FEDERAL

Interest Rate Swap: An interest rate swap is
an agreement in which two parties make interest
payments to each other for a set period based upon
a notional principal (amount of principal of the
underlying debt security). The notional principal is
only used to calculate the interest payments; no risk is
attached to it. Interest rate swaps commonly involve
exchanging payments based on a fixed interest rate
for payments based on a floating rate (e.g., London
Interbank Offered Rate). The fixed rate is known as
the swap rate.
Internal Controls: Internal controls are an integral
component of an organization’s management that
provide reasonable assurance that the following
objectives are achieved: (1) effectiveness and
efficiency of operations, (2) reliability of financial
reports, and (3) compliance with applicable
laws and regulations. Internal controls relate to
management’s plans, methods, and procedures
used to meet its mission, goals, and objectives and
include the processes and procedures for planning,
organizing, directing, and controlling program
operations as well as the systems for measuring,
reporting, and monitoring program performance.
Joint and Several Liability: The concept of joint
and several liability provides that each obligor in
a group is responsible for the debts of all in that
group. In the case of the FHLBanks, if any individual
FHLBank were unable to pay a creditor, the other
11—or any 1 or more of them—would be required
to step in and cover that debt.
Loan-to-Value: A percentage calculated by dividing
the amount borrowed by the price or appraised value
of the home to be purchased; the higher the loan-tovalue
(also known as LTV), the less cash a borrower is
required to pay as down payment.
Mortgage-Backed Securities: MBS are debt
securities that represent interests in the cash flows—
anticipated principal and interest payments—from
pools of mortgage loans, most commonly on
residential property.
Noncontrolling Interest: A noncontrolling interest
is the portion of equity (net assets) in a subsidiary
not attributable directly or indirectly to a parent
company. A noncontrolling interest is sometimes
called minority interest and is reported in the
consolidated statements of financial position. It is
to be placed within the equity section but shown
separately from the parent company’s equity.
Operational Risk: Exposure to loss resulting from
inadequate or failed internal processes, people, and
systems or from external events (including legal
events).
Options: Contracts that give the buyer the right, but
not the obligation, to buy or sell a specified quantity
of a commodity or other instrument at a specific
price within a specified period of time, regardless of
the market price of that instrument.
Preferred Stock: A security that usually pays a fixed
dividend and gives the holder a claim on corporate
earnings and assets superior to that of holders of
common stock but inferior to that of investors in the
corporation’s debt securities.
Private-Label Mortgage-Backed Securities:
MBS derived from mortgage loan pools assembled
by entities other than GSEs or federal government
agencies. They do not carry an explicit or implicit
government guarantee, and the private-label MBS
investor bears the risk of losses on its investment.
Real Estate Owned: Foreclosed homes owned by
government agencies or financial institutions, such as
the enterprises or real estate investors. REO homes
represent collateral seized to satisfy unpaid mortgage
loans. The investor or its representative then must sell
the property on its own.
Securitization: A process whereby a financial
institution assembles pools of income-producing
Semiannual Report to the Congress • April 1, 2013–September 30, 2013 75