FEDERAL

Appendices
Appendix A:
Glossary and Acronyms
Glossary of Terms
Alternative A: A classification of mortgages in which
the risk profile falls between prime and subprime.
Alternative A (also known as Alt-A) mortgages are
generally considered higher risk than prime due to
factors that may include higher loan-to-value and
debt-to-income ratios or limited documentation of
the borrower’s income.
Bankruptcy: A legal procedure for resolving debt
problems of individuals and businesses; specifically, a
case filed under one of the chapters of Title 11 of the
U.S. Code.
Basis Points: Refers to hundredths of 1 percentage
point. For example, 1 basis point is equivalent to
1/100 of 1 percentage point.
Bonds: Obligations by a borrower to eventually
repay money obtained from a lender. The bondholder
buying the investment is entitled to receive both
principal and interest payments from the borrower.
Capital Gain (Loss): When a capital asset (e.g.,
stocks or bonds held as investments) is sold, the
difference between the amount paid for the asset
and the amount it is sold for is a capital gain or loss.
Capital gains occur when the asset sells for more than
paid, while capital losses occur when the asset is sold
for less than the purchase price.
Capitalization: In the context of bank supervision,
capitalization refers to the funds a bank holds
as a buffer against unexpected losses. It includes
shareholders’ equity, loss reserves, and retained
earnings. Bank capitalization plays a critical role in
the safety and soundness of individual banks and the
banking system. In most cases, federal regulators set
requirements for adequate bank capitalization.
Carryforwards: A provision of tax law that allows
current losses or certain tax credits to be utilized in
future tax returns.
Collateral: Assets used as security for a loan that can
be seized by the lender if the borrower fails to repay
the loan.
Commercial Banks: Commercial banks are
establishments primarily engaged in accepting
demand and other deposits and making commercial,
industrial, and consumer loans. Commercial banks
provide significant services in originating, servicing,
and enhancing the liquidity and quality of credit that
is ultimately funded elsewhere.
Conforming Loan: A conforming loan is a
conventional loan with an origination balance that
does not exceed a specified amount (i.e., conforming
loan limit). The enterprises are restricted by law to
purchasing conforming loans, with the loan limits
varying by unit size and region, e.g., high-cost areas.
For 2013, the maximum general loan limit for a
single-family one-unit dwelling is $417,000, while
the maximum high-cost area loan limit for a singlefamily
one-unit dwelling is $625,500.
Conservatorship: Conservatorship is a legal
procedure for the management of financial
institutions for an interim period during which the
institution’s conservator assumes responsibility for
operating the institution and conserving its assets.
Under the Housing and Economic Recovery Act of
2008, the enterprises entered into conservatorships
72 Federal Housing Finance Agency Office of Inspector General