was purchased (i.e. original mortgage loan/original property value). Current LTV is the LTV measured on the basis of the remaining mortgage loan/property value as of a given measurement date.
Loss Severity – The percentage of realized losses incurred on a loan balance subsequent to liquidation.
Market Price – The price at which a security trades (i.e. could be purchased or sold) in the secondary market.
Maturity Date – The date as of which the principal of and interest on a security become due and payable.
Medium Term Notes (MTNs) – Notes issued in the capital markets in late 2009 by US Central Federal Credit Union and Western Corporate Federal Credit Union. The MTNs were issued to fund the corporate credit unions' repayment of their loans from the Credit Union System Investment Program (CUSIP). The MTNs were issued under the Temporary Corporate Credit Union Loan Guaranty Program and are comprised of two and three year maturities.
Mortgage-Backed Security (MBS) – A mortgage‐backed security (MBS) is an asset‐backed security or debt obligation that represents a claim on the cash flows from mortgage loans, most commonly on residential property. First, mortgage loans are purchased from banks, mortgage companies, and other originators. Then, these loans are assembled into pools. This is done by government agencies, government‐sponsored enterprises, and private entities, which may offer features to mitigate the risk of default associated with these mortgages. Mortgage-backed securities represent claims on the principal and payments on the loans in the pool, through a process known as securitization.
Non-Agency RMBS – A type of Mortgage-Backed Security issued by an entity other than a government sponsored enterprise (Fannie Mae / Freddie Mac) that does not have a government guaranty backing the timely payment of principal and interest. Also known as Private Label RMBS.
(Unpaid) Note Principal Balance – The initial Note Principal Balance (also known as Par) of a given security on the closing date less all principal payments made on the security, including all guarantee payments in respect to principal, made prior to the measurement date.
Overcollateralization – The amount, if any, by which the aggregate outstanding principal balance of collateral exceeds the aggregate outstanding principal balance of the securities backed by such collateral. Overcollateralization is used as a form of Credit Enhancement in certain asset- and mortgage-backed security transactions.
Par (Face) Value – The dollar value of a security stated by the issuer and the total amount to be repaid to the investor as principal.
Parity Payment – Part of the NCUA's guarantee obligation on the NGNs that represents the excess of the unpaid Note Principal Balance (after related payments have been made) over the unpaid Principal Balance of the Underlying Securities adjusted for any Implied Writedowns.
Prepayment Speed – The annualized rate at which borrowers pay off their loans ahead of schedule. Also referred to Constant Prepayment Rate, or CPR.
Principal Balance – The amount owed on a debt.
Prime Loans – Loans typically extended to the most credit-worthy borrowers that generally carry a lower interest rate compared to other types of loans.
Principal Paydown – Portion of payment applied to principal balance.
Put Option – A contractual provision conferring the right, but not the obligation, to sell an asset back to a counterparty (in the case of a security, the original issuer) at a specified price.
Real Estate Owned (REO) – The ownership of collateral property by the lender - usually a bank - after an unsuccessful sale at a foreclosure auction. This is common when the property up for sale at an auction is worth less than the total amount owed to the bank (including the outstanding loan amount, accrued interest, and any fees associated with the foreclosure sale).
Realized Loss – A loss recognized when assets are sold for a price less than the outstanding principal balance of the asset plus interest and liquidation expenses.
Residential Mortgage-Backed Securities (RMBS) – A type of Mortgage-Backed Security backed by residential mortgage loans.
Security (-ies) – A general term for stocks, bonds, options, subscription rights, warrants and other tradable investments that confer a right to income or ownership.
Securitization – The process through which financial assets are pooled, transferred to a trust or other Special Purpose Entity (SPE), and issued and sold to investors in the capital markets.
Subprime Loans – Loans extended to borrowers who do not qualify for the best market interest rates due to a deficient credit history and/or a low credit score.
Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund) – A borrowing facility and assessment authority, authorized under the 2009 Helping Families Save Their Homes Act, to allow the NCUA Board the ability to segregate costs associated with stabilizing the corporate credit union system. Segregating the costs into one fund improves the transparency of NCUA's stabilization actions and allows natural person credit unions to pay for the costs of stabilizing the corporate credit union system over time.
Tranche – One of several related securities issued in a Securitization transaction. Tranches in the same transaction may have different maturity, subordination and interest rate characteristics, and may represent a different slice of the transaction's risk. Transaction documentation may define the tranches as different "classes" of securities, each identified by a letter (e.g. the Class A, Class B, or Class C securities) and each tranche may have a different credit rating.
Underlying Loans – Loans underlying a security that produce the cash flows used to pay off that security.
Underlying Security (-ies) – Securities underlying the NGNs (i.e. Legacy Assets) that produce the cash flows used to pay off the NGNs.
Underwriter – A company or other entity that administers the public issuance and distribution of securities from a corporation or other issuing body. An underwriter works closely with the issuing body to determine the offering price of the securities, buys them from the issuer and sells them to investors via the underwriter's distribution network.
Weighted Average Coupon – The weighted average of the stated interest rates on the underlying loans, weighted by the principal balances of the loans.
Weighted Average Life – The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding.