A

ABA number -- a number, usually placed near the upper right corner of checks, which identifies the financial institution on which the check is drawn. The number is used in sorting and clearing checks. The ABA coding system was designed by the American Bankers Association. abatement -- the reduction or cancellation of an assessed tax. above par -- a higher dollar amount than the face value, or par, of a security. The term is used when a security is sold for a price higher than its face value. absentee landlord -- a property owner who does not occupy his or her property, but usually rents it to another or leaves it vacant. absolute title -- a clear title that is free of any liens or judgments. A clear title is normally required before a mortgage is granted. abstract of title -- a statement usually prepared by an attorney that traces the history of ownership of real property to determine the status of its present title, and includes all items of record that might impair the title, such as liens, charges or encumbrances. accelerated amortization -- the restructuring of an existing mortgage loan by increasing the monthly payments in order to pay off the loan in a shorter time than the original maturity. Accelerated depreciation -- the method of speeding up the write-off from income of qualifying investments at a faster than normal rate. Annual tax deductions are higher in the first years and diminish in later years of the write-off. Acceleration clause -- a clause commonly included in mortgages and bonds that gives the holder the right to demand the entire outstanding balance be paid in the event of default. Without this clause, the mortgagee may have to file separate foreclosure suits as each installment of the mortgage debt falls due and is in default. Acceptance -- a written agreement, usually in the form of a draft, in which one party, the drawee, accepts the obligation to pay a specified amount of money to another party at a specified place and time. The drawee is also known as the acceptor, and writes the word "accepted" over his or her signature. A bank acceptance is a draft drawn on and accepted by a bank. Access -- the right to enter and leave a tract of land from a public road, often used when an owners' property is accessible only by crossing property owned by another party.

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Access savings account -- a type of savings account in which funds are accessible to the account holder by check, telephone order, debit card or similar device in addition to in-person withdrawals. NOW accounts are a type of access savings account. Accommodation -- the lending of one person's good name or credit standing to a second person with no compensation in order that the second person may borrow money from a third person. Historically, accommodation meant the making of a loan by one person to a second person who lacks sufficient collateral but has the backing of a third person. Accommodation check -- a check written by a thrift institution on its account with a bank, payable to a third party named by a customer withdrawing funds to cover the check from his or her account at the thrift institution. Account -- (1) an on-going business relationship in which a depository institution accepts, holds, invests, processes or disburses funds owned by a customer according to the customer's wishes within a framework of pre-established rules and procedures. (2) any continuing business relationship between two parties in which funds or debt is held and processed to compensate the parties for transactions between them. Accountant -- a person who performs accounting work. Account hold -- a warning placed on a savings, loan or other account to indicate the need for special handling when transactions are made. Accounting -- the process of systematically recording, classifying, verifying and summarizing business transactions, and presenting this information in periodic, interpretative financial statements and reports. Accounting equation -- the basic equation of double-entry accounting that reflects the relationship of assets, liabilities and net worth (reserves + stockholders equity + retained earnings). The equation may be expressed in its simplest form as: assets = liabilities + net worth. Accounts payable -- amounts recorded as liabilities on the books of a company, institution or individual that are owed, but have not yet been paid, to a creditor for previously purchased merchandise or services. Accounts receivable -- amounts recorded as assets on the books of a company, institution or individual that are due, but have not yet been collected, from a debtor for the previous purchase of merchandise or services. Accounting Dictionary Page 2

Accrual basis accounting -- a method of accounting whereby income and expense items are recognized and recorded when income is earned and expense is incurred, regardless of when cash is actually received or paid. (See cash basis accounting.) Accrue -- to increase or accumulate. Commonly used in reference to depreciation, expense, income, interest and other accounting factors. Accrued expense -- costs that have been incurred during an accounting period but have not yet been paid. Accrued interest -- interest that has been earned but which has not been paid or credited since the last time that interest was paid. Acquisition credit -- fees other than interest charged by a thrift institution for making, refinancing or changing a loan or a loan commitment. Acquisition credits are sometimes referred to as loan origination fees. Acquisition, development and construction (ADC) loan -- a loan package to finance acquiring, developing and constructing real estate. Acquisition discount -- the difference between the amount of unpaid principal of a mortgage and the price paid for the mortgage in the secondary market. Acquisition loan -- a loan for purchasing raw, or yet to be developed, land. Acre -- a tract of land containing 43,560 square feet, or 0.0016 square miles of land. An acre measures 208.71 feet on each side. In the metric system, one acre equals 0.4047 hectare or 40.47 acres. Actualize -- physical or cash commodities, as distinguished from commodity futures contracts. Actual thrift investment percentage (ATIP) -- a ratio whose numerator is housing-related investments, called qualified thrift investments, and whose denominator is portfolio assets. The ratio is used to determine whether a savings association meets the qualified thrift lender test. Add-on interest -- a procedure in which the interest payable during the term of the loan is added to the principal of the loan. The borrower signs a note promising to repay principal plus interest, although only the principal is initially disbursed to the borrower. Adjustable rate mortgage (ARM) -- a loan in which the interest rate is periodically adjusted, moving higher or lower in the same ratio as a preselected index, such as Treasury bill rates. ARM loans may include caps on interest rate increases in a given time period, and over the life Accounting Dictionary Page 3

of the loan, and may include limits on the frequency of interest rate adjustments. ARM loans generally have initial below market interest rates in return for the borrower sharing the risk that interest rates may rise during the life of the loan. Adjusted basis -- the original cost of a property plus the value of any capital expenditures for improvements to the property, minus any depreciation taken. Administrative law -- law that is formulated by a government agency responsible for carrying out statute law. Administrative law judge -- an attorney appointed to conduct administrative hearings brought by federal agencies in civil cases. Such hearings are often held when a federal agency seeks to decide a contested issue or impose a directive or civil penalty on an individual or an institution. In most cases after conducting the hearing, the administrative law judge sends recommended findings and conclusions to the head of the federal agency, who makes the final decision. The agency head considers the recommendations of the administrative law judge and any briefs submitted by the agency staff and the respondent. The hearings are conducted under rules established by the Administrative Procedures Act. Federal agencies either have their own administrative law judges on staff or borrow them from other agencies when they need to conduct a hearing. The Office of Personnel Management assigns administrative law judges to other agencies upon request. Administrative law judges formerly were called hearing examiners. Ad valorem taxes -- property taxes on the assessed value of a property. Ad valorem is Latin for "according to value." Advance -- a loan made by a Federal Home Loan Bank to a member financial institution. Advance package -- see preliminary examination response kit. Adverse opinion -- an opinion issued by an independent auditor when the financial statements of a financial institution do not fairly present the institution's financial condition. See qualified opinion. Adverse possession -- a claim to acquire the title to another owner's property by an occupant who has openly and peaceably occupied that property continuously for a period of time (usually 20 years) without being challenged by the original owner. Affidavit -- a sworn statement in writing before an authorized official, usually a notary. Affiliated company -- a company that exercises a significant influence over another company. Any direct or indirect common ownership. Accounting Dictionary Page 4

Affiliated person -- as defined by OTS regulations, an affiliated person is: (1) a director, officer, or controlling person of a thrift institution; (2) a spouse of a director, officer or controlling person of a thrift institution; (3) a member of the immediate family residing in the same household as a director, officer or controlling person of a thrift institution; (4) a corporation of which a director, officer or controlling person: (a) is chief executive officer, chief financial officer, or a person performing similar functions of a thrift institution, (b) is a general partner in a partnership with a thrift institution, (c) is a limited partner in a partnership with a thrift institution and (i) directly or indirectly, either alone or with members of his immediate family who are also affiliated persons, owns an interest of 10 percent or more in the partnership based on the value of his capital contribution, or (ii) directly or indirectly with other directors, officers and controlling persons, and their family members who are also affiliated persons, owns an interest of 25 percent or more of any class of equity securities; or (5) any trust or other estate in which a director, officer, or controlling person or the spouse of such person has a substantial beneficial interest or as to which such person or his spouse serves as trustee or in a similar fiduciary capacity. Affirmative lending -- the practice of actively marketing and making loans in areas of particular need: inner-city, low- and moderate-income, minority and/or older neighborhoods in need of rehabilitation. Affordable Housing Program -- a program established by FIRREA, under which each Federal Home Loan Bank uses a portion of its net income to make grants and advances to member institutions, which in turn use the funds to make loans for low- and moderate-income housing on below market terms. Agencies -- slang for securities issued by an agency of the federal government, or a corporation chartered by Congress, such as the FHLMC, FNMA or GNMA. See agency issues. Agency basis -- the sale of securities by a broker acting as an agent for others and charging customers a commission for services. On an agency basis, the broker assumes no risk of holding the securities directly, but merely handles the buying and selling for others. See principal basis. Agency issues -- debt securities issued by agencies of the federal government or corporations chartered by Congress. With the exception of the Government National Mortgage Association (Ginnie Mae), these issues are backed by the issuing agency but not by the full faith and credit of the U.S. Government. See agencies. Accounting Dictionary Page 5

Agent -- a person who acts for or in place of another with authority delegated by the other person. Air lot -- a legal description for a condominium unit, containing both horizontal and vertical dimensions. The air lot generally extends to the inner faces of the walls, floors and ceiling of the condominium unit. Air rights -- the ownership rights of everything above the physical surface of the land. Air space -- a two- or three-dimensional space located above ground level. All condominiums above the first floor are located in, and represent title to, air space. Alienate -- to transfer the title to a property from one party to another. All savers certificate -- a one-year certificate of deposit account, with a fixed rate tied to new Treasury bills, issued from October 1, 1981, through December 31, 1982, with a minimum deposit of $500. The saver received a once-in-a-lifetime exemption from federal income taxes for ASC earnings of up to $1,000 ($2,000 on a joint return). All savers certificates were authorized by the Economic Recovery Tax Act of 1981 as a means of attracting funds primarily to thrift institutions. Alternative mortgage instruments (ATI) -- all mortgage plans that differ from the conventional fixed rate, fixed term, fixed monthly payment, fully amortized mortgage. Amenity -- any feature that makes a property more attractive or valuable. Amenities include such items as off-street parking, a swimming pool, tennis courts, and proximity to good schools, transportation and shopping facilities. American Bankers Association (ABA) -- a national trade organization of the banking industry formed in 1875. American Council of State Savings Supervisors (ACSSS) -- a national organization of state savings institution regulators. It was formerly called the National Association of State Savings & Loan Supervisors (NASS&LS). American Savings and Loan League -- a thrift institution trade organization primarily representing minority-owned savings and loan associations. It is affiliated with America's Community Bankers. America's Community Bankers -- a national trade association representing savings institutions and community banks. It was formed on June 1, 1992, through the merger of the United States Accounting Dictionary Page 6

League of Savings Institutions and the National Council of Community Bankers. At that merger, its original name was Savings & Community Bankers of America. The name was changed to America's Community Bankers on January 29, 1995. AMMINET -- Automated Mortgage Market Information Network. A nationwide electronic quotation system developed by the Federal Home Loan Mortgage Corporation, and operated by a non-profit corporation. The system provides market information to subscribers on buy and sell orders for various types of mortgages and mortgage-backed securities. Amortization -- the repayment of a loan calculated so that the principal will be paid in full through monthly payments of principal and interest for a predetermined period of time. Many home mortgages are fully amortized in 15, 20 or 30 years. Amortizing swap -- a swap in which the notional amount of the agreement declines over time according to an amortization schedule. The rate of amortization may be preset or may be determined by interest rates. Annual percentage rate (APR) -- the rate required by Truth in Lending laws. It is designed to show customers the total cost of credit, including the stated interest rate plus certain finance and service charges. Annual report -- a report prepared by management once each year describing the financial and organizational condition of the company, institution or agency and describing the activities that were engaged in during the past year. Annuity -- (1) a payment of funds, often at a minimum guaranteed amount, made yearly, monthly or at other regular intervals. (2) a type of policy offered by insurance companies in which the policy holder makes payments for a fixed period or until a stated age, and then receives annuity payments from the insurance company. Apartment -- a complete and separate rental living unit in a building containing other units. Appellant -- the party that appeals a decision of a lower court. See appellee. Appellee -- the party that is the defendant in an appeal of a lower court decision. See appellant. Applications Tracking System (ATS) -- an electronic system employed by the Office of Thrift Supervision to keep track of the processing and status of thrift industry applications requiring regulatory approval. Appraisal -- an estimate of the market value of a piece of property by a qualified appraiser. Accounting Dictionary Page 7

Appraised equity capital -- the amount of the difference between the book value of certain thrift
institution assets such as land, buildings and equipment, and the higher market value of such assets.

Appreciation -- the increase in value of an item, specifically the increase in market value of real estate. Appurtenance -- anything attached to the land and therefore part of the property and subject to being passed to a new owner if the property is sold. An appurtenance may be something tangible, such as a barn, garage, driveway or septic system, or abstract, such as an easement. Arbitrage -- a transaction in which an investor buys commodities, funds, mortgages, futures contracts, mortgage-backed securities or other securities in one market and simultaneously sells them in a different market in order to profit from differences in price between the two markets. Are -- a metric unit of land measuring 10 meters by 10 meters, or 100 square meters. An are is also 0.1 of a hectare and is 119.60 square yards. ARM -- see adjustable rate mortgage. Arms length transaction -- a transaction in which the parties involved act independently of each other, and in which the mechanics of the transaction are handled as they would be between strangers. Sometimes the transaction is conducted by a mutually agreed upon third party, to ensure that one of the principal parties does not influence the other. Arrears -- (1) the state of a debt that remains unpaid following the date of maturity. The term is commonly used in connection with mortgages, installment payments and other obligations that are due and payable on specified dates. (2) the money that is past due but unpaid. Asked price -- the price at which a security is offered for sale. Assessed valuation -- the value that a taxing authority places on real or personal property for the purpose of calculating taxes. Assessment -- (1) an estimate of the value of a piece of real property for the purpose of levying taxes; also called assessed valuation. (2) a charge against real property levied by a public governing body for a local improvement, such as a sewer repair or street paving. Assessment rolls -- the public record of taxable property within the jurisdiction of the taxing authority. Assessor -- a public official who evaluates property for the purpose of determining the taxable value of property.

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Asset -- anything owned by an individual or company that has commercial usefulness or value if sold. An asset may be physical property or items, or enforceable claims against others. Loans made by a thrift institution are assets of that institution. Assets also include real estate, equipment, cash, investments in stocks and bonds, and any other resource that can be converted into cash. See liability. Asset/liability management -- a plan or program to control the difference (also known as spread or net interest margin) between the rate of interest or earnings received on assets and the rate of interest due on liabilities. In addition to selecting the mix of complimenting assets and liabilities, a key part of such a plan is timing the maturity of matched assets and liabilities. When they come due at the same time, assets can be reinvested and balancing liabilities can be repurchased at new interest rates that maintain the desired spread. Asset turnover -- total gross income divided by total assets. Assignee -- the person or institution to whom an agreement, contract, or interest in real property is transferred. Assignment -- the transfer in writing of some or all ownership rights to real or personal property from one party to another. Assignment of rents -- a legal document that assigns all rents and income from a property to the mortgagee if a mortgagor defaults. Assignor -- a person or institution from whom an agreement, contract or property is transferred to another. Assisted merger -- the takeover of a troubled savings institution by another savings institution with financial assistance provided from the federal deposit insurance fund. Associate broker -- a person who has qualified as a real estate broker but who works for a principal broker licensed by the state. Assumable mortgage -- a mortgage contract that gives the mortgagor the option of transferring primary liability for payment of the mortgage to a buyer if the property is re-sold with interest rates and other terms of the original mortgage remaining in effect. Assumption -- the transfer of primary liability for payment of an existing mortgage (or deed of trust) from the seller to the buyer of a property. The seller remains secondarily liable unless specifically released by the lender. Accounting Dictionary Page 9

Assumption fee -- a fee paid to a lender, usually by the purchaser of a property, upon the assumption of a mortgage. ATM -- see automated teller machine. Attached house -- any low-rise residential structure attached to another by a shared wall, such as a row house or town house. Attachment -- a seizure of a defendant's property by court order with the property held as security for any judgment the plaintiff may recover in a legal action. Attest -- to witness or testify; to affirm that a document is genuine. At the market -- an order to buy or sell securities, executed by a broker at the best price available, rather than at a predetermined price. At the money option -- an option purchased by an investor to buy or sell, with a strike price equal to the current market price of the underlying cash or futures contract. In this instance, the intrinsic value of the option is zero. Its value reflects the premium paid for the additional time the holder has to decide whether or not to exercise the option, in especially in times of price volatility. Attractive nuisance -- a structure or object on a property that might entice others, especially young children, into danger, such as a vacant building or swimming pool Audit -- a periodic or continuous official examination of a thrift institution's account records, policies and procedures, confirmation of account balances and tests of the accuracy of transactions to verify the stated assets and liabilities of the institution. Automated clearing house (ACH) -- a computer-based clearing and settlement facility established to process the exchange of electronic transactions between participating depository institutions. Such electronic transactions (or wire transfers) take the place of paper checks. Automated teller machine (ATM) -- a machine that permits customers to gain access to their accounts through the use of a magnetically encoded plastic card and by pushing appropriate buttons on a computer terminal. ATMs dispense cash, transfer funds from one account to another, accept deposits, perform other functions, and are generally available 24 hours a day. Automatic deposit -- see direct deposit.

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Automatic transfer service (ATS) account -- a depositor's savings account from which funds may be transferred automatically to the same depositor's checking account to cover a check written or to maintain a minimum balance. Average rate of return -- the return on an investment calculated by totaling the cash flow over the years during which earnings are received and dividing that amount by the number of years that the investment is outstanding.

B
Back office -- departments of a financial institution that perform work out of sight of customers, including bookkeeping and the processing of checks and loan payments. Bad debt reserve -- a reserve account maintained by thrift institutions and used to offset losses from foreclosed or un-collectable loans. Within certain guidelines, contributions to the bad debt reserve are deductible from the institution's taxable income. The deduction is known as the bad debt deduction. Balance -- the remaining amount credited to a customer's account, representing the amount the customer is entitled to withdraw, or conversely, the remaining amount of a customer's debt, which is the amount the customer is obligated to repay. The term also refers to the ratio of total credits to total debits. Balance sheet -- a financial statement that contains the types and amounts of assets, liabilities and net worth of a company, institution or individual. Also called a statement of condition. Balloon mortgage -- a mortgage that does not fully amortize by the end of the loan term. Periodic payments may be for principal and interest, or for interest only. At maturity, the unpaid principal is due in a lump sum. Balloon payment -- the lump sum payment of the unpaid principal remaining at the end of the term of a balloon mortgage loan or other non-amortizing loan. Baltimore Plan -- an early housing plan implemented in 1944 to upgrade and maintain inner city housing standards. It included building, zoning, fire protection, and housing laws; a citizens' advisory council; a housing bureau in the health department; rodent control and sanitation. The plan was enforced by a special housing court. The Baltimore Plan was a model and an example to other cities trying to solve similar urban problems.

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Bank -- when lower case in this glossary, refers to a commercial bank. A commercial bank is an institution that accepts demand deposits and makes commercial loans. Bank -- when capitalized in this glossary refers to one of the 12 Federal Home Loan Banks. Bank check -- a check drawn by a bank on itself and signed by an authorized bank officer. Also referred to as a cashier's check, officer's check, or treasurer's check. Bank draft -- a check written by one bank on its account with another bank. Bankers acceptance -- a draft drawn on a bank, which when accepted by the bank, constitutes the bank's obligation to pay the draft writer's bills from a specified creditor when the bills are due. The bank literally stamps "Accepted for payment by (name of bank) on (date)" across the face of the draft. Acceptance converts a depositor's "order to pay" into an unconditional "promise to pay" by the accepting bank. Bankers acceptances are effectively a guaranty of payment for a purchase and are usually used in financing the import, export, transfer or storage of goods, and qualify as liquid assets when held by a thrift institution. Bankers bill -- a negotiable draft without supporting papers drawn by one bank on its credit balance at a foreign bank. Banking Act of 1933 -- the first major banking legislation of the Roosevelt administration, it created the Federal Deposit Insurance Corporation to provide insurance of deposits of member banks. The Act also provided for the regulation of banks, and limited branch banking. Also known as the Glass-Steagall Act. Bank Insurance Fund (BIF) -- the fund that provides deposit insurance for commercial banks. It is administered by the Federal Deposit Insurance Corporation (FDIC). Bank Merger Act (BMA) -- popular nickname for a section of the Federal Deposit Insurance Act (FDIA). Bank note -- a promissory note issued by an authorized bank that is payable on demand to a bearer and can be used as cash. Under law, such notes are redeemable as money and are considered full legal tender. Bank notes are also called bank bills or bank currency. Bank Protection Act of 1968 -- a federal law that authorized the Federal Home Loan Bank Board and other federal regulators of depository institutions to set minimum standards to be met by financial institutions in installing security devices to discourage robberies, burglaries and larcenies. Accounting Dictionary Page 12

Bankruptcy -- the legal process in which a person or firm declares inability to pay debts. Any available assets are liquidated and the proceeds are distributed to creditors. A person or firm may be declared bankrupt under one of several chapters of the federal bankruptcy code: Chapter 7, which covers liquidation of the doubter's assets; Chapter 11, which covers reorganization of bankrupt businesses; or Chapter 13, which covers work-outs of debts by individuals. Upon a court declaration of bankruptcy, a person or firm surrenders assets to a court-appointed trustee, and is relieved from the payment of previous debts. BankWire -- an electronic communications network owned by an association of banks and used to transfer messages between subscribing banks. BankWire also offers a clearing service called CashWire that includes a settlement facility. Basel Agreement -- an accord developed during a 1975 meeting in Basel, Switzerland of central bankers of the industrialized nations setting forth guidelines for the supervision of banks. Included are guidelines for minimum capital requirements. The agreement was reached by the Committee on Banking Regulations and Supervisory Practices (also known as the Cooke Committee after its chairman, Peter Cooke), meeting under the auspices of The Bank for International Settlements. Baseline program -- another name for the standard program, under which the Federal Home Loan Mortgage Corporation purchases mortgages for cash. Basic rent -- the rent charged in a subsidized housing project and computed on the basis of a maximum subsidy resulting in a minimum rent payment under provisions of the HUD Section 236, Subsidized Housing Program. Basis -- the difference between the price of related commodities in the same market or of the same commodity in different markets. Most commonly used in reference to the difference between the cash market price of a commodity and the corresponding futures market price. Basis point -- one basis point equals 1/1OOth of one percent, or .0001. For example, 50 basis points is equal to 1/2 percent. Basis points are frequently used to describe spreads or changes in yields of interest rates. Basket provision -- thrift industry slang for provisions in the law that allow savings and loan associations, savings banks and insurance companies to invest a portion of their assets in investments not otherwise permitted. Accounting Dictionary Page 13

Bauverein -- the German word for building association. In some U.S. German neighborhoods, local savings associations were called bauvereins. Bearer bond -- a bond that does not have the owner's name registered on the books of the issuing agency or company, and is payable to whomever holds the bond and bears it to the issuer for payment. Bearer check -- a check payable to "cash" or to "the bearer" rather than to a specific party. Bear hug -- an unsolicited corporate takeover proposal, made privately or publicly to directors. Bear market -- a condition of a stock market characterized by a selling trend and declining prices. Opposite of a bull market. Before-tax-income -- gross income less all expenses except income taxes. Belly-up -- slang, used to describe a failed project or institution. Below-market interest rate -- an interest rate below the current rate for conventional financing in a given area. Programs with below-market rates may be used to assist low- or moderateincome buyers. Bleeder -- another name for a gazebo. Benchmark -- a mark made on a permanent object indicating elevation and serving as a reference in land surveys. Beneficiary -- the person designated to receive funds in a trust account or an insurance policy. Beneficiary statement -- the statement of a lender that shows the remaining principal balance and other information about a loan. It is usually obtained when a property owner wants to sell or refinance. It is also called a bene statement, offset statement, or estoppel certificate, and it is normally requested by escrow or title companies. Bequeath -- to give personal property in a will. Bequest -- a gift of personal property made by a deceased person. Berg -- a mound of earth created for either decorative purposes or functional reasons, such as controlling the flow of water or obscuring undesirable views. Bid -- (1) an offer of money in exchange for property, or anything of value that has been placed for sale. (2) an offer to purchase something of value at a specified price made during an auction. (3) a formal offer in writing by a contractor to provide a product or service for a certain price,

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usually within a specified period of time. (4) in securities markets, an indication of a willingness to buy at a given price. Bill check -- a system of payment, in which a debtor authorizes a creditor to obtain payment directly from the debtor's deposit account. binder -- a written statement binding two parties to an agreement until a formal contract can be executed. A binder is used to secure insurance for a mortgage until a complete policy is issued. Baleful -- a house with two distinct levels that are side-by-side and less than one story apart in height; also called a split-level. Bill of credit -- the written request of an individual to his or her depository institution asking it to deliver money to the bearer of the request, with the money drawn from the individual's deposit account, or advanced on the individual's credit. Bill of exchange -- instructions from one party to a second party to pay a third party following the completion of an assignment. Bill of lading -- a written statement in which a carrier acknowledges the receipt of freight, identifies the freight, and sets forth terms under which the freight will be delivered to a destination. Bill of sale -- a written document that transfers title to personal property from the seller to the buyer. Binary -- a math system based on 2s rather than Los, using only the digits O and 1. It is the operating system for computers. Blanket -- something that pertains to more than one item, or more than one piece of property. In a blanket condemnation, a number of properties are sold through the power of eminent domain. A blanket insurance policy covers more than one property. A blanket mortgage is a lien on more than one parcel of land and is frequently used by developers and subdividers. Blanket mortgage loan -- a loan made to developers or contractors to purchase one or more tracts of land with the intention of dividing the land into smaller parcels for resale or development. Blighted area -- a run-down area in a community or a neighborhood that is close to becoming a slum. Block -- the smallest square or rectangular portion of a city or town surrounded by four streets. A block may be wholly or partially occupied by buildings or be vacant land. Accounting Dictionary Page 15

Blockbusting -- the illegal practice of some real estate dealers who start rumors that play on prejudices against minorities, creating panic selling by an area's residents. The dealers buy the houses from frightened owners at below market prices, and then sell the homes to minority groups at above market prices. Blue chip stock -- the common stock of large, stable companies that have shown consistent earnings and usually have long-term growth potential. Board foot -- a unit used to measure lumber. One board foot is one inch thick, one foot wide and one foot long. Board of directors -- the group of persons who make up the governing body of an institution, and are responsible for policy and overall direction of the organization. Board of trustees -- the group of persons that manages a mutual savings bank, establishes the policies under which it is to be operated, and appoints executive officers. In some states it is called a board of managers. Bogus -- false, counterfeit, nonexistent or fraudulent. Boilerplate -- slang for standard legal language used in loan forms, real estate closings, etc. Bona fide -- something that is in good faith, not a fraud, the real thing. Bond -- a certificate that is evidence of a debt. The debt is initiated when the issuer sells the bond to the holder for a specific amount of cash. The issuer is obligated to pay the holder of the bond a fixed sum (the bond's face value) at a stated future date and to pay interest (usually twice a year) at a specified rate during the life of the bond. Bonds may be issued by corporations, the federal government, and by state and local governments as a means of raising funds in the capital markets. Bonds may be issued in registered form, in which the name of the holder is on record with the issuer, or in bearer form, in which the name of the owner is not registered and the bond is payable to whomever bears, or presents the bond to the issuer for redemption. Bond discount -- the difference between the purchase price and face value of a bond when the face value exceeds the purchase price. Bond premium -- the difference between the purchase price and the face value of a bond when the face value is less than the purchase price.

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Bonus account -- a savings account that earns interest at a higher rate if the customer makes regular, scheduled deposits to the account, leaves a specified amount on deposit for a specified term, or fulfills other conditions of the account agreement. Book entry system -- the recording, transferring and processing of securities solely by electronic means. The ownership of a security is recorded in a computer file and the purchaser does not receive a piece of paper evidencing ownership. Bookkeeping -- the recording and balancing of financing transactions of an institution. Book value -- the value of an asset as it appears on the accounting books of an organization. Book value is the initial cost of the asset, less depreciation. Book value may be different from market value, which is the estimated amount the asset would command if sold. Book value also refers to the total value of a company and is computed by adding all assets, then deducting all debts and other liabilities, and deducting the liquidation price of any preferred stock. The book value of a company may be divided by the number of outstanding shares of common stock to get the book value per share of common stock. Borrower -- individual or institution receiving funds in the form of a loan and obligated to repay
the loan, usually with interest. A borrower is called a mortgagor when the loan is secured by real estate.

Branch office -- an office of a savings institution that is physically separated from the association's home office, but that offers the same kinds of deposit taking, loan and other services conducted at the home office. Breach -- a violation of a legal obligation. Breakeven point -- the level of sales or production at which the total costs and total revenue of a business are equal. Brick -- slang used to describe a package of currency that is banded with steel straps. Bricks and mortar -- slang for physical branch or main offices of a thrift institution. Broker -- a person who acts as an agent for others in selling or buying funds, securities, real estate, insurance or other services or products. Brokered deposits -- deposits placed in a savings institution by a broker. The broker gathers funds from others and packages the funds in batches of $100,000. The broker then shops for thrift institutions paying the highest rates and takes out multiple jumbo ($100,000) certificates of deposit, which typically pay the highest rates of interest and are federally insured. The practice Accounting Dictionary Page 17

allows persons with less than $100,000 to pool their money and earn the higher rates paid by jumbo certificates of deposit. For his services, the broker charges fees to the investors for getting them higher rates and/or to the thrift institutions for placing deposits with them. Budget -- an itemized listing, usually prepared annually, of anticipated revenue and projected expenses. Buffer zone -- an area separating two or more types of land use, such as between a residential area and a commercial area. Building and loan association -- another name for a savings and loan association. Building codes -- city, county or state regulations that set forth standards and requirements for the construction, maintenance and occupancy of buildings. The codes are designed to provide for the safety, health and welfare of the public. Building efficiency -- the ratio of net rentable area to gross building area expressed as a percentage. Building loan -- a mortgage loan made to finance the construction of a building. It is advanced in stages as the work is completed. Also called a construction loan. Building society -- the British term for a savings and loan association. Built-ins -- cabinets, ranges, ovens, and other appliances or furniture that are attached to the structure. Bulge -- slang for a sudden, temporary increase in the price of a security, stock or debt obligation. Any temporary, significant increase, such as that in the volume of work. Bull market -- a condition of a stock or securities market characterized by increased buying and rising prices. Opposite of a bear market. Bungalow -- a one- or one and one-half story house with low exterior lines. In Chicago, a bungalow is a gable-roofed brick building with two to three bedrooms, a half-sunken basement, and stairs leading to an attic. Most bungalows were built in Chicago in the 1920s. In India, a bungalow is a small cottage with a thatched or tiled roof surrounded by a wide veranda. Bureau rate -- in some states, a standard rate is established by a rating bureau for all companies writing policies for hazard insurance and for title insurance. Buy -- (1) to acquire ownership of something in exchange for money. (2) The quality of a purchase, as "It is a good buy." Accounting Dictionary Page 18

Buy-back agreement -- a provision in a real estate sales contract stating that the seller will repurchase the property within a specified period of time, usually for the selling price, for a specific cause such as the purchaser being transferred by his or her employer from the area. Buydown -- the practice of a seller, builder or other party advancing money to a mortgage lender resulting in lower monthly mortgage payments by a third party, the homebuyer. As the result of a buydown, monthly mortgage payments may be reduced for the entire life of the mortgage, or for just an initial period of one or more years. Frequently, the amount of the buydown is added to the selling price of the property. Buyers market -- a market condition characterized by an oversupply of items for sale resulting in lower prices for the buyer. Opposite of a seller's market. Buying hedge -- also called a long hedge. Term refers to buying futures contracts to protect against a possible increase in the cost of buying commodities that will be needed in future. Buying power -- money and other liquid assets, plus credit, that is available for spending and consumption of goods and services. Buy on margin -- the act of purchasing securities and paying cash for only a fraction of the
purchase price. The remainder of the price is provided by credit extended by the broker to the buyer.

Buy-sell agreement -- a written agreement between a homeowner/borrower, a construction lender and a permanent lender that assigns the mortgage to the permanent lender when the construction is completed. Also called a tri-party agreement. Bylaws -- the regulations that an institution adopts that set forth duties, limit authority and establish orderly procedures for conducting business.

C
Cadastral map -- a legal map for recording title to a property. The map indicates legal boundaries and the ownership of the property. call -- (1) an option to buy a specific security at a specified price within a designated period. (2) to demand payment of a loan because of the failure of the borrower to comply with the terms of
the loan. (3) to demand payment for stocks or bonds that have been purchased or subscribed. See "put."

Calling officer -- a financial institution employee who goes out to call on prospective new customers and on current customers in order to strengthen their affiliation with the institution.

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Call loans -- loans used to finance the purchase of securities, and which may be terminated (called) at the discretion of the borrower or the lender on demand. Call option -- the option to buy a given amount of a commodity at a specified price during a specified period of time. Opposite of put option. Call price -- the price at which a callable bond or security is redeemable. It is used in connection with preferred stocks and debt securities having a fixed redemption value. It is the price the issuer must pay to call in the security and retire it by paying the holder. The call price often exceeds the par, or face value, of the security in order to compensate the holder for the disruption of earnings and the bother of having to reinvest the funds, possibly at a lower rate of return. Call protection -- a feature of mortgage loans or mortgage-backed securities designed to reduce the risk of an early call, or early prepayment, of a loan or security. Call protection may be accomplished by including prepayment penalties and lock-in periods in mortgages. Call protection also may be achieved by structuring a mortgage-backed security in such a way that if underlying loans are paid earlier than scheduled, the payments are not immediately passed through to the investor holding the mortgage-backed security. Investors and lenders sometimes desire call protection so that their funds will remain invested for the entire planned length of time, providing a consistent cash flow at predictable rates and reducing the premature need to look for new investments. Call provision -- a clause in a mortgage giving the lender the right to demand and receive payment of the balance of the unpaid principal in full under certain conditions. A call provision is similar to an acceleration clause. Call report -- a quarterly report of income and financial condition commercial banks file with their federal and state regulatory agencies. It is equivalent to the quarterly thrift financial report that savings institutions file with the Office of Thrift Supervision. CAMELS -- a rating system used by federal government examiners to evaluate the safety and soundness of a savings association or a bank. CAMELS is an acronym for the six elements that are evaluated: Capital, Assets, Management, Earnings, Liquidity and Sensitivity to risk. Each of these elements is rated on a scale of 1 to 5, and an overall CAMELS rating is assigned to the institution following an examination. A rating of 1 indicates the best performance, with 5 being

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the worst. OTS began using the CAMELS system for thrift institution examinations commenced after April 15, 1994. Previously, OTS had used the MACRO rating system. See MACRO. Canadian rollover mortgage -- the standard home financing loan in Canada. Like standard mortgages in the U.S., the Canadian rollover mortgage is fully amortizing. However, it differs in that the loan's interest rate is subject to renegotiations every five years, with no limit or cap on how much interest rates, and therefore monthly payments, can increase during the life of the loan. canceled check -- a check that has been paid by the financial institution on which it was drawn. It is stamped "paid" on the day it is paid and it is charged to the account of the person who wrote the check. Cap -- (1) the maximum allowable interest rate increase for adjustable rate mortgages. Caps embedded in mortgage agreements may limit the amount of upward change in the rate of interest at each adjustment period and provide a fixed maximum over which the rate cannot rise during the life of the loan. (2) an agreement negotiated between a buyer and seller. The buyer of a cap agreement pays a fee to the seller. In return, the seller will pay the buyer if a designated floating index rate is higher than a specified fixed rate on designated days. The seller pays nothing If the floating rate is below the fixed rate. Buyers of cap agreements use them to hedge against rising interest rates, because payments to the buyer increase as rates rise. See floor. See collar. capacity -- the ability of a borrower to repay a debt. It is determined by subtracting total expenses from the total income of the borrower. capital -- (1) funds raised by a business through the sale of stock plus retained earnings. (2) wealth, including money and property, owned, used, or accumulated by a person or a company. (3) assets minus liabilities equals net worth or capital. capital asset -- a long-term or permanent thing of value used to carry on a business or profession. capital directive -- an enforceable order issued by the Office of Thrift Supervision to a savings association requiring the institution to increase its capital to minimum requirements. capital expenditure -- money spent for additions or improvements to structures or equipment that are used to carry on the activities of an organization or individual.

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capital gain or loss -- the gain or loss incurred from the sale or disposition of assets including securities and real estate. capital improvement -- a structure or major piece of equipment built or installed to permanently add value and capacity to property. capitalism -- an economic system based on private ownership of the means of production. Under capitalism, individuals, companies or corporations invest in, own, and share in profits (or losses) of the entities that produce goods, distribute products or provide services. capitalization -- (1) the value of authorized or outstanding shares of stock or bonds in a business firm. (2) the process of adding earned but uncollected interest to the loan balance, a practice prohibited in some states. (3) a method of estimating the present value of future income. (4) the total value of an owner's investments in a business. capitalization rate -- the ratio of net rentals from an income property to the market value of the property, expressed as a percentage. In appraising, the capitalization rate is used to judge value for investment purposes and can be compared to the rate of return on other kinds of investments. capitalize -- (1) to supply with capital. (2) to authorize the sale of a specified amount of capital stock. (3) The accounting treatment of large expenses as part of a firm's assets. Thus, rather than treating an expense as a deduction from the income statement, it is treated as an investment and is expected to generate future income. capital market -- a financial market in which long-term debt obligations and equity securities are bought and sold. capital plan -- a written strategy developed by a thrift institution detailing steps to be taken to increase its capital to at least minimum requirements. capital stock -- the amount of stock a corporation is authorized to sell by the government authority that grants the corporate charter. Capital stock is sold by the corporation to raise funds to be used to expand or stimulate the business activities of the company. carrying charges -- (1) the part of the finance charge levied by most creditors to cover administrative costs of loaning money, such as billing, statement mailing costs, and bad debt losses. (2) costs incurred in order to hold title to property that is idle, non-productive, or in an interim use. (3) charges added to the price of goods or services to compensate for deferred payment. (4) fees charged by investment brokers for handling margin accounts. Accounting Dictionary Page 22

cash -- (1) coins or negotiable paper issued by governments as well as the balance in demand deposit accounts. For accounting purposes, cash includes money in the cash drawer, the vault, petty cash and checking account deposits in thrift institutions or banks. (2) the process of presenting a check for payment: literally of converting a check to cash. cash basis accounting -- a method of accounting in which income and expense items are recorded and recognized when cash is received or disbursed. Opposite of accrual basis accounting. cash flow -- the amount of cash earned after paying all expenses and taxes. Cash flow is calculated by adding: net after-tax income plus any bookkeeping expenses that result in items being deducted but not paid out in cash. Such bookkeeping entries include amounts charged off for depreciation, depletion, amortization, and charges to reserves. Cash flow is a measure of a company's worth and its ability to pay dividends on its stock. cashier's check -- a check written by a bank or thrift institution on its own funds and signed by a cashier. It is payable to a third party named by the customer who pays for the check at the time it is written. A cashier's check, which is drawn against the funds of the institution itself, differs from a certified check, which is drawn against the funds in a specific depositor's account. cash investment -- the underlying security for which futures are traded. cash market -- a market in which the delivery of commodities or securities occurs immediately after the sale. Also called a spot market. cash-out merger -- a merger in which the acquiring company buys the stock of the target company for cash, in effect cashing out the stock of the company being absorbed. This is a variation of a traditional merger in which shareholders of the target company trade in their stock for stock in the acquiring company. By paying cash, the acquiring company reduces its capital by the amount of the cash-out, but gains the assets of the target company. In a cash-out merger, shareholders of the target company have no interest in the company that results from the merger. Cash Wire -- see Bank Wire. caveat -- Latin for "let him beware." In real estate transactions, it is a formal warning against the performance of specified acts. caveat emptor -- Latin for "let the buyer beware." It refers to the sale of something of value,
without a warranty from the seller. The buyer takes all risk of any loss in case of defects in the item sold.

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caveat subscriptor (or caveat venditor) -- Latin for "let the seller beware." It refers to the sale of something of value in which the seller does not disclaim responsibility prior to the sale. In this situation, the seller assumes liability to the buyer for any deviations from the specifications stated in the written sales contract. cease and desist order -- a formal demand from the Office of Thrift Supervision, other government agency, or court, to a person or institution ordering an immediate halt to a specified activity. An OTS cease and desist order is a formal enforcement action. If the respondent does not challenge the issuance of the order, it is called a consent cease and desist order. cent -- the United States coin with the lowest value. It is equal to one one-hundredth of a dollar ($0.01). centare (ca) -- a metric unit that equals one square meter, or 10.75 square feet. An are has 100 centares, and 100 ares equal one hectare. Also spelled centiare. certificate -- (1) a piece of paper that is evidence of ownership. A stock certificate is evidence of ownership of one or more shares of a corporation. A savings certificate is evidence that the holder owns a savings account, usually one in which a fixed amount of funds is deposited for a specified term. (2) a form of paper money. It is a receipt for silver or gold held by the government. U.S. silver certificates are the best known. The privilege to redeem the paper certificate for the gold or silver backing it was revoked by Congress on June 14, 1968. (3) any written or printed document that can be used as proof of a fact. certificate account -- a savings account in which the depositor is issued a certificate of deposit that states the amount of funds deposited, the rate of interest to be paid, and the minimum length of time the certificate must be held in order to collect that interest. Certificate accounts generally pay higher interest than regular passbook or statement accounts. The customer is charged a penalty for premature withdrawal of the funds originally deposited. certificate of claim -- a written agreement to reimburse a lender for certain costs incurred in the event of a foreclosure, contingent on proceeds from the sale of the foreclosed property being sufficient to cover these costs. certificate of completion -- a document issued by an architect or engineer stating that a construction project has been completed in accordance with approved terms, conditions, plans and specifications. Accounting Dictionary Page 24

certificate of deposit (CD) -- the certificate issued to a depositor who opens a certificate account. The certificate is the written document issued by the financial institution as evidence of a deposit. It includes the issuer's promise to return the deposit at a specified future date plus earnings at a specified rate of interest. certificate of occupancy -- a written authorization given by a local government that allows a newly completed or substantially completed structure to be inhabited. certificate of title -- a document showing ownership, usually of real property, an automobile, or recreational vehicle, giving a description of the thing owned and any liens against the property. certified check -- a check drawn on funds in a depositor's account that have been set aside to pay the check on demand. The face of the check bears the words "certified," or "accepted," and is signed by an official of the bank or thrift institution issuing the check to signify that (1) the signature of the drawer is genuine and that (2) sufficient funds are on deposit and earmarked for payment of the check. certified public accountant (CPA) -- a designation given to accountants who have passed a qualifying examination and met certain educational and public accounting experience requirements established by a state licensing authority. certified thrift regulator (CTR) -- the designation given an examiner, supervisor or other employee of the Office of Thrift Supervision who has completed education and experience requirements. chain -- a measure of length equal to 66 feet. chain of title -- the history of all the documents that have transferred title to a parcel of real property starting with the earliest existing document and ending with the most recent. change -- money returned from the seller to the buyer when the buyer gives a sum of money greater than the purchase price. The change is the difference between the selling price plus taxes, fees or other charges, and the greater amount of money tendered by the buyer. change order -- a change in the original construction plans ordered by the owner or the general contractor. charge -- (1) a cost or expense. (2) to purchase on credit. (3) a judge's instruction to a jury. charge account -- a line of credit that may be used repeatedly up to a stated limit of credit.

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charter -- the legal authorization to conduct business granted by the federal or state government to a thrift institution or other business or organization. chattel -- personal property. All property that is not real property (owned real estate). chattel mortgage -- a loan secured by personal property rather than real estate. Cheque -- a written order instructing a thrift institution or bank to pay immediately on demand a specified amount of money from the check writer's account to the person named on the check or, if a specific person is not named, to whoever bears the check to the institution for payment. check credit -- a line of credit that customers can access by writing a check, up to a preapproved loan limit. Also called overdraft protection. checking account -- a demand deposit account, withdrawals from which may be made by a written, negotiable instrument. check truncation -- see truncation. Christmas Club Account -- see club account. churning -- slang for excessive trading in a customer's account by a broker seeking to increase commissions. circuit breaker -- a state income tax credit for property taxes paid by elderly or low-income persons. classified assets -- assets, generally loans, for which payments are not being made on time. Such assets are classified as substandard, doubtful or loss. See criticized assets. classification of assets -- the process of identifying a loan that is not being repaid on schedule and designating it as one of three types of troubled loans: substandard, doubtful or loss. An asset classified substandard has at least one well-defined weakness such as being under capitalized, or not protected by the paying capacity of the borrower or the worth of the pledged collateral. A doubtful classification means an asset that has all of the weaknesses of a doubtful asset plus other characteristics that make collection or liquidation highly questionable and improbable, but still possible. As asset classified loss is considered uncollectible and of such little value that its continuance as an asset on the books of a thrift institution is not warranted. Designating an asset to one of these categories is called classifying an asset. classified loan -- a loan that is not being repaid on time and has been designated a troubled asset. See classification of assets.

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clearing account -- a bank account used by a mortgage servicing company for the temporary, short-term deposit of mortgage payments that have been collected and are either awaiting transmittal to investors who bought the mortgages or awaiting deposit in escrow accounts. clearing house -- (1) an agency operated by financial organizations to exchange and pay checks drawn on each other. (2) an organization connected with a commodity exchange through which all futures contracts are reconciled, settled, guaranteed, and later either offset or fulfilled through delivery of the commodity, and through which financial settlements are made. clearing member -- a member of a commodity exchange who is also a member of the exchange's clearing house. clear title -- title to property that is marketable by virtue of its title being free from demands or claims by other parties and not encumbered in any other manner. Clifford trust -- a fixed-term, irrevocable trust account usually opened as a means of reducing the income taxes of the grantor (the person who opens the account and deposits funds in the account). The trust must last for a minimum of 10 years. During that time, income from the account is paid to a named beneficiary, and thus is not taxable to the grantor. At the end of the term of the trust, the principal, or property placed in trust, reverts to the grantor. close-end credit -- a type of credit arrangement in which the lender, at the time credit is first extended, limits the amount of credit to a specific amount, determines the length of time for repayment and determines the amount of each periodic payment. Most real estate and automobile loans are closed-end agreements. closed-end mortgage -- a mortgage in which the amount of debt is fixed and cannot be increased during the life of the loan. It is the opposite of an open-end mortgage. closed period -- the period of time during the term of a mortgage loan when the loan cannot be prepaid. closing -- the consummation of a financial transaction. In mortgage lending, closing is the process of delivering a deed, signing notes, mortgages and other loan documents, and advancing funds by the lender. All of these transactions normally occur at the same time. closing costs -- expenses paid by a buyer and/or seller for the cost of processing the sale or financing of real property. Such costs include loan fees, title fees, and appraisal fees. closing price -- the price at which transactions are made just before the end of trading on a given day. Accounting Dictionary Page 27

cloud on the title -- an expression meaning that a claim or encumbrance on a property prevents the conveyance of a clear title when the property is sold. club account -- a savings account dedicated to a specific goal, such as a Christmas club account or vacation club account, and based on weekly or biweekly deposits of a fixed amount. cluster zoning -- a type of zoning in which density is determined for an entire area, rather than on a lot-by-lot basis. Within the cluster zone, the developer has greater flexibility in designing and placing structures so long as the overall density requirement is met. Developments in cluster zoning often incorporate open, common areas with park-like settings. coin -- a small, usually round, flat piece of metal stamped with a design and issued by a government as currency. collar -- (1) the highest and lowest rates of interest that will be paid on the face value of a floating-rate note. (2) an agreement between a buyer and seller. The buyer pays a fee to the seller. In return, the seller will pay the buyer if a designated floating index rate rises above or falls below a specified range of fixed rates. See cap. See floor. collateral -- something of value that is pledged as security for a loan. The lender can repossess the collateral if the loan is not repaid. collateralized mortgage obligation (CMO) -- a type of bond having mortgages or mortgagebacked securities as collateral. Principal and interest payments from an underlying pool of mortgages are redirected to pay the CMO holders until the CMOs are retired. A single issue of CMOs contains two or more classes of bonds called tranches, each with a different length of maturity, providing a form of call protection to the holder of a CMO. A holder who wants to lock in a CMO investment for a specific length of time will buy into a tranche with a low risk of being retired early because the underlying mortgages are paid off early. Such low prepayment risk tranches are called planned amortization classes (PACs). Changes in prepayment rates in the underlying pool of mortgages are absorbed first by another tranche, so that the PAC remains unaffected by prepayment risk. CMOs generally pay principal and interest semiannually. CMO were first issued by the Federal Home Loan Mortgage Corporation (Freddie Mac) in June 1983. collection -- (1) the presentation for payment and the subsequent actual payment of a draft, check or other obligation. (2) the process of resolving a delinquent, or past due, mortgage loan including, when necessary, proceeding with foreclosure. Accounting Dictionary Page 28

commercial bank -- a financial institution chartered by a state or federal agency that accepts demand deposits and offers commercial loans. Other types of financial services usually are provided as well. commercial loan -- a loan to a company to meet business operating expenses or to finance the purchase of inventory. commercial mortgage loan -- a mortgage loan secured by real estate used by a business or to generate income. Also called an income property loan. commercial paper -- a written agreement setting forth the terms and conditions under which funds are borrowed by a corporation and promising to repay the debt. Commercial paper is issued by large corporations of good credit standing to borrow unsecured funds for a short time, usually 90 days, but no more than nine months. Commercial paper is bought, sold, and traded by individual and corporate investors. commission -- a fee paid to a person for conducting a business transaction or performing a service. A commission is usually based on a percentage of the total transaction. commitment -- (1) an agreement between a lender and a borrower to lend money at a future date, provided stated conditions are met. (2) a promise by Freddie Mac to a primary mortgage lender to buy mortgage loans at a future date. commitment fee -- (1) a payment by a prospective borrower to a prospective lender in return for the lender's promise to loan money at a specified future date. (2) in the secondary market, a payment by a primary lender to Freddie Mac or other mortgage buyer for the buyer's promise to buy loans at a future date. commitment letter -- a letter sent by a lender informing a borrower that the lender has approved a loan application for a specific amount, term and rate, and listing any conditions that must be met before the loan funds are disbursed. Committee on Uniform Securities Identification Procedures (CUSIP) -- the organization that develops and assigns identifying numbers and symbols for all securities. commodities futures -- contracts for the future delivery at a fixed price of goods, such as agricultural or mining products, or future delivery at a fixed price of securities backed by those products. The contracts are bought and sold on commodities exchanges. See financial futures. commodity -- something of value that can be bought or sold, usually a product or raw material. Accounting Dictionary Page 29

Commodity Futures Trading Commission (CFTC) -- a federal agency responsible for coordinating the commodities industry in the United States. Established in April 1975, the CFTC is charged with detecting and prosecuting violators of the Commodity Exchange Act of 1976. common area -- land or improvements that are designated for common use by all occupants, tenants, or owners. common law -- the body of law developed first in England from judicial decisions shaped by custom and precedent, but not written in any formal statute. Common law is the basis of the legal system in England and the United States. common stock -- securities that are evidence of proportionate equity or ownership of a corporation, and give the holder an unlimited proportionate interest in the corporation's earnings and assets after claims from creditors and the holders of preferred stock have been met. Community Investment Program -- a program offered by each Federal Home Loan Bank to provide advances to member institutions which use them in community lending to moderate income families. community property -- a form of ownership in some states in which property acquired during a marriage is presumed to be owned jointly unless specifically acquired as separate property of either spouse. Community Reinvestment Act of 1977 (CRA) -- requires financial institutions to meet the credit needs of all segments of their communities, including low- and moderate-income neighborhoods. compensating balance -- a dollar amount equal to the lowest percentage of a line of credit that the customer of a financial institution is expected to maintain, usually in a demand deposit account, as a condition for being granted the line of credit. compliance exam -- an examination of a savings institution to determine how well it is complying with federal law and regulations, particularly those dealing with consumer protection and non-discrimination. compliance period -- the period of time during which a thrift institution must comply with a regulation, ruling, order, or resolution of its regulatory agency.

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compound interest -- the interest that accrues when earnings for each specified period of time are added to the principal, thus increasing the principal base on which subsequent interest is computed. See simple interest. Comptroller of the Currency (OCC) -- a federal office created by Congress in 1863 as a part of the national banking system. The Comptroller of the Currency is a bureau of the Treasury Department and charters, regulates and examines national banks. The Comptroller of the Currency came into being during the civil war. In part to finance the war debt, Congress authorized federally chartered banks that were to issue bank notes -- in other words, currency. Initially, the OCC provided the bank notes to these federally chartered banks, and each bank then printed its own name on the paper money it put into circulation. Thus, the agency got its name from its original responsibility of controlling the currency it distributed to these federal banks. condemnation -- the legal process for taking over privately owned property for public use, under the right of eminent domain, with just compensation to the owner. conditional endorsement -- a type of restrictive endorsement on a negotiable instrument that designates both the next titleholder and conditions to the endorser's liability. condominium -- a single dwelling unit in a multi-unit structure in which each unit is individually owned. The owner holds legal title to his or her unit and owns the common areas (roof, basement, halls, stairs, etc.) and land jointly with other unit owners. An owner may live in his or her condominium, rent it or sell it. Owners pay individual property taxes and may claim tax exemptions just as they would if they owned a free standing, single-family home. conduit -- (1) industry term for a firm through which mortgages flow. The company issues mortgage-backed securities based on mortgage loans it buys from a number of primary lenders. (2) a type of roll-over IRA used by individuals to transfer all or any part of a lump-sum distribution from one retirement plan to another retirement plan. (3) any intermediary between a lender and an investor. confession of judgment -- a clause in a loan contract providing that the borrower waives the right to be notified and the right to be heard in court if the lender brings suit and obtains a judgment against the borrower in the event of a default. This credit practice was prohibited by regulation in 1985.

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Confidential Individual Information System (CIIS) -- a computerized nationwide data base used by the various national and local offices of the Office of Thrift Supervision to collect and share information about persons who require particular supervisory attention. The system is designed to alert federal regulators to persons who have been the subject of supervisory concern. CIIS is used to prevent persons who have been caught violating regulations in one savings institution from moving to a different part of the country and causing problems in another institution. conflict of interest -- a situation in which a person may realize personal benefit from decisions or actions he or she may take on behalf of something the person is entrusted to manage or care for. For example, a director of a savings association would have a conflict of interest approving loans to companies in which the director has a personal interest. conforming loan -- a mortgage loan that conforms to regulatory limits such as loan-to-value ratio, term and other characteristics. congregate housing -- a housing development in which a central dining facility is provided and some or all of the dwelling units have no kitchen facilities. This type of arrangement is sometimes used in housing for the elderly, who want to be free of cooking chores. consent merger agreement -- a type of supervisory agreement in which the board of directors of a troubled savings institution agrees to have the Office of Thrift Supervision arrange for a merger of the troubled institution into another institution. Such arrangements were formerly called consent agreements or consent resolutions, but in the late 1980s they began to be handled as a type of supervisory agreement. See supervisory agreement. conservator -- (1) a person appointed by a court to protect and preserve the property of an individual who is physically or mentally unable to handle his or her own affairs. (2) a person appointed by a court to protect the interests of an estate. (3) an agency or person placed in charge of a troubled savings institution or bank by federal or state authorities to protect and conserve the assets of the institution while more permanent measures for dealing with the institution are worked out. conservatorship -- the state of being under the control of a conservator. A conservatorship affects the control and operation of an institution or company but does not alter its ownership. See receivership. Accounting Dictionary Page 32

consideration -- an element that is required in all valid contracts. A consideration is anything of value. All parties to the contract must exchange something of value. consignee -- the ultimate recipient of goods being shipped. consignment -- the act of entrusting goods to a dealer for sale, but retaining ownership of them until sold. The dealer pays the seller only when and if the goods are sold. consignor -- the originator of a shipment of goods. consolidate -- to bring together various financial obligations under one agreement, contract, or note. consolidated obligations -- debt instruments (bonds and discount notes) sold by the Federal Home Loan Banks through the Office of Finance. The obligations consolidate the borrowing needs of all 12 Banks into joint securities offerings sold in the capital markets. The Banks share the funds raised by the sale of the securities, and they share the obligation to repay the debt. Thus each Bank is legally responsible for repayment of its own debt plus the debt of all other Federal Home Loan Banks. consolidated metropolitan statistical area (CSMA) -- a geographic unit composed of two or more adjacent standard metropolitan statistical areas having a combined population of one million or more, with close social and economic links. consolidation -- the results obtained on a balance sheet when the accounts of a parent company and its subsidiaries are combined to reflect the financial position and operating results of the group as if it operated as a single entity. consolidation loan -- a loan that consolidates, or pays off, several old loans and replaces them with one new loan, usually to obtain a lower interest rate or lower monthly payment by extending the loan over a longer period of time. consortium -- a group of corporations, financial institutions or other companies that join forces to achieve a mutually agreed upon objective, requiring cooperation and pooling of resources. constant dollars -- the price paid for something in previous years, adjusted for inflation to equal what the price would be in current dollars. Constant dollars permit comparisons of the true cost of goods and services or other financial data from different time periods. constant payment -- a periodic payment of a fixed amount that includes interest and principal. While the total amount of the payment remains the same, the ratio of principal and interest Accounting Dictionary Page 33

included in the payment changes. As the loan is paid off, the portion of the payment applied to the principal increases. Most home mortgages are constant payment loans. construction loan -- a short-term, interim loan for financing the cost of construction. The lender makes payments called draws to the builder at periodic intervals as the work progresses. consumer credit -- any loan or extension of credit to an individual for personal, family, or household use not involving real estate. Consumer Price Index -- a monthly measure of changes in the prices of goods and services consumed. The index is compiled by the U.S. Bureau of Labor Statistics. continuing examination file -- a file containing information of continuing interest to on-site examiners. Such items as policies, business plans, articles of incorporation and bylaws are included in the file. contra -- against, opposite, or contrasting. In accounting, a contra entry is one which is offset by an opposite entry, either a debit or credit. contra asset -- an item that is entered on the asset side of an accounting ledger even though the item has a credit (negative) balance. For a thrift institution, contra assets include such items as deferred income and loans in process. contract -- a binding agreement between two or more persons or entities, such as companies or institutions, by which rights to specific goods, services or actions are acquired by the parties to the contract. contract for deed -- a written agreement between the seller and buyer of a piece of property, whereby the buyer receives title to the property only after making a determined number of monthly payments; also called an installment contract or land contract. controller -- the chief financial officer of a company, financial institution or other entity. The controller is responsible for supervising the operations of the accounting department and preparing its financial reports. Also spelled comptroller. controlling person -- anyone who directly, indirectly, or acting in concert with one or more persons or companies, or together with members of the immediate family, owns, controls, or holds with power to vote, 10 percent or more of the voting stock of a savings institution, or controls in any manner the election or appointment of a majority of the institution's board of directors. Accounting Dictionary Page 34

conventional mortgage loan -- a fixed- or adjustable-rate, fully amortized loan secured by a mortgage or deed of trust that is not insured or guaranteed by an agency of the federal government (such as FHA or VA). convergence -- the narrowing of futures prices to cash prices as the delivery date approaches. conversion -- in the financial services industry, the term refers to a change of ownership of a thrift institution from mutual to stock form (or vice versa), or a change of charter from state to federal (or vice versa). See supervisory conversion. convertible -- a bond or a preferred stock that, under specified conditions, may be exchanged for common stock or another security, usually of the same issuer. convexity -- rate of change in duration with respect to changes in interest rates. Positive convexity occurs when durations shorten as interest rates rise or lengthen as interest rates decrease. Negative convexity occurs when durations lengthen as interest rates rise or shorten as interest rates decrease. Mortgages typically have negative convexity, because as interest rates rise the incentive to prepay is reduced, thus extending the duration of the mortgage. convey -- the act of transferring title to real property from one party to another. conveyance -- a document, such as a deed, used to effect a transfer of property from one owner to another. cooperative -- a system of indirect ownership of a single unit in a multi-unit structure. The individual owns shares in a non-profit corporation that holds title to the building. In turn, the corporation gives the owner a long-term proprietary lease on the unit. The corporation may finance the property with a blanket mortgage. Homeowners, in turn, may get a share loan to
finance the purchase of the shares that entitle them to occupy a specific apartment. Also called a co-op.

cooperative banks -- state-chartered savings associations located in Massachusetts, New Hampshire, Rhode Island and Vermont. core capital -- one of three capital standards established for savings institutions in 1989. The minimum amount of core capital for the soundest institutions is 3 percent of assets. See tangible capital, risk-based capital. core deposits -- those deposits that are expected to remain with a savings institution for a relatively long period of time. Such deposits are attracted by the convenience and service offered by the institution rather than from interest rates paid. Accounting Dictionary Page 35

core deposit intangibles -- a premium paid to acquire the core deposits of an institution. The premium is the amount paid in excess of the dollar amount of the deposits, and under accounting rules, the premium is listed on the books as an intangible asset. corner lot -- a lot abutting two or more streets at their intersection. corporation -- a group of people granted a charter legally recognizing them as a separate entity having its own rights, powers, privileges and liabilities distinct and separate from those of its members. corporator -- (1) a member of a corporation, especially one of the original members who formed
the corporation. (2) one of a group that, in certain states, elects the trustees of a mutual savings bank.

corporeal property -- real or personal property having form or structure, such as a house, furniture, land, equipment or an automobile. correspondent bank -- a bank that regularly performs services for another financial institution usually located in another city or marketing area. Services typically include handling out-of-area checks, trusts and technical services, and acceptance of deposits from the out-of-area institution. cosigner -- an individual or entity that signs a legal document on an equal basis with the signer.
On a promissory note, all cosigners are individually and jointly liable for repayment of the full debt.

cost -- something of value, usually an amount of money, given up in exchange for something else, usually goods or services. All expenses are costs, but not all costs are expenses. (An expense is the cost of resources used to produce revenue.) As a verb, cost means to estimate the amount of money needed to produce a product or perform a service. cost accounting -- a branch of accounting dealing with the classification, recording, allocation, summarization and reporting of current and prospective costs and analyzing their behaviors. Cost accounting is frequently used to facilitate internal decision making and provides tools with which management can appraise performance and control costs of doing business. cost approach to value -- an approximation of the market value of improved real estate measured as the cost of reproduction or replacement. cost basis -- the original price of an asset, normally the purchase price or the appraised value of the asset at the time of acquisition. cost-effective -- economical in terms of tangible benefits produced by money spent.

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cost of funds -- the interest paid or accrued on savings, advances from a Federal Home Loan Bank or interest on other funds borrowed by a thrift institution, expressed as a percent of its average total savings and borrowings during a given accounting period. cost of funds index -- a measure of how much interest a financial institution must pay for money it borrows from savers in the form of deposits, or from other lenders such as a Federal Home Loan Bank. The index, expressed as a percentage, is calculated by dividing the total amount of interest (or costs) paid or accrued on deposits, on District Bank advances and on other borrowed money, by the average amount of deposits and borrowed money on hand during a reporting period. A cost of funds index, such as the one published by the Office of Thrift Supervision, may be used by lending institutions as the basis for adjusting interest rates on adjustable rate mortgage loans. cost-plus contract -- a construction contract in which the contract price is equal to the cost of construction plus a profit allowance to the builder, as opposed to a fixed price contract. counterfeit -- something that is an imitation and is made to deceive persons into believing that the forgery is genuine. Counterfeit money, for example, are bills printed by private parties to be passed off as legitimate U.S. currency. counterparty -- the other party in a swap transaction. countersignature -- an additional signature attesting to the authenticity of the first signature or the authenticity of the document being signed. coupon -- (1) a tab attached to a bond, which can be torn off and presented to collect an interest payment, usually semiannually. (2) a percentage of a bond's face value, which is the annual rate of return received by the bondholder. coupon bond -- a written document evidencing a debt obligation to which interest coupons are attached. Each coupon bears a different maturity date and states the interest due on that date. The bondholder clips the coupons from the bond as they mature and presents the coupons to the bond issuer for payment of interest. coupon book -- a set of notices, usually computer generated, that the borrower returns to the lender, one at a time, with each loan repayment or with each deposit to a savings account such as a club account.

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coupon rate -- the annual interest rate of a debt instrument. More generally, the annual interest rate on any indebtedness. In mortgage banking, the term is used to describe the contract interest rate on the face of a bond or note. court -- (1) an open area between buildings or walls. (2) an institution in which disputes and conflicts are heard, argued and decided on the basis of law. (3) an area equipped for playing such games as tennis or racquetball, and sometimes provided as an amenity for owners or tenants in a housing development. court of equity -- a court of law in which mortgage suits and foreclosure actions are heard and decided. covenant -- the part of a loan agreement that sets forth constraints as to what the borrower will and will not do regarding the property pledged as collateral for the loan. Covenants may also be written into a deed. Real covenants bind subsequent owners of the property while personal covenants do not. covered assets -- assets of a failed financial institution that are purchased or acquired under a
government program that protects the new owner against all or partial loss when the assets are sold.

cramdown -- a court-ordered reduction of the secured balance due on a home mortgage loan, granted to a homeowner who has filed for personal bankruptcy. In a cramdown, the bankruptcy court splits the outstanding mortgage balance into two parts. The amount of debt equal to the current appraised value of the home is treated as a secured claim, which the borrower must continue to pay. The amount of debt in excess of the current property's value becomes an unsecured claim, which is usually not repaid in full. In areas where home prices have depreciated, cramdowns can result in significant mortgage reductions. In some cases, the judge may order the remaining secured debt amortized over the remaining life of the loan term, thus lowering monthly payments. In other cases, monthly payments remain the same as before the cramdown, and the secured mortgage is simply paid off faster. credit -- (1) the provision of goods or services in exchange for the promise of future payment. (2) an accounting term that refers to the right-hand side of an account record in which the amounts are entered in a double-entry system of bookkeeping. credit bureau -- an agency that collects and distributes credit-history information of individuals and businesses.

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credit card -- a plastic card that can be used by the cardholder to make purchases or obtain cash advances using a line of credit extended by the financial institution that issued the card. The card normally contains the cardholder's name and account number and may contain other information encoded on a magnetic strip. Some credit cards may be used in automatic teller machines. credit crunch -- slang for a general economic condition in which loans are harder to obtain. credit life insurance -- insurance on the life of a borrower that pays off a specific amount of debt or a specified credit account if the borrower dies. creditor -- an individual, business or other organization to whom money or something of value is owed. credit rating -- an estimate of the likelihood that a borrower will repay a loan on time. This measure of creditworthiness is based on the borrower's present financial condition, past credit history, integrity and experience. credit risk -- an estimate of the probability that a borrower will not repay all or a portion of a loan on time. The risk that a loan will not be repaid. Credit Standards Advisory Committee (CSAC) -- an independent committee established by Congress in the Financial Institutions Reform, Recovery and Enforcement Act of 1989. The committee consists of representatives of the five federal bank/thrift regulatory agencies plus six members of the public who are knowledgeable with the credit standards and lending practices of insured depository institutions. The committee's mission is to monitor and review the credit standards and lending practices of federally insured depository institutions and recommend any needed changes in federal regulation and supervision. credit union -- a cooperative organization chartered by state or federal government that accepts savings from its members and makes low interest loans to its members. Credit unions are normally formed among members who are employed by the same company or are members of the same organization. criticized assets -- loans with payments in arrears that are rated by government examiners as substandard, doubtful, loss or special mention. Criticized assets include classified assets plus those listed as special mention. See classified assets. cubage -- a method of appraising property using the cost approach. The front, or width, of the building is multiplied by the depth of the building and by its height, figured from the floor of the

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basement to the outer surfaces of the exterior walls and roof. The total cubic measurement is then multiplied by a cost-per-cubic-foot factor to obtain the appraisal figure. cul de sac -- a street with a dead end, usually with adequate space at the end for vehicles to turn around. Culpeper Switch -- a federal reserve facility located in Culpeper, Virginia, just south of Washington, DC, housing computers that serve as a central relay for messages transmitted electronically on the Fedwire. Messages moving billions of dollars of funds and securities are processed electronically every day at the Culpeper facility. Most messages originate at financial institutions, are sent to Federal Reserve Banks and then are transmitted to Culpeper, where they are switched to other Federal Reserve Banks and finally to receiving financial institutions. currency -- coins and paper money, which circulate as a legal medium of exchange. current ratio -- the ratio of total current assets to total current liabilities, calculated by dividing current assets by current liabilities. current value accounting -- an accounting method that measures the value of individual assets at the current prices they would command rather than at the actual dollar cost at which they were purchased in earlier times. CUSIP number -- a number assigned to securities by the Committee on Uniform Securities Identification Procedures (CUSIP). The identifying numbers and codes are used to record all buy and sell orders. custodial gift -- a gift to a minor child from an adult who retains control over the gift, or grants such control to another adult, until the child reaches maturity age and legally can accept responsibility for the gift. A custodial gift may be in the form of a custodial savings account at a depository institution. custodian -- a financial institution that holds in custody and for safekeeping the securities and other assets of an investment company. customer draft -- see sight draft.

D
daily interest account -- a savings account that computes and pays interest each day from the date of deposit to the date of withdrawal. dead load -- the permanent, inert weight of a building, exclusive of furniture and occupants. Accounting Dictionary Page 40

dealer -- a person or business firm acting as a middleman to facilitate distribution of securities or goods. Typically, a dealer buys for his or her own account and sells to a customer from the dealer's inventory. Thus a dealer acts as a principal rather than as an agent. The dealer's profit or loss is the difference between the price he pays and the price he receives for the same security or goods. The same individual or company may, at different times, function as a dealer or as a broker, who buys and sells for his clients' accounts. dealer paper -- retail installment contracts that are purchased by a financial institution for a price negotiated with a dealer. The transfer of the loan contract from merchant to dealer to financial institution is evidenced by the execution of the assignment section of the contract. debenture -- an unsecured debt instrument or bond backed only by the general credit standing and earning capacity of the issuer. Debentures are used to obtain capital funds. debit -- (1) in accounting, an entry on the left-hand side of an account record in which amounts are recorded in a double-entry system of bookkeeping. (2) a charge to a customer's access account or deposit account. debit card -- a plastic card with which a customer may withdraw funds on deposit in the customer's account using an automated teller machine. Some merchants accept debit cards, treating them the same as cash. A debit card transaction pays the seller of goods or services by withdrawing funds already on deposit in the buyer's account, as opposed to a credit card transaction in which funds are loaned to the buyer by the card issuer. debt -- money, services, goods or anything else of value that is owed by one person to another as the result of a previous agreement. debt capital -- money loaned at a stated interest rate for a fixed term of years, distinguished from equity capital. debtee -- a creditor, one who lends money. debt financing -- the long-term borrowing of money by government or a business, usually in exchange for debt securities or a note, in order to obtain working capital or to retire other indebtedness. debt investment -- investment in the financing of property or of some endeavor, in which the investor loaning funds does not own the property or endeavor, nor share in its profits. If property

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is pledged, or mortgaged, as security for the loan, the investor may claim the property to repay the debt if the borrower defaults on payments. Also see equity investment. debtor -- a person who owes something of value, such as money. debt service -- the payments of principal and interest by a borrower to a lender. Commonly used in reference to mortgage loans and long-term government or industrial bonds. The payments may be monthly, quarterly, semiannual or annual. debt service constant -- a factor that, multiplied by the original loan principal, yields the annual debt service payment (principal plus interest) required to amortize a loan. decedent -- a deceased person, ordinarily used with respect to one who has died recently. A savings account held in the name of an executor or administrator of a deceased person's estate is called a decedent estate account. declaration of condominium ownership -- a complex legal document, with appropriate addenda, that provides for qualifying a multiunit property for condominium development and sale in accordance with a state's condominium law. declining balance -- the balance of outstanding debt that decreases with each payment. The service charge is often computed on the declining balance. declining balance depreciation method -- a depreciation method that converts the cost of an asset into a periodic expense. The method permits charging larger amounts of depreciation expenses in earlier years and lesser amounts later. In calculating annual depreciation charges, a constant percentage is applied each year to the net asset after deducting the previous accumulated depreciation until the asset's value is reduced to its net residual value at the end of its useful life. decree of foreclosure and sale -- a court decree of judgment that establishes the outstanding mortgage debt and orders the property sold to satisfy the debt. dedication -- the giving of land by its owner, free of cost, for some public use and its acceptance for such use by an authorized public official. deed -- a written agreement in proper legal form that conveys title to, or an interest in, real property. deed given to secure a debt -- a form of mortgage in which title to the property is conveyed
from the borrower to the lender as security for the repayment of the debt. Also called a deed absolute.

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deed in lieu of foreclosure -- the transfer of title to real property from a delinquent mortgagor to the mortgagee, given to satisfy the obligation of repaying the balance due on the defaulted loan and thus preventing foreclosure. deed of trust -- a deed that establishes a trust. It is used in some loan transactions in place of a mortgage. In a trust deed the property on which money has been lent is conveyed as collateral to a trustee, who holds it in trust for the benefit of the holder or holders of the loan notes. A trust deed is often used where several notes are held by different individuals. The trust deed states the authority of the trustee and any conditions which must govern the actions of the trustee in dealing with the property. These include the condition that the trustee shall reconvey the title of the property to the buyer of the property when the debt has been repaid. The trustee also has power to sell the property and pay the debt in the event of a default on the part of the debtor. deed restriction -- a limitation written into a deed limiting or restricting the use of the real property. de facto -- Latin for "in actual fact." Something that is in reality, actual and existing regardless of legal or moral considerations. defalcation -- the misappropriation, misuse, theft or embezzlement of funds by someone entrusted with them. default -- failure to do something that is required by duty, law, or the terms of a loan or other contract. The term is commonly used when a corporate, institutional or governmental borrower fails to pay the principal or interest on a debt when due. defeasance clause -- the clause in a mortgage agreement that gives the borrower the right to redeem title to the property upon payment to the lender of the complete debt obligation. deferred expense -- an expense that is paid before the corresponding benefit is fully received, such as a prepaid insurance premium. For accounting purposes, the expense is listed as an asset until the paid-for benefit is obtained, and is usually prorated over a number of subsequent accounting periods. deferred income -- any income that is received before it is due or before it is earned. Rent paid in advance is an example of deferred income that is received during one accounting period but earned in later accounting period. Interest received that applies to a subsequent period of the loan term is also deferred income. The crediting of the income is deferred until such time as it is earned. Until then, it is listed on a balance sheet as a current liability. Accounting Dictionary Page 43

deficiency judgment -- a court order that declares the property securing a debt to be worth less than the amount of outstanding debt, and that authorities the collection from the debtor of the part of the debt remaining unsatisfied after the foreclosure and sale of the collateral. deficit -- the amount by which something, such as money, falls short of the required or expected amount. The amount by which liabilities exceed assets. The amount by which expenditures and obligations exceed the amount budgeted for them. deflation -- an economic condition in which the purchasing power of money increases; a lowering of prices, costs and expenses. Opposite of inflation. defunct -- something that has ceased to exist; a company or organization that has been dissolved. de jure -- Latin for "by right." Something that is rightful, legitimate or just according to law or equity. The term describes a state of affairs or a condition that exists based on a right under the
law, rather than a de facto condition in which something exists in fact regardless of its right to exist.

de-leveraged bonds -- bonds that pay investors according to a formula that is based on a fraction of the increase or decrease in a specified index, such as the Constant Maturity Treasury (CMT) rate or the prime rate. For example, the coupon might be 0.5 x 10-year CMT + 150 basis points.
The "de-leverage multiplier," (0.5) causes the coupon to lag behind overall movements in market yields.

delinquency -- the failure to pay an obligation when due. delinquent loan -- a loan that is 30 to 60 days past due with no payments being made. See past due loans and nonaccruing loans. delinquency rate -- the percentage of outstanding loans in a loan portfolio that are delinquent. delivery -- (1) the transfer of the possession of an item from one person to another. (2) the legal, final and absolute transmission of a deed from the seller to the buyer in such a manner that it cannot be recalled by the seller. (3) the physical transportation and presentation of loan documents from a loan originator to a mortgage buyer who has made a previous commitment to purchase the loans. (4) the transmission of the certificate or book entry representing shares bought on a securities exchange. demand deposit account -- an account from which a depositor may withdraw funds immediately without prior notice, commonly known as a checking account. Since funds may be withdrawn on demand in person or by presentation of a check, the account has many of the liquid characteristics of circulating currency. Accounting Dictionary Page 44

demand note/demand mortgage -- a note or mortgage that the lender can call due at any time without prior notice. denomination -- the value of a particular size or type of coin, paper currency, stamp, or security. de novo -- new, fresh, just beginning. A de novo thrift institution is a newly chartered institution. De novo branching refers to opening a new branch office as opposed to buying an existing branch or acquiring branches through a merger of institutions. density -- a measure of the intensity of land use, designating the number of residential or commercial structures built on a designated area of land, or the number of persons to live and/or work on the property. Density is usually regulated by local government. deposit -- (1) the placement of funds into an account at a institution in order to increase the credit balance of the account. (2) that which is deposited. (3) a sum of money given to assure the future purchase of something. (4) a portion of the purchase price given as earnest money, or a down payment, by the buyer to the seller. depositary -- a person identified as someone to be entrusted with something of value for safekeeping. See depository. deposition -- (1) something that is deposited. (2) the act of making a deposit. (3) testimony under oath taken for later use in place of a person's spoken testimony. depositor -- a person or entity that places funds in an account at a financial institution. depository -- a place where something of value is left for safekeeping. See depositary. depository institution -- a financial intermediary that accepts savings and/or demand deposits from the general public. Depository Institutions Deregulation Committee (DIDC) -- was created under the Depository Institutions Deregulation and Monetary Control Act of 1980. The committee was made up of the principal federal financial regulators and was responsible for implementing the orderly phaseout and ultimate elimination of federally imposed ceilings on savings deposit interest rates by March 31, 1986. After accomplishing its work, the committee disbanded. depreciation -- the decline in the dollar value of an asset over time and though use. The amount
of annual depreciation may be computed differently for tax purposes than the actual decline in value.

depressed mortgage -- a mortgage with a market value less than its face value.

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derivative mortgage product -- a financial instrument that is created by redistributing the cash flows from some underlying instruments, such as mortgages or mortgage-backed securities, to new classes of holders. The most common derivatives include multiple class securities, stripped mortgage-backed securities, and residuals. detached house -- a free-standing, single-family dwelling unit, that does not share a common wall with any other structure. developer -- a person or company who prepares raw land for building sites and/or builds on those sites. development loan -- a loan made to fiance preparing raw land for the construction of buildings. Such preparation may include grading and the installation of utilities and roadways. DIDC -- see Depository Institutions Deregulation Committee. differential -- refers to what was once the traditional difference in interest rates on savings deposits paid by commercial banks and thrift institutions. At times, the slightly higher rate paid by thrift institutions (generally 25 basis points) was mandated by regulation. The required differential was phased out by January 1984. dime -- a 1O-cent coin, valued at one-tenth of a U.S. dollar. direct deposit -- a plan in which an individual authorizes the issuers of payroll, Social Security, dividend or other checks to send the checks directly to a thrift institution or bank for deposit in the individual's account. direct investment -- investment by thrift institutions directly in the equity of such ventures as real estate development, and business firms as opposed to thrifts' traditional debt investment. With direct investment, a thrift institution actually owns all or a portion of a venture, rather than simply lending money to finance the venture. Direct investments can be more profitable -- and more risky -- than debt investments. director -- a person responsible for determining the policy of a corporation, institution or other entity. Directors are usually elected by the shareholders, but sometime are appointed. Directors appoint the organization's president, vice presidents and other operating officers, and decide among other things, when dividends are paid. directorate -- an organization's board of directors.

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directors' and officers (D&O) insurance -- insurance that protects directors and officers against personal liability for losses incurred by a third party due to negligent performance by the director or officer. direct placement -- selling a security issue to one or several large investors (usually institutional investors) rather than offering it to the public through broker-dealers. direct reduction mortgage -- a type of mortgage in which at least a portion of each payment is applied directly to reduce the amount of outstanding principal. The interest is computed each month on the remaining principal balance. Therefore, each month the amount of interest due is reduced as the loan is repaid. In direct reduction mortgages with equal monthly payments, the
portion of the fixed payment applied to principal increases each month as the interest portion decreases.

disburse -- to pay out money. disbursement -- the payment of funds toward the full or partial settlement of an obligation. disclosure statements -- information that government regulations require a lender to give a borrower prior to consummation of a loan. discount -- (1) the sale of a note or other obligation for less than its face value, with the lender obligated to pay the full face value to the holder at maturity. (2) the amount representing the difference between the face value and the lower sales price of a note. discount brokerage -- a brokerage house that executes orders to buy or sell securities at commission rates sharply lower than those charged by a full service broker. Discount brokers offer limited service. They do not offer investment advice to clients. discount certificates -- certificates of deposit that are offered at an issue price that is less than the stated face value at maturity. The difference between the issue price (the amount invested) and the stated redemption value of the account at maturity is called the original issue discount. discount loan -- a loan on which the interest and/or charges are deducted from the face amount of the loan at the time it is made. The borrower receives an amount of principal reduced by the
amount of interest, but must repay the full face amount of the loan. Used only for short-term loans.

discount notes -- see Federal Home Loan Bank discount notes. discount point -- an amount paid by a borrower to a lender at the time the loan is made to increase the loan's effective yield. One point is equal to one percent of the loan amount. discount rate -- the interest rate charged by the Federal Reserve Banks on loans to their member banks. Accounting Dictionary Page 47

discount window -- a figurative expression referring to the Federal Reserve facility for extending credit directly to eligible depository institutions (banks and thrift institutions with transaction accounts or nonpersonal time deposits). In the early years of the Federal Reserve System, bankers came to a Federal Reserve Bank teller window to obtain credit. discretionary income -- the portion of disposable income remaining after essential living costs are paid. See disposable income. dishonored check -- a check for which payment has been denied when the check was presented to the drawee. disintermediation -- the movement of funds from one investment vehicle to another; for example the withdrawal of funds from depository institutions for the purpose of investing the same funds in money market instruments. displacement -- the movement of people, against their will, out of their homes or neighborhoods by forces beyond their control. Causes of displacement include: fire, highway construction, redevelopment, gentrification, condominium conversion, and natural disasters. disposable income -- personal income remaining after income taxes (and other taxes) have been paid, and available for consumption or saving. dispossess -- to remove a person from his or her real property by lawful means, including, if necessary, the use of force. District Bank -- another name for one of the 12 Federal Home Loan Banks. diversification -- the participation by a firm in the production or sale of widely divergent kinds of good or services. Diversification permits the company to minimize the impact on overall revenue of business fluctuations in a single market, single product or service line. divestiture -- (1) the process of disposing of all or part of a business. (2) the act of taking away property rights. divided interest -- an ownership interest in only a part of a property. The interest in the selected part may be total or partial. dividend -- a payment, usually in cash, that a corporation makes to its stockholders. The dividend is the stockholders' share of the profits left after the company sets aside funds to finance operations, expansion and modernization.

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docket number -- a five-digit number assigned to a thrift institution by the Office of Thrift Supervision (OTS). Each savings institution that is regulated by OTS has its own docket number. The number is used to file and retrieve all financial, organizational, and regulatory data regarding that institution. document -- anything printed or written that is relied on to record or prove something. documentary stamp -- a form of tax in some states that requires a revenue stamp to be affixed to documents transferring title to real property. dollar -- the monetary unit of the United States. dollar bond -- a municipal bond that is quoted and traded on the basis of dollars rather than a percentage, or yield, to maturity. Term bonds, tax-exempt notes and public housing authority bonds are dollar bonds. dollar reverse repurchase agreement -- a financial transaction that is similar to a reverse repurchase agreement in which a dealer, in effect, loans money by buying a security and agreeing to sell it back to the customer at a higher price at a later date. In a dollar reverse repurchase agreement (dollar reverse repo) the dealer does not sell back the exact same security but another, substantially identical security. See repurchase agreement. domicile -- the place where a person has his or her true, fixed, permanent home; their principal established residence to which a person intends to return whenever absent. A person may have several residences, but only one domicile. donee -- a person who receives a gift. donor -- a person who gives a gift. dormant account -- a savings account on which no transaction (except the crediting of interest) has occurred for a specified number of years. At the end of that time period set by state law, funds in the account escheat to the state. double-decker thrift --slang for a corporate structure in which one thrift institution owns another thrift institution. double entry -- a method of bookkeeping in which there are two entries for each transaction, one as a debit and the other as a credit, that check and balance each other. doubtful -- one of the categories of classified assets. See classification of assets. dough -- slang for money, cash. Accounting Dictionary Page 49

dower -- the rights of a widow to some or all of the property of her late husband. Dow Jones Industrial Average -- a measurement of market price movement for 30 widely held stocks listed on the New York Stock Exchange. The average is computed by adding the prices of the 30 stocks and dividing by an adjusted denominator. down and out -- slang expression for being without funds, penniless. down payment -- (1) an initial, partial payment made at the time of purchase to permit the buyer to take delivery of the purchase. (2) a partial payment made to evidence good faith that the buyer will complete the purchase transaction at the time the contract is signed. draft -- a written order signed by one party (the drawer) requesting a second party (the drawee) to pay a specified amount of money to a third party (the payee) at some future time. A check is a draft. drawee -- the financial institution on which a check is drawn. drawer -- the party who issues an order, draft, check or bill of exchange. draw -- the disbursal of a portion of a construction loan after a certain stage of completion. Also called a progress payment. drive-in window -- a teller's window situated so as to permit a motorist to transact business without leaving his or her vehicle. dual-banking system -- refers to the emergence of two systems -- state and federal -- which charter and regulate banks and savings institutions. dual index note -- a note with a coupon rate that varies in relation to the movement of two different indexes, typically the Constant Maturity Treasury (CMT) rate and LIBOR. A dual index note usually has a fixed rate for a brief period, followed by a longer period of variable rates. For example, the coupon might start out as a fixed rate of 8 percent for two years, then switch to a variable rate calculated as the 10-year Treasury rate plus 300 basis points minus the 6-month LIBOR. A dual index note is a type of structured note. due bill -- a written acknowledgment of the existence of a debt owed to a particular party. A due bill is not payable on demand nor transferable to another party by endorsement. due care -- the standard of conduct displayed by an ordinary, reasonable, prudent individual. due date -- the date on which all or part of a debt is required to be paid; the maturity date.

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due diligence -- the performance of those actions that are generally regarded as prudent, responsible and necessary to conduct a thorough and objective investigation, review and/or analysis. In the thrift industry, the term is used to describe the preacquisition analysis of a savings association by a potential acquirer. The analysis includes a review of the institution's franchise value, an identification of its assets and liabilities, an evaluation of its management, and a determination of its purchase price. due-on-sale clause -- a clause in a mortgage contract providing that if the borrower sells or transfers any interest in the property, the lender has the right to demand the entire unpaid principal balance. dun -- to press for payment of a debt; to demand repeatedly to be paid what is owed. duplex -- a single residential structure containing two separate housing units. Dutch auction -- an auction in which the price of items is continuously lowered until a bidder responds favorably. dwelling unit -- living quarters consisting of contiguous rooms intended for convenient, longterm occupancy by one family and providing complete, independent facilities for living, eating, cooking, sleeping and sanitation.

E
earned income -- income derived from an individual's personal efforts, from work, from services rendered or from goods produced and sold. It also includes pension and annuity income, which is based on income that was previously earned. See unearned income. earnest money -- a sum of money given to bind an agreement, such as the sale of real estate, the advance of a loan or some other transaction requiring a deposit. Earnest money is forfeited by the donor if he or she fails to carry out the terms of the contract or agreement. earning assets -- total assets less repossessed assets, office premises and equipment, and nonaccrual loans. earnings -- (1) net income. (2) anything that is earned as compensation for labor (salary, wages, tips, bonuses) or as compensation for the use of something of value (rent, interest, dividends and other returns on investments). (3) the profits of a business. earnings-based accounts -- certificates of deposit that pay a rate of interest based at least in part on the earnings or profitability of assets held by the institution. Accounting Dictionary Page 51

earnings per share -- the total after-tax earnings of a corporation divided by the total number of its outstanding shares. easement -- a right held by one person to make specific, limited use of land owned by another person. An easement is granted by the owner of the property for the convenience, or ease, of the person using the property. Common easements include the right to pass across the property, the right to construct and maintain a roadway across the property, the right to construct a pipeline under the land, or a power line over the land. Easements for party walls that share a common foundation, are common in town house and condominium developments. econometric model -- a set of mathematical equations that depict real economic conditions both in the present and in the future. Econometric models are used to determine the economic effects of changes in government policy and regulation, changes in interest rates, tax law, wage levels, population trends and many other factors. All the factors influence each other, so changing one factor will have a chain reaction effect on the other factors. Data showing the effects and relationships of each factor to the other factors are entered into a computer, programmed with the model's equations. Using the computerized model, analysts can determine the probable economic consequences of various regulatory or business options. EDS/SACS/ROE -- a computer network with which data on the examination and supervision of savings institutions is transmitted electronically between federal thrift regulators. The acronym stands for: Examination Data System/ Supervisory Action Control System/Report Of Examination. EDS includes data on when an examination began and ended, the number of examiner man-hours used to complete the examination, the rating(s) assigned to the examined savings institution and any violations uncovered during the examination. SACS includes information on supervisory actions taken to correct problems at the savings institution. ROE is the summary of the examiners' findings on the condition of the savings institution. economic depreciation -- the loss of value of real estate due to changes occurring outside of the affected property, such as a decline in the neighborhood or changes in zoning. economic life -- the length of time during which a piece of property may be put to profitable use. Usually less than its physical life.

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economic rent -- the amount of rent a property likely would command in the open market if it were vacant and available for rent. Economic rent may be more or less than the actual rent currently in force. economics -- the branch of the social sciences that deals with the financial considerations of the production, distribution, and consumption of goods and services. Edge Act corporation -- an organization chartered by the Federal Reserve to engage in international banking operations. The Federal Reserve Board acts upon applications by U.S. and foreign banking organizations to establish Edge corporations. The Board also examines Edge corporations and their subsidiaries. The Edge corporation gets its name from Senator Walter Edge of New Jersey, the sponsor of the original legislation to permit the formation of such organizations. education loan -- an advance of funds to a student for the purpose of financing a college or vocational education. effective rate -- the actual yield of interest as opposed to the stated rate. For deposits, the effective rate of interest is based on the accounting method used to compute interest and the frequency of compounding. For loans, the effective rate is the stated interest rate plus fees and charges prorated over the estimated life of the mortgage, usually ten years. efficiency apartment -- a small, one-room apartment that serves as the occupant's total living, sleeping and eating space, usually containing a separate bathroom. egress -- to go out, exit, leave. It is used with the word "ingress" (to go in, enter) to describe the right of access to real property. ekistics -- the science of human settlements, including regional, city and community planning and dwelling design. electronic funds transfer systems (EFTS) -- any system that moves funds from one institution to another, by means of electronic signals transmitted by wire, rather than the physical exchange of some other medium such as paper checks. elevation drawing -- a drawing of the geometrical exterior of a building or other structure as seen from a horizontal view without dimensional perspective. eminent domain -- the right of a government to take over ownership of private property for public use with just compensation to the owner. Accounting Dictionary Page 53

employee stock option plan (ESOP) -- an employee benefit in which employees, as part of their compensation, are given equity shares (stock) in their company. The purchase of such stock is normally funded by a loan. The stock is transferred initially to a trust and the loan is paid off from dividends on the stock and contributions from the employing company. encroachment -- the act of intruding gradually and without permission upon the rights, land or other possessions of another. Encroachment is often used to describe the spread of one type of neighborhood into an adjoining but different type of neighborhood. A change made to one property may encroach upon the rights or value of a second property. encumber -- to burden a parcel of land with a lien or a charge such as a mortgage. encumbrance -- a claim attached to real property, such as a lien, mortgage or unpaid taxes. end loan -- the final mortgage loan to the ultimate purchaser of a property, as opposed to a construction loan or other form of interim financing. endorse -- (1) the act of signing a person's name to a check or other financial instrument, usually on the back, to indicate the legal transfer of ownership of the instrument, especially in return for money or credit indicated on the face of the instrument. (2) to sign a note as a third party guaranteeing payment in the even of default by the principal borrower. (3) to sign a contract indicating approval of its contents or terms. (4) to acknowledge with a signature the receipt of payment. (5) to give support or sanction to something. endorsee -- the person or entity to whom a negotiable instrument is transferred by the act of endorsement. endorsement -- a signature either stamped or written by hand on the back of a negotiable instrument by which the signer transfers ownership of the instrument to another party. endorser -- the person or entity who, by signing a negotiable instrument, transfers his or her ownership of the instrument to another. equitable mortgage -- an instrument that because of a technical error in its terms is not actually a mortgage, but that encumbers property as security for the repayment of a debt. If the intent of the parties was to create a mortgage, the instrument is enforceable under the law. equitable right of redemption -- a right under state law of a defaulted borrower to redeem his or her property up to the date of the mortgage foreclosure sale by paying in full the outstanding mortgage debt. Accounting Dictionary Page 54

equity -- in real estate, equity is the difference between the fair market value of a property and the amount of any mortgage debt, or liens against the property, still outstanding. In business, the excess of a firm's assets over its liabilities. The term is also used to refer to the ownership interest of stockholders in a company, and to the value of the investments raised by the stock offerings. equity capital -- money invested in a business by owners, stockholders or others who share in profits; distinguished from debt capital. equity investment -- investment in the ownership of property, in which the investor shares in gains or losses on the property. Also see debt investment. equity loan -- a loan that uses the borrower's equity in real property as collateral. The loan may be for a variety of purposes. Also known as a second or junior mortgage loan. equity multiplier -- total assets divided by total tangible equity. errors and omissions insurance -- an insurance policy against liability due to errors or omissions in the performance of professional services. escalator clause -- a provision of an agreement that provides for automatic adjustments in payments based on an economic index that neither party to the agreement controls. Typical escalator clauses provide for increases in wages based on increases in the cost of living index, or higher rent or other charges based on high fuel or maintenance costs. escheat -- the reversion of ownership of property to the state when a person dies without leaving a will and has no heirs, or when the property is abandoned for a period of time. escrow -- a written agreement under which documents, funds or other property being transferred from one party to another are placed with a third person or entity, usually a trust company, acting as custodian. The custodian completes the transfer to the second party only upon the fulfillment of certain specified conditions. escrow account -- an account established at a thrift institution into which a borrower makes monthly payments, usually a part of the monthly mortgage payment. The savings association draws funds from the escrow account to pay property taxes, insurance and any special assessments on the mortgaged property as they become due. Also called a reserve, impound, or trust account.

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escrow agent -- the person or organization having a fiduciary responsibility to both the buyer and seller (or lender and borrower) and who performs the duties to complete the transaction and ensure that the terms of the purchase/sale (or loan) are carried out. escrow closing -- a type of loan closing in which an escrow agent accepts the loan funds and mortgage from the lender, the down payment from the buyer and the deed from the seller, and completes the actions required by the transaction. escrow company -- an organization that performs the functions of an escrow agent. estate -- (1) all ownership rights, title or other interest held in real or personal property. (2) all assets owned by an individual. estate tax -- a federal or state tax imposed on the fair market value of all assets, less liabilities, held by a person at the time of death. See inheritance tax. estoppel -- a legal term referring to a condition or justification that bars a person from alleging something he has previously denied, or from denying something he has previously alleged. estoppel certificate -- a written statement setting forth facts about a piece of real estate such as the unpaid principal balance of a mortgage and the interest rate. Its purpose is to stop a future claim that the amount owed is different from the actual unpaid balance, or that the interest rate is other than the contracted rate. ET tuxor -- a legal term meaning "and wife." Sometimes abbreviated as "et ux ." Eurobond -- a bond issued for release by a U.S. or other non-European company or government for sale in Western Europe. In that market, corporations and governments normally issue medium-term securities with maturities of 10 to 15 years. Eurodollars -- deposits denominated in U.S. dollars at banks and other financial institutions outside the United States. Although this name originated because of the large amounts of such deposits held at banks in Western Europe, similar deposits in other parts of the world are also called Eurodollars. eviction -- the lawful expulsion of an occupant from real property, if necessary, by force. Exam Council -- see Federal Financial Institutions Examination Council. examination -- a detailed review of the policies, management, operations and books of a thrift institution, bank or credit union made by the institution's federal or state regulatory agency.

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examination data system (EDS) -- a computer system maintained by the Office of Thrift Supervision to record data from examinations of thrift institutions and make the information accessible to authorized OTS staff. The EDS data includes the report of examination (ROE). examiner -- an individual employed by a federal or state regulatory agency to conduct detailed reviews of the operation of savings institutions or banks in order to determine if the institutions are meeting the requirements of federal law and regulation. exception -- an item that may not be covered by title insurance because it limits in some way the owner's right to his or her property. Exceptions may include easements, liens, and deed restrictions. excess loan servicing -- an asset established when loans are sold to yield a rate to the buyer that is higher or lower than the original contractual rate and the loan seller retains the servicing of the loans. The present value of the difference between the amount to be collected from the borrower and the amount to be paid to the purchaser of the loans (the point spread differential), less normal servicing costs, is the excess servicing amount recorded as the seller's asset at the time of sale. The excess servicing amount increases the gain or decreases the loss on the sale of the loan. exchange -- a central facility where various financial instruments are traded. The exchange is an organized, well capitalized body owned by the holders of seats. The exchange establishes the rules under which the financial instruments are traded and terms are established by the bidding process of buyers and sellers on the floor of the exchange. exclusive listing -- a written contract giving one agent the exclusive right to find buyers or renters for a property during a stated period of time. Ordinarily, such an agreement by itself does not preclude the owner from selling or renting the property himself, thus avoiding payment of a commission to the agent. exclusive right to sell -- same as exclusive listing, except that the owner agrees in writing to pay the full commission to the agent even if the owner himself sells or rents the property. exculpatory clause -- that part of a written agreement that relieves one party to the agreement of liability as a result of actions (or lack of actions) performed in the course of executing the terms of the contract. In a trust agreement, an exculpatory clause relieves the trustee of liability resulting from any act performed in good faith under the trust agreement. In a lease, the

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exculpatory clause relieves the landlord of liability for personal injury to tenants or damage to tenants' property. executor -- a person or institution named in a will and approved by a probate court to administer the disposition of an estate according to the instructions of the will. executrix -- a female executor. exercise price -- see striking price. expenses -- (1) the cost of resources used to create revenue. (2) the cost of goods or services acquired in the performance of a job. (3) anything paid out to attain a goal or accomplish an act. All expenses are costs, but not all costs are expenses. expire -- to come an to end, to terminate, to cease be in force, as in the passing of the time limit for an agreement, a contract or other instrument to be enforceable. ex-post facto law -- Latin for "after the fact." Article 1 of the U.S. Constitution prohibits convicting a person for committing an act that was not illegal at the time the act was performed, but which was made illegal by subsequent legislation. expropriation -- the act of confiscating private property for a public use by a legally constituted governing body. For example, property taken under eminent domain is expropriated. extended coverage endorsement -- a provision attached to fire insurance policies that expands coverage to include the perils of windstorm, hail, explosion, riot, civil disorder, damage by aircraft or vehicles, or smoke, or lightening.

F
facade easement -- an historic preservation program agreement by which a property owner pledges to retain intact the exterior of a structure and such outbuildings and amenities that are relevant to the history or design of the structure. face value -- the sum of money denoted on the principal, or "face" side, of a financial instrument such as bond or note, representing: (1) the amount of money the issuer promises to pay at maturity and (2) the amount on which interest is computed. Synonymous with par value. factoring -- (1) a method commonly used to compute the amount of interest to be refunded or credited because a loan is being paid off before maturity; (2) the selling by a firm of its accounts receivable before their due date, usually at a discount. FADA -- see Federal Asset Disposition Association. Accounting Dictionary Page 58

fair lending practices regulations -- the Office of Thrift Supervision regulations that pertain to the application and appraisal practices of federal associations. The regulations prohibit the use of discriminatory appraisals and require the preparation of written loan underwriting standards, the collection of monitoring information and the maintenance of loan application registers. fair market value -- the price at which property would be transferred from a willing seller to a willing buyer, each of whom has a reasonable knowledge of all pertinent facts concerning the property in question and similar properties on the market, and neither is under any compulsion to buy or sell. Most accountants consider fair market value to be slang for market value. fair value -- a method of determining what a troubled asset would be worth (its present value) if its present owner sold it in the current market. Fair value assumes a reasonable marketing period, a willing buyer and a willing seller. It assumes that the current selling price (its present value) would rise or fall in relation to the asset's future earnings potential. To calculate that price, fair value converts the asset's future earnings into what they are worth in today's dollars, using a formula that discounts the assets' future net cash flows. The discount is based on the fact that a dollar earned in the future is equal to, say, $.75 invested today plus interest over an equivalent period of time. Thus, a dollar received today and invested is worth more than a dollar received in the future. Fair value, therefore is based on a formula incorporating rates of interest earned. While market value measures the sales price agreed to by the buyer and seller, OTS defines fair value as measuring the value of what the seller would receive less selling costs. Fair value is one accounting method used to calculate the present value of an asset (a loan) at some point after the loan has become past due and book value is no longer valid. See net realizable value. falling market -- a market in which prices or interest rates are moving in an overall downward direction. fall-out -- slang for loans that are not closed because they are not approved by the lender or because the borrower decides not to take the loan. family -- two or more persons related by blood, marriage, or convenience who occupy the same dwelling. Fannie Mae -- nickname for the Federal National Mortgage Association. Farmers Home Administration (FmHA) -- a federal government agency that finances and insures loans to farmers and other qualified borrowers for rural housing and other purposes. Accounting Dictionary Page 59

FASB -- see Financial Accounting Standards Board. FDIC -- see Federal Deposit Insurance Corporation. feasibility study -- a detailed investigation and analysis of a proposed development project to determine whether it is viable technically and economically. federal agency issues -- securities issued by a federal agency or an organization affiliated with the federal government. The securities are fully guaranteed as to principal and interest by the issuing agency, but are not direct debt obligations of the U.S. government and are not backed by its full faith and credit. The more common federal agency issues include obligations of the federal home loan banks, Farm Credit System, Federal National Mortgage Association, Government National Mortgage Association and Student Loan Marketing Association. Federal Asset Disposition Association (FADA) -- a federal savings and loan association chartered by the former Federal Home Loan Bank Board in November 1985. Although FADA could accept deposits, it was chartered as a wholly owned subsidiary of the former Federal Savings and Loan Insurance Corporation (FSLIC) for the sole purpose of liquidating and disposing of assets of failed savings institutions acquired by the FSLIC in its role as receiver. Since it was chartered under Section 406 of the National Housing Act, FADA was informally known as a "406 corporation." Although FADA initially received a 10-year charter, it was turned over to the Resolution Trust Corporation (RTC) in August 1990. The RTC liquidated FADA during the next 180 days, as required by Subtitle A, Section 501 of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA). federal association -- a savings and loan, building and loan, homestead association or savings bank chartered by the Office of Thrift Supervision. federal compliance regulator (FCR) -- an accredited OTS examiner who is qualified to handle all aspects of a compliance examination of a savings institution. Federal Deposit Insurance Corporation (FDIC) -- a government corporation that insures deposits in thrift institutions and commercial banks. The FDIC administers the Savings Association Insurance Fund (SAIF) providing deposit insurance to thrifts, and the Bank Insurance Fund (BIF) providing deposit insurance to commercial banks. Federal Financial Institutions Examination Council (FFIEC) -- an organization established by Congress in 1987 to coordinate and unify regulations, standards and report forms among the Accounting Dictionary Page 60

five member federal agencies that regulate savings institutions, commercial banks and credit unions: Office of Thrift Supervision, Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and National Credit Union Administration. The work of the council is carried out by five task forces, made up of representatives of each agency, dealing with: education and training, supervision, reports, consumer compliance, and surveillance. Also known as the Exam Council. federal funds -- funds on deposit in a financial intermediary's reserve account at its district Federal Reserve Bank. A member of the Federal Reserve is required to maintain a minimum average balance during any one week, based on its deposit levels during the two previous weeks. Larger commercial banks tend to need extra funds to meet minimum reserve requirements, and often borrow from other institutions, particularly smaller institutions, which usually have excess funds to lend. The seller, or lender, of federal funds can be another commercial bank within the Federal Reserve System, a nonFederal Reserve member such as a Federal Home Loan Bank or an individual thrift institution which has a surplus of funds to invest on a short-term basis. The exchange of funds between lenders and borrowers occurs in the informal federal funds market, either directly between institutions or through brokers. Whereas the bulk of these funds are lent on an overnight basis, some funds referred to as term federal funds, are lent for longer periods. Federal Home Loan Bank (FHLB) -- one of the 12 regional Banks of the Federal Home Loan Bank System. The Banks were established to extend loans and provide various services to
member institutions including savings and loan associations, savings banks and insurance companies.

Federal Home Loan Bank Board (FHLBB) -- a former independent agency in the executive branch of the federal government that regulated and supervised the savings and loan industry, the Federal Home Loan Banks, the Federal Savings and Loan Insurance Corporation and the Federal Home Loan Mortgage Corporation. The Bank Board was abolished in August 1989 by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and its functions transferred to other agencies, including the Office of Thrift Supervision. Federal Home Loan Bank Board Memorandum -- the former Bank Board published several memorandum series that included interpretations of regulations, instructions on compliance, and opinions. The primary series were the R, T, SP, AB, and PA memos, all of which are being

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replaced by Thrift Bulletins and Regulatory Bulletins published by the Office of Thrift Supervision. Federal Home Loan Bank System -- is made up of the 12 regional Federal Home Loan Banks, the Office of Finance, and the Federal Housing Finance Board. Federal Home Loan Mortgage Corporation (FHLMC) -- a private corporation chartered by Congress in 1970 to make funds from the capital markets available for home financing. It does this by operating a secondary market for home mortgage loans, buying such mortgages from original lenders and selling securities in the capital markets backed by those mortgages. It is popularly known as Freddie Mac. Federal Housing Administration (FHA) -- a government agency within the Department of Housing and Urban Development (HUD) that administers many programs including housing subsidies, mortgage insurance, and rental assistance. Federal Housing Finance Board (FHFB) -- an independent federal agency established by Congress in 1989 to regulate and supervise the 12 Federal Home Loan Banks. federal information systems regulator (FISR) -- an accredited OTS examiner who is qualified to handle all aspects of an electronic data processing examination of a thrift institution. Federal National Mortgage Association (FNMA) -- a corporation created by Congress to facilitate the secondary mortgage market. Popularly known as Fannie Mae. Federal Open Market Committee (FOMC) -- a 12-member committee consisting of the seven members of the Federal Reserve Board and five of the 12 Federal Reserve Bank presidents. The president of the Federal Reserve Bank of New York is a permanent member while the other Federal Reserve Bank presidents serve on a rotating basis. The committee sets objectives for growth of money and credit that are implemented through purchases and sales of U.S. Government securities in the open market. The FOMC also establishes policy relating to Federal Reserve System operations in the foreign exchange markets. Federal Register -- a government publication printed daily Monday through Friday that publishes new regulations and legal notices issued by the Office of Thrift Supervision and other federal government agencies. The Federal Register provides the official notice to the public of regulations, orders, legal notices, Presidential proclamations, executive orders, documents required by Act of Congress and other official documents of public interest. Accounting Dictionary Page 62

federal reserve note -- the paper currency placed in circulation by the Federal Reserve Banks and issued in denominations of from $1 to $100. Nearly all of the nation's circulating paper currency consists of Federal Reserve notes printed by the Bureau of Engraving and Printing. Federal Reserve notes are obligations of the U.S. Government. Federal Reserve System -- made up of the Federal Reserve Board, the 12 regional Federal Reserve Banks, federally chartered commercial banks, and state-chartered commercial banks that elect to be members. The Federal Reserve System serves as a central credit facility for member commercial banks, and controls the nation's money supply. Federal Savings and Loan Insurance Corporation (FSLIC) -- a former government corporation under the direction of the former Federal Home Loan Bank Board that insured deposits at savings institutions. Congress authorized the FSLIC in the National Housing Act of 1934. Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989, FSLIC was abolished. Its deposit insurance function was assumed by a new insurance fund, the Savings
Association Insurance Fund (SAIF), administered by the Federal Deposit Insurance Corporation (FDIC).

federal savings association -- See federally chartered association. federal thrift regulator (FTR) -- an accredited OTS examiner who is qualified to handle all aspects of a safety and soundness examination of a thrift institution. federally chartered association -- a savings association that is chartered by the Office of Thrift Supervision (OTS) (or previously by its predecessor agency, the Federal Home Loan Bank Board) under the provisions of the Home Owners Loan Act of 1933, and is subject to the supervision of OTS. Federal savings associations are required by law to have their savings accounts insured by the Savings Association Insurance Fund (SAIF) and to be members of a Federal Home Loan Bank. Fedwire -- the Federal Reserve System's electronic funds transfer network. Fedwire is used for transferring reserve account balances of depository institutions, and for transferring government securities. Fedwire is also used for the settlement of other clearing systems, such as CHIPS (Clearinghouse Interbank Payments Systems), which engages Fedwire for settlement. fee -- (1) a remuneration for a service performed or for a privilege, such as an admission fee. (2) an inheritable estate.

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fee simple estate -- a type of real property ownership in which the owner is fully accountable for all responsibilities pertaining to the property and entitled to all the rights and privileges derived from ownership including the right to pass the property on to one's heirs. fee tail -- an estate that may be inherited only by a limited class of heirs. FDIC -- see Federal Deposit Insurance Corporation. FHA -- see Federal Housing Administration. FHA loan -- a home mortgage, mobile home or property improvement loan made by a private lender and insured by the Federal Housing Administration. FHLB -- see Federal Home Loan Bank. FHLBB -- see Federal Home Loan Bank Board. FHLMC -- see Federal Home Loan Mortgage Corporation. fidelity bond -- an insurance plan to insure savings institutions against infidelity by employees, including dishonesty, embezzlement of funds or other disappearances of cash. Some bonds also insure against robbers, burglars and vandals. Fidelity bond coverage is provided by private insurers, and is required by the SAIF as a condition for obtaining and keeping deposit insurance. fiduciary -- someone who is entrusted with the care of another person's money, property or other items of value. fiduciary account -- a savings account, the funds of which are owned by one individual but administered for that individual's benefit by another individual, such as a legally appointed conservator, trustee, or agent. FIFO -- an acronym for first in, first out. It is a method of computing savings account earnings in which funds on deposit the longest period of time (first in) are considered to be those funds deducted from an account by any withdrawal (first out). This method results in the maximum interest penalty. In accounting, FIFO is a system of assessing the value of inventory, based on the cost for the first shipment of a particular item. See LIFO. finance charges -- all charges that the borrower pays for the use of funds including interest, fees and other charges paid directly for the use of credit, or indirectly as a condition for the extension of credit. Finance charges must be included on truth-in-lending disclosure statements as the total dollar amount paid for the use of borrowed money.

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finance subsidiary -- a thrift institution's subsidiary company organized for the sole purpose of selling securities, typically preferred stock or mortgage-backed securities. The subsidiary may only sell those securities that the parent thrift itself is authorized to issue directly (or in the case of a mutual association those securities it would be permitted to issue if it converted to a stock institution). The subsidiary remits proceeds from the sale of securities to the parent thrift. Financial Accounting Standards Board (FASB) -- a seven-member body that establishes rules governing accounting practices throughout the U.S. Founded in 1972, FASB is under the direction of the Financial Accounting Foundation, a private sector trust. Financial Criminal Enforcement Network (FinCEN) -- a division of the U.S. Treasury Department that operates the Financial Institutions Regulatory Agencies Criminal Referral and Enforcement System (FIRACRES), a data base used by various federal agencies to track and share information on crimes (and criminals) involving savings associations, banks or credit unions. financial futures -- contracts to buy or sell a specific financial instrument at a specific future time at a specified price. Such financial instruments include treasury securities, and certificates of deposit, the prices of which fluctuate with changes in interest rates. financial institution -- a corporation chartered for the purpose of dealing primarily with money, such as deposits, investments, and loans, rather than goods or services. Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) -legislation that abolished the FSLIC and established a new deposit insurance fund, SAIF, for savings institutions, appropriated funds and created the Resolution Trust Corporation to dispose of failed thrifts, imposed wide-ranging changes in savings institution investment activities and operations, and created the Office of Thrift Supervision as part of a restructuring of the federal thrift regulatory and supervisory systems. Financial Institutions Regulatory Agencies Criminal Referral and Enforcement System (FIRACRES) -- a computer system shared by seven federal agencies, which use the database to exchange information on crimes involving savings associations, banks or credit unions, including cases that have been referred to the Justice Department for possible criminal prosecution and on cases involving civil enforcement actions. The system is designed prevent someone who has violated the law or regulations at one type of financial institution (for example, a credit union) Accounting Dictionary Page 65

from doing the same thing at another type of institution (for example, a savings and loan) that is supervised by a different regulatory agency. The FIRACRES data base is operated by the Financial Criminal Enforcement Network (FinCEN), a division of the U.S. Treasury Department. financial instrument -- a legally enforceable agreement between two or more parties, expressing a contractual right or a right to the payment of money. Practically all documents used in credit are financial instruments, including checks, drafts, notes and bonds. financial intermediary -- a financial institution that accepts money from savers or investors and loans those funds to borrowers, thus providing a link between those seeking earnings on their funds and those seeking credit. Financial intermediaries include savings and loan associations, building and loan associations, savings banks, commercial banks, life insurance companies, credit unions and investment companies. financing statement -- a document filed at a public office that serves as public notice to any interested parties that a lender has established a security interest in property pledged as collateral. financial statements -- reports that summarize a firm's accounting data and indicate its financial condition. The four basic financial statements are: the balance sheet, income statement, statement of retained earnings, and statement of changes in financial position. finder's fee -- a fee or commission paid to a broker for obtaining a mortgage loan for a client or for referring a mortgage loan to a broker. It may also refer to a commission paid to a broker for locating a property. fire wall -- a wall constructed so as to stop the spread of fire in a building. firm commitment -- a lender's agreement to make a loan to a specific borrower on a specific property. first mortgage -- a mortgage that creates a lien against real property with the lien having first priority against other claims in the event of foreclosure. Also called a senior mortgage. fiscal year -- any consecutive 12 months designated as the time frame for financial reporting and preparation of balance sheets, profit and loss statements, and other financial summations. fixed annuity -- the guaranteed income of an annuity, the amount and payment schedule of which has been specified in advance.

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fixed assets -- those tangible assets, such as office buildings, furniture, fixtures, and equipment, used in the operation of a business, that have a relatively long life and are not intended to be sold in the normal process of the business. fixed income investment -- any investment in which the dividend, interest, or rental income is specified as a non-changing dollar amount in the investment contract. fixed rate mortgage -- a mortgage in which the interest rate and the amount of each payment remain constant throughout the life of the loan. fixture -- personal property that becomes real property upon being attached to real estate, such as a light fixture that is securely fastened to a wall or ceiling. fixturing period -- a rent free period at the beginning of a lease during which time the tenant occupies the premises to install improvements, fixtures, stock, or finish the interior. flag lot -- a parcel of land shaped like a flag; the staff is a narrow strip of land providing vehicular
and pedestrian access to a street, with the bulk of the property lying to the rear of other lots.

flat -- an apartment located entirely on one floor. flat rental -- rental payments that remain fixed and unchanged throughout the life of the lease. flexible payment mortgage -- a mortgage with unequal periodic payments, which may be more or less than the prorated amount needed to amortize the loan over the life of the mortgage. flips -- see land flips. float -- the time that elapses between the day a check is written and issued and the day it is presented for payment to the financial institution on which it is drawn. floater -- a CMO tranche with an interest rate that adjusts periodically in relation to an index such as LIBOR. floating interest rate -- an interest rate that, instead of being a fixed percentage, is stated as an amount above or below another rate, such as the prime rate. The interest rate moves up or down in relation to the rate of the controlling index. floating rate bond -- a type of bond bearing a yield that may rise and fall within a specified
range according to fluctuations in the market. The bond has been used in the housing bond market.

flood plain -- land that is likely to be flooded when a nearby stream or river is at flood stage. floor -- (1) the minimum allowable interest rate decrease for adjustable rate mortgages. Floors embedded in mortgage agreements may limit the amount of downward change in the rate of Accounting Dictionary Page 67

interest at each adjustment period and provide a fixed minimum below which the rate cannot drop during the life of the loan. (2) an agreement negotiated between a buyer and seller. The buyer of a floor agreement pays a fee to the seller. In return, the seller will pay the buyer if a designated floating index rate is lower than a specified fixed rate on designated days. The seller pays nothing if the floating rate is above the fixed rate. Buyers of floor agreements use them to hedge against falling interest rates, because payments to the buyer increase as rates rise. See cap. See collar. floor area ratio -- the ratio of the total floor area of a building to the total land area of the site. floor limit -- the largest amount for which a merchant may accept payment by check or credit card without obtaining an authorization. A zero floor limit would require an authorization for every non-cash transaction. floor plan -- a scale architectural drawing showing details of a single floor as seen from above. A floor plan may include the locations of walls, windows, doors and heating, cooling facilities, plumbing and electric lines and equipment. floor planning loan -- a loan made to finance a dealer's purchase of inventory. FmHA -- see Farmers Home Administration. FNMA -- see Federal National Mortgage Association. forbearance -- the act of surrendering the right to enforce a valid claim usually in return for a binding promise to perform a specified act. In the thrift industry, forbearance sometimes refers to an agreement by a lender to refrain from taking legal action when a mortgage is in arrears, as long as the borrower complies with a satisfactory arrangement to pay off the past due balance by a future date. The term also may refer to the Office of Thrift Supervision refraining from taking enforcement action against a thrift institution as long as certain conditions are met. foreclosure -- a legal proceeding by which a mortgage lender may claim title to a mortgaged property if the borrower fails to repay the loan. foreign exchange rate -- the price of one nation's currency denominated in the currency of another nation. For example, the value of British pounds expressed in U.S. dollars. Forfeiture -- the loss of money, property, rights or privileges because of a failure to perform a requirement.

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Forward commitment -- a pledge made by a lender to make a loan to a homebuyer, purchase a loan from another lender, or sell a loan to a secondary market participant. Forward delivery -- the delivery of mortgages or mortgage-backed securities to satisfy the settlement of cash or futures market transactions of an earlier date. Also called deferred delivery. Fourplex -- a low-rise dwelling containing four dwelling units. Franchise -- the authorization to conduct a business using the name and operating methods of another. In lending on an income property, a franchise may have value as an additional security, and may be assigned to the lender. Freddie Mac -- popular name for the Federal Home Loan Mortgage Corporation. freehold -- the occupying without actual ownership of a piece of land, a dwelling or an office for life, sometimes with the right to pass it on to one's heirs. Frontage -- the property line abutting the most prominent adjacent property, usually a street, lake, river, or ocean. Front foot -- a linear measure of one foot along the frontage of real property. FSLIC -- see Federal Savings and Loan Insurance Corporation. FSLIC Resolution Fund -- a fund established by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) to assume all the assets and liabilities of the Federal Savings and Loan Insurance Corporation (FSLIC), which FIRREA abolished. The FSLIC Resolution Fund is managed by the Resolution Trust Corporation (RTC). FIRREA required the fund to be dissolved upon the satisfaction of all FSLIC debt and liabilities and the sale of all FSLIC assets assumed by the fund. Full faith and credit -- a pledge of a government to commit its general taxing power to raise funds for payment of obligations. fully amortizing loan -- a loan in which the principal and interest will be repaid fully through regular installments by the time the loan's term ends. Fully indexed note rate -- the total interest rate of an adjustable rate loan consisting of the rate of the governing index plus the gross margin above (or below) that rate. Funds -- available money, cash in hand, including balances held in depository institutions.

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Fungible -- substitutable. The interchangability of an unit that is as acceptable as another, usually referring to mortgage documents, appraisals and property or credit standards that make mortgages more marketable because of their uniformity and substitutability. Future advances clause -- a clause in a mortgage contract that allows a lender to advance additional funds without executing a new mortgage instrument. Futures -- contracts for the sale or purchase of a specified item at a specified price on a given date in the future. When the item sold or purchased is an interest-bearing security, the contract is called an interest-rate future, or a financial future. Futures market -- a market in which futures contracts are bought and sold on many basic fibers, foodstuffs, metals, currencies, and financial instruments.

G
GAAP -- see generally accepted accounting principles. Gain -- an increase, benefit, profit, or advantage which is more than at a previous time. Gap -- the difference between the dollar value of assets and liabilities with the same remaining term to maturity and repricing. The gap is usually expressed as a percentage of assets. Gap financing -- an interim loan made to provide funding during the time between the end of loans extended during the development stage of a project and the beginning of the permanent mortgage extended to the buyer. Gap management -- a technique using hedging to offset difference in the volume of assets and liabilities being repriced within a given time period. Repricing occurs because assets or liabilities mature and are reinvested at new rates or because they carry adjustable rates tied to some index. Gap refers to a specific period of time, such as a 30-day gap, in which assets repricing exceed or fall short of repricing liabilities. Garnishment -- a notice to an employer or other asset holder requiring that monies, wages, or
property due a debtor be withheld and given to a creditor to be applied to a specific debt in arrears.

Gazebo -- an ornamental garden pavilion, designed to let in light and air and often situated to take advantage of a view. It is constructed of light metal or wood. Also called a belvedere. General contractor -- a party that performs or supervises the construction or development of a property pursuant to the terms of a primary contract with the property owner. The general Accounting Dictionary Page 70

contractor may use its own employees to perform the work and/or the services of other contractors called subcontractors. General and administrative expenses (G&A) -- the expenses of operating a business that are not directly linked to the company's products or services. They include salaries, rent and payments to utilities generally known as overhead. General ledger -- an accounting record or legend in which are listed all increases or decreases of all other accounts such as liability, reserve, capital, income and expense accounts. General obligation bonds -- state or municipal debt instruments backed by the general taxing and borrowing authority of the state or municipality. General partner -- a co-owner of a business who is liable for all debts and other obligations of the venture as well as for the management and operation of the partnership. A general partner can have control of the business and can take actions that are binding on the other partners. General reserves -- the funds that are set aside by a financial institution for the sole purpose of covering possible losses that have not yet been specifically identified. General valuation allowance -- a reserve held against assets other than those individually classified as loss. See specific valuation allowance, and valuation allowance. Generally accepted accounting principles (GAAP) -- accounting rules and procedures adopted by the accounting profession to facilitate uniformity in preparing financial statements. Gentrification -- the rehabilitation of a deteriorated neighborhood by new residents who are wealthier than the long-time residents. This can cause an increase in housing prices and lead to displacement of the long-time residents. Gesture -- in law, someone who acts for another. Gina Mae -- popular name for Government National Mortgage Association. Glass-Steal Act -- see Banking Act of 1933. GNMA -- see Government National Mortgage Association. Gnomes -- Wall Street slang for 15-year Participation Certificates sold by the Federal Home Loan Mortgage Corporation. Gnomes of Zurich -- slang referring to financial and banking people of Zurich, Switzerland, who are involved in foreign exchange speculation. The term was coined by Great Britain's Labour ministers during the 1964 sterling crisis. Accounting Dictionary Page 71

GNP -- see Gross National Product. Going long -- a strategy in hedging by which loans are originated before an attempt is made to sell the loans to investors. In securities markets the term means buying something with no immediate intention of selling it. Going short -- a strategy in hedging by which investor commitments to buy loans are obtained before the loans are actually made. In securities markets, the term means selling something before it is owned. That which is sold must subsequently be purchased by the seller and delivered to the buyer. Investors use this technique when they believe market prices will fall. Thus they sell at one price something, they hope to purchase later at a lower price to deliver to the buyer. Gold fix -- the setting of the price of gold by dealers. The primary gold fix is made twice each day by dealers meeting at the central bank in London. The fix is the fundamental worldwide price for setting prices of gold bullion and gold-related contracts and products. good faith estimate -- a disclosure required under the Real Estate Settlement Procedures Act (RESPA) that must be given to all mortgage loan applicants at the time of application. The disclosure is an estimate of all settlement charges likely to be incurred at closing. Goodwill -- the difference between the market value of an institution's assets and the higher amount paid at the time the institution is purchased or merged into another institution. Rather than making the acquiring institution immediately deduct the difference from its stated assets, accounting procedures allow the institution to amortize the goodwill over the average life of the acquired assets -- usually 10 to 30 years. In a broader sense, the acquiring institution is amortizing the premium it paid to acquire the goodwill of the disappearing institution's customers. See supervisory goodwill. Gore lot -- a triangular parcel of land. Government National Mortgage Association (GNMA) -- a government corporation, part of the Department of Housing and Urban Development, that subsidizes the purchase of FHA and VA mortgages. GNMA also guarantees securities issued by private institutions and backed by pools of mortgages. Popularly known as Ginnie Mae. Government survey system -- the land survey system adopted by the U.S. government in 1785 and based on the geographic north-south lines of longitude (meridians) and the east-west lines of Accounting Dictionary Page 72

latitude (parallels). Each region of the country was assigned a specific meridian and parallel as a reference point; these special meridians were generally referred to as principal meridians, while parallels were referred to as base lines. The land was divided into a grid of 24 miles square by additional parallels known as correction lines, and meridians known as guide meridians. Additional imaginary east-west township lines and north-south range lines divide the land into six-mile square townships. Each township is divided into 36 one-mile square sections. Grace period -- a specified period after the regular due date of a loan payment during which no late charge or other penalty is assessed on tardy payments. grace period provision -- a clause in a promissory note stating that a borrower who has prepaid part of a loan may at any time skip payments until the loan balance equals the amount it would have been had no prepayments been made. Graduated-equity mortgage (GEM) -- a loan for which payments increase according to a prearranged schedule and the increases repay the debt faster than a conventional, fixed-payment mortgage. graduated-payment mortgage -- a mortgage loan which provides for initial lower monthly payments, with payment amounts increasing gradually over a period, usually up to 10 years, under the assumption that the borrower's income will also rise during the period. Grandfathered activities -- activities prohibited by law, regulation, or agreement that may continue because they were established prior to being prohibited. Grant -- (1) to transfer property by deed. (2) to bestow or confer. (3) that which is granted. Grantee -- a person to whom a grant is made; the person named in a deed to receive title to property. Grantor -- a person who makes a grant; a person who makes a settlement, executes a deed or creates a trust giving up title to property. Greenbelt -- an open space of landscaped or undeveloped land, usually surrounding a residential area, and designated by easement, covenant, deed restriction, or zoning ordinance. Gross -- the amount before deductions are made. Gross income -- total income before taxes and other expenses are deducted. Gross margin -- (1) the difference between the total sales revenue and the cost to the seller of the items sold. (2) an amount, expressed as a percent, which is stated in the terms of a loan and Accounting Dictionary Page 73

which is added to the percentage expressed by a controlling rate index to establish the rate the borrower pays on the loan. Gross National Product (GNP) -- the most comprehensive measure of a nation's total output of goods and services, consisting of the total retail market value of all items and services produced in a country during a specified period. Gross operating income -- an accounting term that includes income received from ordinary operation of a business before deducting expenses of doing business. Gross savings -- total savings, including interest credited. Gross yield -- the return on a security or other investment before deducting costs or losses incurred in procuring and managing the investment. Ground lease -- a lease of land alone that does not include buildings or other improvements on the land, usually on a long-term basis. A ground lease may be used in the case where buildings are constructed on land owned by another. Ground rent -- income from the lease of the ground itself, and not from any buildings or other improvements on that ground. Ground rent is frequently used in mobile home parks where the living units are individually owned but the land is rented from the mobile home park owner. Growing equity mortgage -- a type of loan in which periodic increases in monthly payments are used to reduce outstanding principal owed and shorten the term of the loan. Growth stock -- a stock issued by a corporation earning above average profits, a situation likely to result in the stock trading at a higher price in the future. Guarantee -- a promise, especially in writing, that something is of specified quality, content, benefit, or that it will provide satisfaction or will perform or produce in a specified manner. In the thrift industry, one such guarantee is the promise of the issuer of mortgage-backed securities that the issuer will pay principal and interest to investors in those securities, even if borrowers of the underlying mortgage loans default. See guaranty. Guaranteed student loan -- a loan made by a savings an loan association, bank, credit union or college to help a student with tuition and other educational expenses. Payment of the loan is guaranteed by the federal or state government.

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Guarantor -- an individual, institution or other entity that guarantees to repay a debt if the borrower defaults. Under the Federal Home Loan Mortgage Corporation's Guarantor Program, original lenders sell ("swap") loans to Freddie Mac in exchange for Participation Certificates. Guaranty -- a promise by one party to pay the debt or perform an obligation of a second party if the second party fails to carry out terms of the obligation to a third party. See guarantee. Guardian -- an individual who is legally responsible for the care of another and the management of the property of the other person, such as a child, who is considered incompetent to manage his or her own affairs. Guardian account -- an account established at a financial institution in the name of a guardian who acts on behalf of and administers the funds for the benefit of the ward.

H
Habeas corpus -- a writ alleging that an individual has been unlawfully detained and ordering the official having custody of the individual to bring the person before a court for the purpose of determining whether the imprisonment was legal. Habendum clause -- Latin for "to have and to hold." The clause is written into deeds and mortgages to define the transfer of the subject property. It reads: "To have and hold the premises herein granted unto the party of the second part (the grantee), his heirs and the assigns forever." Haircut -- (1) that portion of an asset's value that cannot be used as collateral. For example, if 90 percent of an asset's value can be used as collateral for a loan, the haircut is 10 percent. Therefore, to provide full backing, the lender will require collateral that is valued in excess of the amount of the loan. The haircut is meant to protect the lender against a possible decrease in the value of the collateral -- to below the amount of outstanding principal -- during the life of the loan. (2) the spread in a repurchase agreement. Hazard insurance -- a form of insurance coverage for real estate that includes protection against loss from fire, certain natural causes, vandalism and malicious mischief. Hectare -- a metric unit of land measurement equaling 100 ares, or 10,000 square meters, or 2.47 acres. There are 100 hectares in a square kilometer. Hedging -- the purchase or sale of a commodity, security or other financial instrument for the purpose of offsetting the profit or loss of another security or investment. Thus, any loss on the

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original investment will be hedged, or offset, by a corresponding profit from the hedging instrument. Hidden defect -- any encumbrance on a title that is not apparent in the public records; for example, unknown heirs, secret marriages, forged instruments, mental incompetence, or infancy of a grantor. Highest and best use -- an appraisal and zoning concept that evaluates all the possible, permissible and profitable uses of a property to determine the use that will provide the owner with the highest net return on investment in the property, consistent with existing neighboring land uses. High-rise -- a housing structure containing multiple dwelling units and at least eight floors. Hokeys -- the nickname for bonds sold by the former Home Owners' Loan Corporation. The bonds are no longer in circulation. hold -- a notation made on an account record to show that a specific amount of money in the account is temporarily not available to the account holder, or to show that the account requires special handling. For example, a hold may be placed on recently deposited checks to allow time for the checks to clear. Holder in due course -- any subsequent owner of a negotiable instrument such as a check, note or other document. The holder must have accepted possession of the financial instrument in good faith and given something of value for it. The holder is presumed to be unaware that the financial instrument previously may have been overdue, been dishonored when presented for payment, or had a claim against it, if in fact such were the case. For example, someone who accepts a third party check or NOW draft is a holder in due course, as are all subsequent holders of the instrument. Likewise, the holder of a note or loan agreement concluded by two other parties (the original consumer and the seller who first extended credit) is also a holder in due course. Until 1976, the Uniform Commercial Code held that a holder in due course was not liable for any prior claims made against the instrument held. However, in 1976, the Federal Trade Commission ruled that holders in due course could be liable in some cases. For example, if the original customer stops making loan payments because the merchandise purchased on credit is faulty, and the original seller refuses to honor the terms of the guarantee, all subsequent holders of the note may be subject to claims against the seller. While claims may be made against holders of a note, Accounting Dictionary Page 76

innocent holders of a check or NOW draft generally have the right to collect the face amount from the payer or drawer, regardless or prior claims. Hold harmless clause -- a provision in a contract that relieves a party to the contract from liability, either as a matter of negotiated agreement, or in the event that circumstances beyond his control prevent him from fulfilling the terms of the contract. For example, in a construction loan, the lender might agree to hold the borrower harmless in the event that the building construction was not completed on time due to a strike, thus preventing foreclosure on the loan. Holding company -- a corporation or other entity that owns a majority of stock or securities of one or more other corporations, thus obtaining control of the other corporations. A savings and loan holding company is defined by the National Housing Act as "...any company which directly or indirectly controls an insured institution or controls any other company which is a savings and loan holding company...." Control is defined as owning 25 percent or more of the voting stock. Home -- a residential structure containing one to four dwelling units, or a condominium unit, regardless of the number of units in the building. Home equity loan -- a revolving, open-end loan extended under a line of credit and secured by the borrower's residential property. Home improvement loan -- an advance of funds, usually not secured by a mortgage and usually short-term, made to a property owner for such improvements as maintenance and repair, additions and alterations, or replacement of equipment or structural elements. Home loan -- a residential mortgage loan secured by a one- to four-family property or a condominium unit. Home office -- the principal place of business of a savings institution; the location registered with the Office of Thrift Supervision as an institution's primary office. Homeowners association -- an organization of homeowners residing within a particular area whose principal purpose is to ensure the provision of and maintenance of community facilities and services for the common benefit of the residents. Homeowners insurance -- a broad form of real estate insurance coverage that combines hazard insurance with personal liability protection and other coverage.

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Home Owners' Loan Corporation (HOLC) -- a federally chartered corporation established in 1933 and administered by the Federal Home Loan Bank Board to refinance mortgages of economically distressed homeowners. The HOLC legally expired in 1954. Homestead -- the dwelling place, owned and occupied by a family, including the land, house and accessory buildings. Homestead association -- the name used by some savings and loan associations in the state of Louisiana. Homestead estate -- in some states, the home and property occupied by an owner and protected by law (up to certain limits) from attachment and sale to satisfy the claims of creditors. Honor -- to accept and pay a check or draft upon presentation. House -- a building for human habitation, usually a detached structure. Household -- all persons occupying a separate housing unit that has either direct access to the outside or a public area, or separate cooking facilities. When the members are related by law or blood, the household constitutes a family. Housing -- buildings or other shelters in which people live. Housing permit -- a certificate issued by a local government authorizing residential construction. It describes the type of structure to be built and its estimated cost. Housing start -- the commencement of construction of a new housing unit. For multiple dwelling structures, each unit is counted as a start when excavation of the building site begins. For public housing, the awarding of the contract is counted as the start. Housing stock -- the total number of residential units, including mobile homes, available for nontransient occupancy. Hypothecate -- to pledge property as security for a debt without giving up possession or title. The pledged property is said to be hypothecated. For example, a savings or trust account that is pledged or assigned as collateral for a loan is called a hypothecated account.

I
Illiquid -- describes an asset that cannot easily be converted into cash; the opposite of liquid. Illiquid assets can be converted into cash, but usually only after a period of time and often at a loss in value. Immediate purchase contract -- an over-the-counter offer by a seller to a purchaser of a mortgage. Accounting Dictionary Page 78

Implied warranty -- a provision of the law that holds that a product is guaranteed to be fit for
consumption or use even though the manufacturer or merchant makes no written statement to that effect.

Impound -- to seize, hold, or place in protective custody by order of a court. Examples include impounded property and impounded records. Impound account -- see escrow account. Imprest fund -- (1) available money of a designated amount maintained in order to pay for small, routine operating expenses of a business or other organization. Also called a petty cash fund. (2) a loan of government funds Improved real estate -- real property on which one or more structures have been built for either residential or business use, or a combination of both. Improvements -- additions to raw land that normally increase its usefulness and value, such as buildings, streets and sewers. Inactive account -- a savings account on which no transaction has occurred (except the crediting of earnings) for a specific number of years. Also called a dormant account. Inalienable -- something that may not be sold, transferred or assigned to another. Inchoate -- newly begun, incomplete, not organized. Inchoate courtesy -- the imperfected ownership interest that the law gives a husband in the properties of his wife, which becomes perfected upon the death of the wife and may result in possession and use. Inchoate dower -- the imperfected interest that the law gives a wife in the property of her
husband, which becomes perfected upon the death of the husband and may result in possession and use.

Income -- money or its equivalent received in exchange for labor, for services, from the sale of goods or property, or as earnings on investments. Income approach to value -- the process of estimating the market value of a property by comparing the net rental income the property would produce over its remaining effective life with the yields that could be obtained from other kinds of investments of comparable risk. Income beneficiary -- a person designated to receive income from a trust during the term of the trust. income capital certificate (ICC) -- an instrument developed by the former Federal Savings and Loan Insurance Corporation to provide assistance to troubled thrift institutions. Under the program, the thrift issued ICCs to the FSLIC in return for cash or the FSLIC's promissory notes. Accounting Dictionary Page 79

The thrift was allowed to count outstanding ICCs as part of its net worth (minimum required capital). As the institution regained financial health, the ICCs were retired. Income limits -- maximum amounts that families may earn in order to qualify for admission into low- and moderate-income housing projects or for rent supplement assistance. The limits, established by law, are based on family size and geographic location. Income property -- real estate owned or operated to produce revenue. Income property loan -- see commercial mortgage loan. Income statement -- a financial statement that contains a summary of a business' financial operations for a specific period of time. It shows the net profit or loss for the period by stating the company's revenues and expenses. Income stock -- a stock that pays higher than average dividends. In order to pay above-average dividends, a corporation must have a steady, predictable source of income. Incorporeal -- of no material substance. Something that exists with no physical properties, such as rights or privileges. Incorporeal property -- intangible personal property lacking in physical substance, such as property rights, leases and mortgages. Indebtedness -- the state of being in debt, of owing money or something of value. Any form of liability. Indefeasible -- incapable of being annulled or rendered void, such as an indefeasible title to property. Indemnify -- to compensate for an actual, sustained loss so as to restore to the condition prevailing before the loss. Indemnity -- (1) payment for damage, a guarantee against losses. (2) a bond protecting the insured against losses caused by others failing to fulfill their obligations. (3) the granting of exemption from prosecution. (4) an option to buy or sell a specific quantity of stock at a stated price within a given period of time. Indenture -- (1) the formal agreement between a group of bondholders and the bond issuer containing terms of the debt. (2) a deed, written contract, or sealed agreement. The term derives from an old practice of actually indenting the deed by cutting or tearing it in half with a jagged or indented edge so that the two parts could subsequently by matched by the grantor and the grantee.

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Independent audit -- an examination of financial statements conducted by an outside CPA (one not employed by the firm being examined) according to generally accepted auditing standards (GAAS) for the purpose of expressing an opinion as to whether the statements are a fair presentation in accordance with generally accepted accounting principles (GAAP). Index -- a number that is adjusted at set intervals to describe relative changes in the quantity of goods, services or levels of activity. An example is the consumer-price index. Changes in interest payments of adjustable rate mortgages are usually based on an index such as the National Average Mortgage Contract Rate Index or Cost of Funds Index published by the Office of Thrift Supervision. Index amortizing note (IANs) -- a note that repays principal over a period of time that lengthens or shortens according to an amortization schedule linked to a specific index, usually LIBOR. As interest rates increase, the IAN's maturity extends longer, an effect similar to what happens to a collateralized mortgage obligation when prepayment rates decrease. An IAN is a type of structured note. indirect loan -- a loan that is transferred to a third party after being originated by a dealer, retailer or other seller of goods or services to finance the purchase of those goods or services. The loan is an indirect loan from the third party (to whom it is transferred) to the consumer of the goods or services bought on credit. Individual account -- a savings account owned and controlled by one person rather than by a corporation or other legal entity. individual minimum capital requirement (IMCR) -- an order issued by the Office of Thrift Supervision to a savings institution ordering the thrift to hold higher capital than would be required under the agency's regulations, or federal law. IMCRs may be issued to institutions experiencing unusual problems including high exposure to interest rate risk and credit risk, inadequate liquidity, operating problems, inadequate underwriting policies, and low-yielding assets. Individual retirement account (IRA) -- an interest-earning retirement savings account in which
the allowable contributions and earnings are not taxed until the funds are withdrawn, after age 59 1/2.

Industrial bank -- a limited service financial institution that raises funds by selling certificates called "investment shares" and by accepting deposits, and invests such funds in installment loans Accounting Dictionary Page 81

to consumers and to small businesses. Often such loans are secured by a third party who signs a co-maker note pledging to repay the loan if the borrower defaults, or the loan is secured by a chattel mortgage. Industrial banks are sometimes called Morris Plan banks or industrial loan companies. Industrial banks are distinguished from commercial loan companies because industrial banks accept deposits in addition to making consumer loans. Industrial banks are distinguished from commercial banks because industrial banks do not offer demand deposit (checking) accounts. Industrial revenue bond -- a financing technique in which a municipality or its development corporation issues bonds to finance revenue-producing projects. Revenue thus generated is used to pay the debt service on the bonds. Industry condition report (ICR) -- any of the financial reports savings associations are required to file with the Office of Thrift Supervision. In fee -- ownership of land with all the rights and obligations of ownership including the right to sell or give away the land or pass it on to one's heirs. In-fill housing -- housing that is built on vacant lots in built-up areas of a city. Infirmity -- any known act or visible omission in detail during the creation or transfer of title that would invalidate the title. Inflation -- an economic condition marked by a decrease in the purchasing power of the dollar and a general rise in prices. Ingress -- to go in, to enter. It is used with the word egress to describe the right of access to land. Inheritance tax -- a state tax based on the value of property passing to each heir. It differs from the estate tax in that kinship generally determines the tax rate and the exempt amount, while the estate tax is a net value tax. See estate tax. Initial closing -- the act in which a lender funds a construction loan. Initial public offering (IPO) -- the first time a company offers to sell its stock to the public. An IPO of a newly formed corporation takes place before the stock begins trading in the market, and the price of the IPO shares is fixed by the company. Injunction -- a court order prohibiting an act or compelling an act to be performed. Inner city -- the older, central part of a city, often characterized by crowded, run-down, lowincome neighborhoods. Accounting Dictionary Page 82

Insider -- an individual who by virtue of his or her employment or other close relationship has information on the financial status of a firm or a particular transaction before that information is available to the general public. Insolvency -- the inability to pay one's debts as they come due. Even though the total assets of an organization may exceed its total liabilities, the entity is insolvent if the assets cannot be converted into cash to meet the current obligations. Insolvent -- the state of being unable to pay debts when demanded by creditors at maturity. Installment -- the regular, periodic payment that a borrower agrees to make to a lender to repay a debt. Installment credit -- the practice of paying for goods or services after receiving them by making two or more payments within a specified period of time. Institution -- an organization, foundation or establishment devoted to a particular type of endeavor, such as a savings institution. Institutional lender -- a financial institution or mortgage lender that invests its own funds and funds it is managing in real estate mortgages. Examples include savings and loan associations, savings banks, commercial banks, life insurance companies and pension and trust funds. Instrument -- any written document that sets forth a legal agreement. See financial instrument. Instrumentality -- an organization created by the federal government whose obligations are not the direct obligation nor guaranteed by the federal government. Insufficient funds -- the situation in which the drawer's deposit balance is less than the amount of the drawer's check presented for payment. Insured closing letter -- a document issued by a title insurance company in connection with an about-to-be-issued title insurance policy. It protects a mortgagee who is forwarding funds to a title insurance company's agent or attorney against an embezzlement of funds or a failure to follow specific closing instructions. Intangible asset -- an asset that has no substance or physical properties. Intangible assets include goodwill, patent rights, permits, copyrights and licenses. Inter-American Development Bank -- a multinational financial organization established in 1959 to encourage economic development in 21 member Latin American nations. Interest -- a fee paid for using money that belongs to another, usually expressed as an annual percentage of the amount used. A financial institution makes periodic payments of interest to Accounting Dictionary Page 83

savers for the use of their deposited funds. A borrower pays interest to the financial institution for the use of its funds. Interest credited -- interest that a savings institution automatically deposits to a savings account. Interest earned -- interest generated but not yet credited or paid. Interest margin -- the dollar amount of interest earned on assets minus the dollar amount of interest paid on liabilities. Interest only (IO) -- see stripped mortgage-backed securities. Interest paid -- interest that a savings institution mails directly to a depositor. Interest rate -- the percentage of the principal paid by the borrower to the lender for the use of the lender's money. Interest rate risk -- the risk that a savings association's assets and/or liabilities will decline in market value because of changes in market interest rates. For example, on the asset side, an old loan earning 10 percent will be worth less to the association if interest rates on new loans rise to 12 percent. On the liabilities side, an existing certificate of deposit yielding 10 percent becomes relatively more costly to the association if the interest rate on a comparable new CD drops to 8 percent. Interest rate spread --a percent calculated as follows: (dollars of interest earned divided by the dollar amount of interest earning assets) minus (dollars of interest paid divided by the dollar amount of interest costing liabilities). Interest rate swap -- a contractual agreement whereby two parties exchange interest payments on a notional amount of principal during a predetermined period. In a fixed/floating swap, fixedrate interest rate payments are exchanged for variable-rate payments. In a floating/floating swap, payments tied to two types of short-term variable indices are exchanged. Interest rate swaps are an asset/liability management tool. Interim loan -- a short-term mortgage loan, often for the construction of a building. Interlocking directorate -- the situation in which one or more members of the board of directors of one business are also members of the board of directors of another corporation. Intermediation -- the process carried out by a financial institution serving as a link, or intermediary, between borrowers and savers. Savers deposit funds in the institution, which lends those funds to home buyers and other borrowers. See disintermediation. Accounting Dictionary Page 84

International Bank for Reconstruction and Development -- (The World Bank) an organization proposed at the July 1944 Bretton Woods Conference, which began operation in June 1946. Initially, it provided loans for reconstruction following World War II. Its primary function now is to provide loans for economic development. International Monetary Fund (IMF) -- an international organization with 146 members, including the United States. The main functions of the International Monetary Fund are to lend member nations funds to finance solutions to temporary balance of payments problems, to facilitate the expansion and balanced growth of international trade, and to provide international monetary cooperation among nations. The IMF also creates additional reserves for member nations called special drawing rights. Member nations must subscribe to a Fund quota, making
payments mainly in their own currency. The IMF grew out of the Bretton Woods Conference of 1944.

Intestate -- the situation in which a person dies without leaving a valid will. In the money -- a situation in which an investor will receive a profit from the sale or purchase of a financial instrument. This results when the investor holds a contract to buy a stock at a price
less than its market value, or holds a contract to sell a stock at a price greater than its market value.

Intrinsic value -- (1) the market value of something's tangible material. (2) the difference between the option price and the market value of the underlying security, if the option to buy or sell is exercised immediately. Inventory loan -- a loan granted for the purpose of purchasing inventory for resale, particularly manufactured (mobile) homes. Inverse floater -- an asset, such as a mortgaged backed bond, paying an adjustable interest rate that rises or falls in the opposite direction of the movement of general market interest rates. The floating coupon rate is calculated as the difference between a constant interest rate and a designated index. For example, the floating rate might be 14 percent minus the current rate of LIBOR. As LIBOR increases, the bond's coupon payment rate decreases and vice versa. An inverse floater is a type of structured note. Investment -- an outlay of a sum of money to be used in such a way that a profit or increase in capital may be expected.

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Investment banker -- an underwriter who serves as a middleman between a corporation issuing new securities and the public. Usually, an investment banker, or several investment bankers in a syndicate, buy the securities issue outright, then sell the securities to individuals or institutions. Investment Company -- a financial intermediary that sells shares and invests the proceeds in a portfolio of stocks and bonds. Investor -- an individual whose primary concerns in the purchase of a security are regular dividend income, safety of the original investment, and if possible, capital appreciation. Invoice -- an instrument prepared by a seller of goods or services listing all such items sold, and presented to the buyer for payment. Involuntary lien -- a lien imposed on property without the consent of the owner. Examples include taxes, special assessments for such items as nearby sidewalks or sewers, and judgments. IRA -- see individual retirement account. Irrevocable trust -- a trust that cannot be annulled by the grantor, the person who originally set up the trust. Issue -- any of a company's or agency's securities, usually grouped by the same initial sales date. Also, the act of distributing such securities to the buyers.

J
Joint and several obligations -- a debt entered into by two or more borrowers, each of whom is liable for repaying the full amount of the debt. Bonds and discount notes sold by the Office of Finance are the joint and several obligations of the 12 Federal Home Loan Banks. Joint ownership -- a general term describing ownership by two or more parties. joint tenancy -- a form of ownership by two or more parties who share equal rights in and control of property, with the survivor or survivors continuing to hold all such rights on the death of one or more of the tenants. Joint tenancy is a common form of ownership when two or more persons jointly open a savings account. Joint venture -- a commercial project, usually of a limited duration or for a specific accomplishment, undertaken by two or more persons or companies. Journalizing -- the recording of transactions using the double-entry system. The recording is in five steps: (1) date; (2) the account to be debited and the amount; (3) the account to be credited and the amount; (4) the explanation and (5) the cross-reference to the General Ledger. Accounting Dictionary Page 86

Journal voucher -- a document that provides written authorization for a financial transaction, often used in place of or supplementary to the journals or registers. It is commonly used for disbursements from the petty cash account. Judgment -- a final determination by a court of the rights and claims of the parties to an action. Judgment in rem -- a judgment against a thing (i.e. bank account, personal property) as contrasted with a judgment against an individual. Judgment lien -- a court order placing a claim on property of a debtor, making the property security for payment of the debt. When applied to personal property, it is known as an attachment. Judicial foreclosure -- a type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted under the auspices of a court. Jumbo certificate -- a certificate of deposit of $100,000 or more, exempt from regulatory interest rate ceilings and usually paying a market rate of interest. Jumbo CDs resulted when the Federal Reserve in 1973 amended Regulation Q to exempt time deposits of $100,000 or more from regulatory interest rate limits. Junior mortgage -- a mortgage that is subordinate to claims of a prior lien or mortgage. Borrowers sometimes use junior mortgages to obtain additional funds needed for down payments or closing costs. Lenders tend to discourage junior financing because the borrower has little or no equity in the home. Also called a second mortgage. Junk bonds -- Wall Street slang for bonds listed at below investment grade (below the top four ratings) by agencies that rate bonds. Such bonds are frequently unsecured or thinly backed by company assets, and thus carry a relatively high level of risk for investors. Consequently, the bonds must pay high yields, commonly three to four percent above high-grade corporate bonds. Some junk bonds are issued by those seeking to raise funds to finance their buying of stock and takeover of corporations, the assets of which are liquidated to pay for redemption of the bonds.

K
Keogh account -- a tax-deferred trust savings account that allows self-employed individuals or those who own their own incorporated businesses to save for their retirement. Savers place a portion of their income each year in their Keogh account until they reach at least age 59 1/2. Federal income tax on the deposited funds and the interest they earn is deferred until withdrawals Accounting Dictionary Page 87

are begun, presumably when the saver has retired, and is, therefore, in a lower tax bracket. Employers who establish a Keogh plan for themselves must also make the benefit available to qualified employees. Kick-out clause -- a provision of a lease that permits a tenant to cancel a lease if the landlord fails to comply with stated conditions, obligations or standards.

L
Labor banks -- banks owned by labor unions and their members. Laissez-faire -- the theory that government should have as little influence as possible in the nation's economy. Land contract -- a type of mortgage in which the seller retains the original loan and the buyer makes monthly payments to the seller to cover the amount of the original loan and any new mortgage. No transfer of title occurs until the loan is fully paid, and thus no equity is established until the debt is completely paid off. Most loans of this type have below-market interest rates and a balloon payment of principal at the end of the term. Land development loan -- an advance of funds, secured by a mortgage, to finance the making, installing, or constructing of the improvements necessary to convert raw land into constructionready building sites. Land flip -- a technique to artificially increase the book value of a parcel of land. The land is sold several times in quick succession among persons acting in concert, with the price increasing each time the land is sold. In a land flip, multiple sales of the same property can occur within a few days. Landlord -- the owner or lessor or real property. Late charge -- a penalty fee imposed by a lender for delinquent payments. Lease -- a contract by which the owner grants the right to possess and use real estate or equipment to another, and which sets forth the terms of payment and other conditions. leasehold -- an interest in an estate held by a tenant who possesses certain rights of occupancy and use by virtue of renting the real property, even though the tenant does not hold title to the property. Accounting Dictionary Page 88

Lease-purchase -- a method of acquiring ownership of property whereby all or a portion of rent payments made under terms of a lease may be subsequently applied to the purchase price. legal entity -- any individual, partnership, proprietorship, corporation, association or other organization that has, in the eyes of the law, the capacity to make a contract or an agreement and the abilities to assume an obligation and to pay off its debts. A legal entity, under the law, is responsible for its actions and can be sued for damages. Legal tender -- the coin or paper currency required by law to be accepted in payment of obligations. Lend -- to grant the temporary use of something with the understanding that it will be returned. Lend -- past tense lent -- is the verb. Loan is the noun. Lending institution -- an organization that makes loans. Lending policy -- an institution's statement of its basic lending philosophy, including standards, guidelines, and limitations that are to be observed and adhered to in the process of deciding whether to grant a loan. The policy must adhere to applicable law and regulations. Leniency clause -- a provision written into a promissory note spelling out the lender's willingness to adjust loan payments temporarily if a borrower is experiencing severe financial difficulties through no personal fault. Lent -- past tense of lend. Lessee -- a person, business or other organization that is granted the use and possession of property in return for payment of rent. When real estate is rented, the lessee is known as the tenant. Lessor -- the owner of property who allows another to use and possess it in return for payment of rent. When real estate is rented, the lessor is known as the landlord. Letter of credit -- a document issued by a financial institution on behalf of a buyer stating the amount of credit the buyer has available, and that the institution will honor drafts up to that amount written by the buyer. It gives the buyer the prestige and financial backing of the issuing institution and satisfies the requirements of the seller in completing the transaction. The accepting
institution has a prior agreement as to how the buyer will pay for the drafts as they are presented.

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Level payment mortgage -- a mortgage that provides for a constant, fixed payment at periodic intervals during its term. Part of each payment consists of interest with the balance of the payment used to reduce the principal. See constant payment. Leverage -- (1) the use of borrowed money to increase the return on a cash investment. For leverage to be profitable, the rate of return on the investment must be higher than the cost of the borrowed money. (2) the use of a relatively small amount of capital to control a large dollar amount of a commodity or cash instrument by buying on margin. In the futures market, the margin is a good faith performance bond. In the cash market, the margin is an actual down payment. (3) the effect on the earnings per share of the common stock of a company when large sums must be paid for bond interest or preferred stock dividends before earnings are paid to holders of common stock. Leverage ratio -- the ratio of tier 1 (core) capital to adjusted total assets. Liability -- an item of value that is part of the overall debt or obligation of a person or business. For example, a mortgage is a liability of the homeowner/borrower, but the same mortgage is an asset of the savings and loan/lender. At savings institutions, savings deposits and all borrowed money are considered liabilities. Net worth, or regulatory capital, is accounted for as a liability because it is an obligation of the institution to its owners. See asset. LIBOR -- see London Interbank Offered Rate. Lien -- a claim by one person on the property of another person making the property security for the payment of a debt. A mortgage is a lien against a house. If the mortgage is not paid on time, the house can be seized to satisfy the lien. Lien holder -- a person or institution holding a mortgage or having a legal claim on the specific property of another person as security for a debt. Lien theory -- an assumption of real estate law, which holds that a mortgage conveys to the lender a claim to, or lien on, the mortgaged property. lien waiver -- a document signed by a contractor, subcontractor, or other supplier of goods or services stating that the supplier has been paid for the work performed or goods supplied and waiving the supplier's right to file a claim against the property. Life estate -- a freehold estate giving a beneficiary all property rights except the right to sell. The right to the estate is terminated upon the death of the beneficiary. Accounting Dictionary Page 90

Life insurance Company -- a type of financial intermediary that shares the financial risk of untimely death among its participants. The participants buy policies for which they pay stated, periodic premiums and are guaranteed a minimum payment to designated beneficiaries at the
time of the policyholder's death. Policyholders may also use their policies to build up cash savings.

LIFO -- an acronym for last in first out. As applied to the thrift industry, it is an accounting method to determine interest earned on savings accounts whereby any withdrawals are deemed to be taken from the most recent deposits. As applied to business in general, LIFO refers to a method of establishing the value of inventories whereby the price of the last incoming shipment of a particular item is used to place an inventory value on all shipments of the item in a given period. Also see FIFO. Life of loan -- the agreed upon length of time in which a loan must be repaid. Life of loan cap -- the limit beyond which the rate of interest may not rise throughout the term of an adjustable rate loan. limited partnership -- a partnership that consists of at least one general partner who is fully personally liable for the debts of the partnership, and one or more limited partners who are each liable only for the amount of their own investment. Line of credit -- a preestablished loan authorization with a specified borrowing limit extended by a lending institution to an individual or business based on creditworthiness. A line of credit allows borrowers to obtain a number of loans without re-applying each time as long as the total of borrowed funds does not exceed the credit limit. Link -- a unit of land measurement. One link equals 7.92 inches or 0.66 feet. There are 100 links of equal length in a surveyor's chain. Linked financing -- the practice of depositing money into a savings institution or a bank with the understanding that the institution will make a corresponding loan to a borrower specified by the depositor. Liquid assets -- the total amount of funds that are in the form of cash or can quickly be converted to cash. These include (1) cash; (2) demand deposits; (3) time and savings deposits; and (4) investments capable of being quickly converted into cash without significant loss, either through their sale or through the scheduled return of principal at the end of a short time remaining to maturity. Accounting Dictionary Page 91

Liquidation -- the process of terminating a business including selling assets to obtain cash and using the cash to discharge liabilities. Liquidity -- a measure of the ability of an individual, business, or institution to convert assets to cash without significant loss at a particular point in time. Liquidity base -- the amount of money in a thrift institution's net withdrawable accounts, less the unpaid balance of any loans secured by those savings, plus short-term borrowings. Liquidity ratio -- a comparison, expressed as a percentage, of an institution's liquid assets to its unpledged net withdrawable accounts. Listing -- a written authorization by the owner to sell or lease real property. Litigant -- a person engaged in a lawsuit. Litigation -- the act of engaging in and proceeding with a lawsuit. Loaded couponing -- the practice of a lender including the cost of mortgage insurance in the interest rate stated in the loan note, rather than listing it as a separate monthly charge. The practice permits a lender to cancel the mortgage insurance at a later date, while continuing to collect the monthly insurance premium from the homeowner/borrower. The practice was prohibited in 1985 by the Federal Home Loan Mortgage Corporation. Load fund -- a type of mutual fund that charges a sales commission when an investor buys shares. See no load fund. Loan -- a sum of money transferred to another for temporary use, to be repaid with or without interest according to terms of the loan agreement written in the accompanying bond, note, mortgage or other document of indebtedness. Loan is the noun. Lend (past tense lent) is the verb. Loan application -- (1) a request to a lending institution for an advance of funds. (2) the form on which data about the loan and about the prospective borrower are recorded. Loan application register (LAR) -- a register that lists all loan applications taken by a savings association. Loan origination -- the steps by a lending institution up to the time a loan is placed on its books, including solicitation and processing of applications and loan closing. Loan origination fee -- the initial service charge imposed by a lending institution on a borrower for placing a loan on the institution's books.

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Loan participation -- (1) the buying of portions of outstanding loans by investors, who then participate on a pro rata basis in collecting interest and principal payments. (2) the sharing by two or more lenders in the ownership of a loan or package of loans. Loan portfolio -- the total of all the loans that a financial institution, or other lender, holds at a given time. Loan proceeds -- the net amount of funds that a lending institution disburses under terms of a loan, and which the borrower then owes. Loan processing -- all the steps taken by a lending institution from the time a loan application is received to the time the loan is closed and placed on the books, including taking the application, conducting the credit investigation, evaluating the loan terms and other steps. Loan-related assets -- the sum of mortgage and nonmortgage loans. Loan servicing -- the acts performed to collect and process loan payments during the life of a loan. They include billing the borrower; collecting payments of principal, interest, and payments into an escrow account; disbursing funds from the escrow account to pay taxes and insurance premiums; and forwarding funds to an investor if the loan has been sold in the secondary market. Loan settlement statement -- a document prepared for and presented to the borrower at the loan closing showing all disbursements to be made, such as payment to the seller. loan terms -- the specifications in a loan agreement that prescribe the loan amount, interest rate, length of time in which to repay the loan, and any other enforceable agreements entered into by the borrower and lender to effect the advance of funds. Loan-to-value ratio -- the relationship, expressed as a percent, of the amount of money loaned to the appraised value of the real estate pledged as security for the loan. For example, an $85,000 loan on a $100,000 house would have a loan-to-value ratio of 85 percent. Loan workout -- a series of steps taken by a lender with a borrower to resolve the problem of delinquent loan payments. Steps can include rescheduling loan payments into lower installments over a longer period of time so that the entire outstanding principal is eventually repaid. Loans in process -- all loans on which an institution has made a firm commitment to lend money but not yet disbursed the entire proceeds. Lock box service -- a service performed by a vendor in which customers' incoming payments are picked up from a Post Office box and processed. Accounting Dictionary Page 93

Lock-in period -- the portion of the term of a mortgage loan during which the loan cannot be paid off earlier than scheduled. London Interbank Offered Rate (LIBOR) -- the interest rate offered by a specific group of London banks for U.S. dollar deposits of a stated maturity. LIBOR is used as a base index for setting rates of some adjustable rate financial instruments. Long -- refers to the ownership of stock, futures, cash commodities or financial instruments, specifically to the purchase of such securities with the intention of holding them in anticipation of a price increase. "I am long 100 Freddie Mac," means the investor owns 100 shares of Freddie Mac stock. See short. Long hedge -- the purchase of futures contracts to compensate for a rise in the price of a commodity or financial instrument. A long hedge is often used to lock in the yield (or cost) of an anticipated cash market purchase or to "shorten" the maturity of a liability. Loophole certificate -- a certificate of deposit for which part of the deposited funds have been lent by the issuing institution to the certificate holder. Loss -- (1) the situation in which money received from the sale of an item is less than the money previously spent to buy the item. (2) the excess of costs and expenses over income. (3) a category of classified assets. See classification of assets. Lot -- a measured parcel of land having fixed boundaries as shown on the recorded plat. Lower of cost or market (LOCOM) -- an accounting method used to establish the dollar amount at which assets are recorded on a savings association's books. The amount established is the lower of the cost of the asset or the current market value. Under this method, assets must be written down if the market value falls below the cost. They may also be written up but not above their amortized cost. Lump-sum distribution -- the withdrawal of an individual's pension benefits or retirement savings all at once in one payment.

M
MACRO -- a rating system formerly used by examiners to evaluate the safety and soundness of savings institutions. MACRO is an acronym for the five elements that were evaluated: Management, Asset quality, Capital adequacy, Risk management and Operating results. Based on the examiner's evaluation, each element was rated on a scale of 1 to 5, and the institution was Accounting Dictionary Page 94

assigned an overall MACRO rating of 1 to 5. Rating 1 indicated a strong performance, significantly higher than average. Rating 2 reflected satisfactory performance, which was average or above. Rating 3 reflected performance that was marginal and as such was considered below average. Rating 4 referred to performance that was significantly below average. If left unchecked, such performance might have evolved into weaknesses or conditions that could have threatened the viability of the institution. Rating 5 was considered unsatisfactory; performance that was critically deficient and in need of immediate remedial attention. Such performance, by itself or in combination with other weaknesses, impaired the viability of the institution. The MACRO rating system was used by federal thrift examiners from 1984 until August 15, 1994, when it was replaced by the CAMELS rating system. See CAMELS. Macroeconomics -- the study of economics in terms of whole systems, especially with reference to general levels of output and income and to the interrelations among sectors within the economy. See microeconomics. Maker -- an individual, firm, or other legal entity who signs a note, check, or other negotiable instrument and is authorized or responsible for so doing. Mandatory delivery -- a type of loan purchase program offered by the Federal Home Loan
Mortgage Corporation in which delivery of loans by the seller/servicer to Freddie Mac is required.

Manufactured home -- a dwelling that is wholly or substantially built in a factory with major components then delivered to the building site for assembly. Mobile homes, as well as prefabricated stationary homes, are included in the category of manufactured home. Margin -- (1) in futures trading, a specific dollar amount, set by each exchange, that both buyers and sellers must deposit as a guarantee that both will perform as agreed to make or take delivery during a designated period of time. The deposit is held by the clearing organization of the exchange. (2) in stock transactions, margin refers to the down payment required when borrowing from a broker to finance the purchase of stock. In this case, margin requirements may be set by the Federal Reserve Board, the Board of Governors of the Exchange or the broker. The margin is expressed as a percentage of the purchase price. Market -- (1) all persons possessing the ability and desire or potential desire to purchase and take delivery of a product or service. (2) the estimated or actual level of demand for a product or service. Accounting Dictionary Page 95

Marketability -- the relative ease in which an asset can be sold quickly at a price near the price at which similar assets are selling. Marketable securities -- those securities for which there is a valid expectation of finding a buyer in an available, active market. Marketable title -- title to property that is free of defects and that will legally be accepted without objection. Also known as perfect title, clear title, and good title. Market data approach to value -- the estimation of the market value of a property by comparing it with similar properties in the general area that have sold recently under comparable conditions. Market maker -- one who stands ready to buy or sell financial instruments at bid or asking prices throughout the business day. Market makers attempt to profit from the bid/ask spread. Market research -- the process of gathering, analyzing and interpreting information about a market; about a product or service to be offered for sale in that market; and about the past, present and potential customers for the product or service. Market value -- the highest price a property will bring in a competitive and open market. The price that an owner is prepared to accept to sell property and a buyer is willing to pay. See fair market value, fair value, net realizable value, and book value. Market value of portfolio equity (MVPE) -- see net portfolio value Mark to market -- an accounting procedure by which assets are "marked," or recorded, at their current market value, which may be higher or lower than their purchase price or book value. Mark to the market -- the daily adjustment of the amount of funds in margin accounts to reflect the market gain or loss on the position as measured by changes in the daily settlement price. This ensures that the account contains the minimum amount of margin funds required by the Federal Reserve Board, the Stock Exchange and/or the brokerage house involved. Markup -- (1) the difference between the cost and selling price of an item or service expressed in either dollars or a percentage and calculated to cover the seller's operating expenses plus a profit. (2) the process of amending or changing legislation while in committee. Master deed -- the basic condominium document that must be registered by the originating property owner prior to the conveyance of the first unit sold. Also referred to as the condominium declaration, the master deed thoroughly describes the entire condominium entity, Accounting Dictionary Page 96

and specifies essential elements of ownership that permanently govern its operation. Also called an enabling declaration, or matrix deed. Master in chancery -- an official appointed by a court to take testimony, calculate interest, project damage costs, determine liens, and perform other related duties as requested by the court. Master plan insurance -- a form of insurance coverage that insures a financial institution against loss resulting from certain types of damage to a property pledged as security for a loan, whether or not the borrower maintains insurance coverage on the property. Maturity -- (1) the end of the period of time for which credit, an insurance contract, or a mortgage loan is written. (2) the date(s) on which some types of investments such as bonds may be redeemed at face value. (3) the date on which a note, time draft, bill of exchange, bond, certificate of deposit or other negotiable instrument becomes due and payable. Maturity intermediation -- borrowing funds at short-term and lending the funds obtained at longer term. Maturity amount -- the value of an investment, including accrued earnings, at the time of its redemption. Maturity mix -- the variety of lengths of terms of assets in a firm's or individual's investment portfolio, such as 90-day Treasury bills, and 20-year corporate bonds. Mechanics lien -- a legal, enforceable claim for payment to a person who has performed work or supplied materials used in the construction or repair of a building. The building and land is attached as security for payment of the claim. Mechanic's liens are permitted by the laws of most states. Also called a materialmen's lien. Members -- (1) all the savers and borrowers in a mutual savings institution who have the right to elect directors, amend the bylaws, approve any basic corporate change or policy or organization, and, in general, possess most of the rights of ownership that stockholders have in a stock corporation except the right to share in profits. (2) financial institutions that belong to one of the Federal Home Loan Banks. Merger -- the combining of two or more savings institutions or other entities through one acquiring the assets and liabilities of the other(s). The acquired institutions lose their corporate identity and are absorbed into the surviving institution.

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Merger-conversion -- a transaction in which a mutual thrift institution converts to stock form and simultaneously merges into an acquiring stock thrift or bank. The acquiring institution obtains the stock of the converting institution in exchange for stock in the new, combined institution that results from the merger. Account holders at the converting mutual are given the opportunity to buy stock in the new, combined institution. Merit Increase Decision System (MIDS) -- the agency-wide computer program that helps OTS managers calculate employees' annual salary increases and bonuses based on performance. Metes and bounds -- measurements of property contained in a deed by which the land location and its boundaries are defined by directions and distances. Metropolitan statistical area (MSA) -- a geographic unit comprised of one or more counties around a central city or urbanized area with 50,000 or more population. Contiguous counties are included if they have close social and economic links with the area's population nucleus. Also known as a standard metropolitan statistical area (SMSA). Microeconomics -- the study of economics in terms of individual areas of activity, such as the economics of a firm, a household, or of single economic components such as prices. Military indulgence -- the protection against foreclosure afforded by the Soldiers and Sailors Civil Relief Act to a mortgagor who is about to enter or is in military service and whose ability to make payments on a loan is affected by the military service. Mill -- one tenth of one percent; a measure used to state property tax rates. Minimum gross yield -- the sum of the required net yield and the required servicing spread in a Freddie Mac purchase contract. Minimum servicing spread -- the minimum amount of mortgage interest income to be retained by the originating lender (seller/servicer) as compensation for servicing mortgages purchased in whole by Freddie Mac. Mint -- a facility where coins are manufactured. Mobile home -- a movable, portable dwelling without permanent foundation, designed for yearround living. Mobile home loan -- a loan to finance the purchase of a mobile home, secured by the lender's claim on the mobile home. The loan may include funds for associated costs such as transportation of the mobile home and setup on a new site. Accounting Dictionary Page 98

Modification agreement -- a written agreement between a financial institution and a borrower that changes one or more terms of an existing mortgage loan such as the interest rate, number of years allowed for repayment, or amount of monthly payment. Modular house -- a residence assembled in units or sections at a factory and transported to a building site where it is erected on a foundation. The term does not include mobile homes. Monetarist -- one who believes that changes in the supply of money determine the course of a nation's economy. Monetary asset -- money or a pledge to receive a fixed amount of money without regard to future prices. Monetary liability -- the promise to pay a specified amount of money, the sum of which is unaffected by inflation or deflation. Money -- anything that is generally accepted as a medium of exchange, such as currency or precious metals. See money stock. money market -- the activity generated by financial institutions that facilitate the purchase, sale, and transfer of lendable funds in the form of short-term debt securities such as promissory notes, collateral loans, and Treasury bills. money market certificate -- a certificate of deposit that when first authorized had a fixed maturity of six months and a $2,500 minimum deposit, with rates based on the weekly posting of average yields for United States Treasury bills. With deregulation in the 1980s, federal regulators now leave it up to each individual thrift institution to determine the maturity and yield of this savings instrument. Money market deposit account (MMDA) -- a savings account, offered by financial institutions, that pays fluctuating market rates of interest as long as the balance does not fall below a predetermined minimum. Money market fund -- the combined money of many individuals which is jointly invested in high yield financial instruments including U.S. government securities, certificates of deposit, and commercial paper. A money market fund is a mutual fund which strives to make a profit by buying and selling various forms of money rather than buying and selling shares of ownership in corporations.

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Money order -- an instrument of exchange purchased for a fee from the U.S. Postal Service or from a financial institution. The instrument is an order to pay on demand a sum of money specified on the face of the order to a party (the payee) named by the purchaser. Since the purchaser has already paid the face amount of a money order to the issuer, the payee presenting the order to an agent of the issuer is sure of collecting the funds. Thus, money orders are easily converted to cash anywhere in the United States, or anywhere the issuer has agents.

Money stock M1 -- the sum of currency held by the public, plus travelers' checks, plus demand deposits, plus other checkable deposits (i.e. negotiable order of withdrawal [NOW] accounts, and automatic transfer service [ATS] accounts, and credit union share drafts.) M2 -- Ml plus savings accounts and small-denomination time deposits, plus shares in money market mutual funds (other than those restricted to institutional investors), plus overnight Eurodollars and repurchase agreements. M3 -- M2 plus large denomination time deposits at all depository institutions, large denomination term repurchase agreements, and shares in money market mutual funds restricted to institutional investors. Monopoly -- control of the supply, distribution and/or price of a commodity acquired by ownership, franchise or government patent. Monophony -- a market situation in which there is only one buyer for an item. Moot -- (1) of little or no practical value, meaning, or consequence. (2) subject to discussion or argument. (3) doubtful, theoretical, or hypothetical. (4) in law, an issue previously clarified by earlier cases or decisions of the court. Morris plan bank -- a bank that handle small loans and consumer credit incorporating life insurance on the debtors. Moratorium -- legal authorization to delay the collection of a debt, or the temporary suspension of some other activity.

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Mortgage -- a legal document by which real property is pledged as security for the repayment of a loan; the pledge is canceled when the debt is paid in full. Mortgage-backed bonds -- bonds that are secured by mortgages. Unlike mortgage-backed passthrough securities, mortgage-backed bonds do not convey ownership of any portion of the underlying pool of mortgages. However, mortgage-backed bonds do offer a more predictable maturity and thus offer a form of call protection. Mortgage-backed passthrough securities -- securities that convey ownership of a fractional part of each mortgage in a pool of mortgages backing the securities. Mortgage payments are sent to the issuer of the securities and then passed through to those who bought the securities. Each security owner shares proportionally the interest and principal payments generated by the underlying pool of mortgages. Mortgage banker -- an individual or firm that primarily deals in mortgages as a broker, originating loans and then selling the loans to investors. Mortgage bond -- a bond secured by a mortgage on real property. Mortgage broker -- a firm or individual who brings the borrower and lender together, receiving a commission if a sale results. Mortgage derivative -- any of several types of securities that pay their investors with cash flows generated by the payments of principal and interest to an underlying pool of mortgages. Mortgage derivative products include collateralized mortgage obligations (CMOs), real estate mortgage investment conduits (REMICs), stripped mortgage-backed securities such as interestonly securities (IOs) and principal-only securities (POs), and pass-through mortgage-backed securities with senior/subordinated structures. Mortgage discount -- the amount paid by the borrower to increase the yield of a mortgage to the lender. Sometimes called points, loan brokerage fee, or new loan fee. The discount is computed on the amount of the loan, not the selling price of the property. Mortgagee -- the institution, group or individual that lends money secured by pledged real estate; the lender. See mortgagor. Mortgage life insurance -- an insurance policy on the life of a borrower that repays an outstanding mortgage debt upon the death of the insured.

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Mortgage loan -- an advance of funds from a lender, called the mortgagee, to a borrower, called the mortgagor, secured by real property and evidenced by a document called a mortgage. The mortgage sets forth the conditions of the loan, the manner and duration of repayment, and reserves to the mortgagee the right to repossess the pledged property if the mortgagor fails to repay any portion of principal and interest. Mortgage loans outstanding -- the total dollar amount of money that is owed by mortgagors. Mortgage note -- a written promise to repay a specified sum of money plus interest at a specified rate. While the mortgage itself pledges the title to real property as security for a loan, the mortgage note states the amount of debt and the rate of interest, and makes the borrower who sign's the note personally responsible for repayment. Mortgage origination -- the making of a new mortgage, including all steps taken by a lender to attract and qualify a borrower, process the mortgage loan, and place it on the lender's books. Mortgage participation -- the division of a mortgage or pool of mortgages into units that are
sold to one or more investors, each of whom participates in receiving payments of principal and interest.

Mortgage pool -- a group of mortgages assembled to form the collateral for securities. Mortgage payments of principal and interest into the pool are used to pay those who invest in the securities. Mortgage portfolio -- the total of all mortgage loans held by a lender or investor. Mortgage revenue bonds -- tax exempt bonds issued by state and local governments. Funds raised by the sale of the bonds are used to finance home mortgages. Revenue from mortgage payments is used to repay the bonds. mortgage servicing -- the activity of keeping a mortgage loan current, including collecting monthly mortgage payments, forwarding principal and interest payments to the current mortgage holder (if the loan has been sold), maintaining escrow accounts, paying taxes and insurance premiums, and taking steps to collect overdue payments. Mortgage servicing may be performed by the original lender, or the lender may sell the right to service a mortgage to another company, which performs the service for a fee. Some companies, including some savings associations, specialize in servicing mortgages, both their own and those made by other lenders. The original lender may sell the mortgage servicing rights to one company and sell the mortgage itself to another company. See mortgage servicing rights. See recourse servicing. See purchased mortgage servicing rights. Accounting Dictionary Page 102

Mortgage servicing rights -- the right to service a mortgage. See mortgage servicing. Mortgage take back -- a mortgage loan issued by the seller of the mortgaged property. Mortgagor -- the owner of real estate who pledges the property as security for the repayment of a debt; the borrower. See mortgagee. Multifamily structure -- as defined in federal government statistics, a structure containing more than four dwelling units. Municipal bond -- a tax exempt debt obligation issued by a state or local government agency to raise funds for the public good, such as building low-income housing, improving streets or building bridges. The bonds are redeemed with interest and are backed by the government's taxing authority. Muniment of title -- (1) anything that protects or enforces a title. (2) written proof that aids an owner in defense of title to a property. (3) deeds and contracts that show conclusive proof of ownership. Mutual association -- a savings association structured so that its members, made up of depositors, and in some cases its borrowers, have the right to elect the board of directors. A mutual association does not issue capital stock, and thus, its members do not share in profits of the association. See stock association. Mutual capital certificate -- a long-term debt security issued by a federal mutual savings association that is subordinated to all other claims on assets, and is not covered by federal deposit insurance. They could be counted as part of an institution's regulatory net worth, and were authorized by federal regulators, who purchased the certificates, as a temporary way of helping savings associations meet minimum regulatory net worth requirements. Mutual fund -- a financial corporation that sells shares of its own stock and invests the funds thus raised in the stock and securities of other corporations or in government securities. Dividends paid to shareholders are based on the earnings of the securities held by the fund, minus operating expenses. A mutual fund pools the funds of many investors and provides professional management in investing those funds. Also called an open-end investment company. Mutual holding company -- a corporate structure that combines elements of a mutual savings association, which is structured so that its depositors, and in some cases its borrowers, have the Accounting Dictionary Page 103

right to elect the board of directors, with elements of a stock savings and loan, which is owned by its shareholders. In a mutual holding company setup, association depositors have the right to elect directors of the mutual holding company, which in turn holds a majority of the voting stock of its subsidiary savings association. The balance of the thrift's stock can be sold to outside investors to raise capital. Mutual holding companies were first authorized by the Competitive Equality Banking Act of 1987 (CEBA). Those provisions were clarified by Congress in the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). Mutual savings bank -- a financial institution chartered by state or federal government to: (1) provide a safe place for individuals to save and (2) invest those savings in mortgages loans, stocks, bonds and other securities. Most mutual savings banks are located in the Northeast, and are owned by their depositors and borrowers. A mutual savings bank does not issue capital stock. Profits are distributed to the owner/customers in proportion to the business they do with the institution.

N
National Association of State Savings & Loan Supervisors (NASS&LS) -- the former name of a national organization representing state thrift institution regulators. It is now called the American Council of State Savings Supervisors (ACSSS). National Association of Securities Dealers (NASD) -- a private organization registered with the Securities Exchange Commission to provide self-regulation of the over-the-counter (OTC) securities market. NASD issues rules governing the practices of broker-dealer firms in the OTC market. National Association of Securities Dealers Automated Quotations (NASDAQ) -- an automated data network providing brokers and dealers with price quotations on securities traded in the over-the-counter market. National Council of Community Bankers -- a former trade organization of savings banks, savings and loans, cooperative banks and commercial banks. The organization began using its name on September 13, 1991. Previously it was called the National Council of Savings institutions, which was formed by the November 1, 1983 merger of the National Savings and Loan League (founded in 1943) and the National Association of Mutual Savings Banks (founded

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in 1920). On June 1, 1992, the National Council of Community Bankers merged with the United States League of Savings Institutions to form the Savings & Community Bankers of America. National Credit Union Administration (NCUA) -- the federal agency that charters, examines, supervises and insures federal credit unions. NCUA also insures state-chartered credit unions that apply and qualify for deposit insurance. In addition, the NCUA operates a central credit facility for member credit unions. National debt -- the debt owed by the federal government. Nationwide loan -- a mortgage loan on improved real property located outside a lending institution's normal business territory but within the United States, its territories or possessions. Negative amortization -- the result of a mortgage repayment plan in which the borrower makes payments that amount to less than the interest due. Unpaid interest is then added to the outstanding loan balance, causing the outstanding loan balance to increase instead of decrease. Negative cash flow -- the situation in which expenditures required to maintain an investment exceed income received on the investment. Negotiable -- able to be transferred or assigned, in place of money, in the ordinary course of conducting business. Negotiable instrument -- a written promise or order signed by the maker to transfer a specified sum of money on demand or at a fixed future time to the person named on the instrument or to the bearer. A negotiable instrument is usually in the form of a check, draft, bill of exchange, promissory note or acceptance. Negotiable order of withdrawal (NOW) account -- a savings account with characteristics of a checking account. An account holder can withdraw funds by writing a negotiable order of withdrawal payable to a third party. NOW accounts may earn interest. See Super NOW accounts. Neighborhood Housing Services (NHS) programs -- programs aimed at halting the further decline of neighborhoods that have begun to deteriorate. They are based on a partnership of community residents, lenders, and local government. NHS is administered by the Neighborhood Reinvestment Corporation. Neighborhood Reinvestment Corporation -- was created by the Housing and Community Development Act of 1978 to help establish locally run self-help coalitions of business leaders, residents, and local government officials, called Neighborhood Housing Services (NHS) Accounting Dictionary Page 105

programs, that encourage communities to revitalize depressed urban neighborhoods and thus make home financing more attractive in these areas. Nest egg -- slang for money saved, often in a savings account, in preparation for retirement or other significant use. Net -- the amount remaining after certain deductions have been made from the gross amount. Net balance -- the amount of debt outstanding at a particular time, after all refunds and adjustments have been calculated. It is often called the payoff balance or net payoff. Net income -- gross income less expenses, including taxes and insurance, but before depreciation, additions to reserves or distribution of earnings. Net interest-earning assets -- the dollar amount of all interest-earning assets minus the dollar amount of all interest costing liabilities. Net interest income -- see net interest margin. Net interest margin -- interest income earned on assets less interest expense paid on liabilities and capital. This is the gross margin for financial institutions. Net interest spread -- see net interest margin. Net new savings -- new savings deposits received by a thrift institution less withdrawals; does not include interest credited. Net operating income -- the net interest margin less provisions for losses and operating expenses plus other operating income. Net payoff -- see net balance. net portfolio value (NPV) -- the present value of expected cash inflows from existing assets, minus the present value of expected cash outflows from existing liabilities, plus the present value of net expected cash inflows from existing off-balance sheet contracts. Also called market value of portfolio equity. Net profit -- see net income. Net realizable value -- a method of determining the present value of a troubled asset to its present owner based on the assumption that the asset will be held for a period of time and sold at some future date. The present value includes future earnings the asset is expected to generate, less the cost of owning, holding, developing and operating the asset. To compensate for these costs, the asset's projected future net cash flows are discounted using a formula that incorporates Accounting Dictionary Page 106

the cost of capital (the cost of paying dividends and interest). Net realizable value, therefore, is based on a formula incorporating what the asset must earn in order to pay for its share of the costs of running the business. Net realizable value is one accounting method used to calculate the present value of an asset (a loan) at some point after the loan has become past due and book value is no longer valid. See fair value. Net rentable area -- the actual square footage of a building that can be rented. Halls, lobbies, stairways, elevator shafts, maintenance areas and the like are not included. Net return -- the remainder left after total operational expenses and interest payments are deducted from gross income. Net savings inflow -- the change during a given period of an institution's total savings account liability, determined by adding all deposits and subtracting all withdrawals. Also referred to as net savings gain or net savings receipts. When interest credited to accounts during the period is excluded, the resulting total is referred to as net new savings. See net new savings. Net worth -- the value in dollars of all assets less all liabilities. Net worth may be expressed as a dollar amount, or as a percentage of either assets or liabilities, calculated by subtracting liabilities from assets and dividing the remainder by assets or liabilities. Net worth certificate -- an instrument authorized by the Garn-St Germain Depository Institutions Act of 1982, to assist thrift institutions in meeting minimum regulatory net worth requirements. A thrift participating in the program issued net worth certificates to the former Federal Savings and Loan Insurance Corporation (FSLIC) in return for the FSLIC's promissory notes. The notes could be counted as part of the institution's net worth. As the institution regained financial health, it redeemed the net worth certificates by returning the FSLIC's promissory notes. Net yield -- that part of gross yield that remains after deduction of all costs, including servicing and reserves for losses. New issue -- a stock or bond sold by a corporation for the first time. New town -- a new community built in an undeveloped area, intended to be a self-governing, self-contained settlement, and containing residential, commercial, industrial, and institutional facilities as well as public and community facilities. Examples are Columbia, Maryland, and Reston, Virginia. Accounting Dictionary Page 107

New York Stock Exchange (NYSE) -- the oldest (founded 1792) and largest securities market in the United States. No load fund -- a type of mutual fund that does not charge a sales commission (load fee) when an investor buys shares of the fund. See load fund. Nominal interest rate -- the stated, or contractual, interest rate in a loan agreement, bond or other security, which may differ from the effective interest rate. Nominee -- an official of a financial institution or some other appointed agent to whom securities or other funds are transferred by agreement with the actual owner. Nominees facilitate the collection and distribution of income from securities (when such securities are held in the name of a nominee), and facilitate the sale or purchase of securities when it may be inconvenient or impractical to obtain the necessary signature of the principal in order to conduct a transaction. Nonamortized loan -- a loan in which the periodic payments are sufficient to cover only the interest due and, thus, do not reduce the outstanding principal. Nonassumption clause -- a provision of a mortgage contract that prohibits the assumption of the mortgage by a third party without the prior approval of the lender. See due-on-sale clause. Nonaccruing loan -- a loan that is more than 60 days past due with no payments being made, and that has stopped accruing interest. See delinquent loan and past due loan. Non-bank bank -- slang for a kind of financial institution that in the 1980s did not meet the legal definition of a commercial bank, and thus avoided the prohibition against branching across state lines. It avoided being classified as a commercial bank by not engaging in one of the two lines of business cited in the law to define commercial banks; demand deposits or commercial loans. It may have offered a range of bank services but engaged in only one of the two activities that legally defined a commercial bank. The non-bank bank loophole was closed by the Competitive Equality Banking Act of 1987. non compos mentis -- Latin for the condition of an individual not possessing sufficient understanding to comprehend the nature, extent and meaning of his or her obligations or contracts. Nonconforming land use -- real property being used in a manner not otherwise permitted by the zoning for the property. The land use is permitted to continue because the land was being used in such a fashion before the zoning ordinance was passed. Accounting Dictionary Page 108

Nonconforming loan -- a loan with an unpaid principal balance or an unexpired term that exceeds lending limitations established by the principal purchasers and guarantors of the secondary mortgage market; the Federal Home Loan Mortgage Corporation, and the Federal National Mortgage Association. Noncurrent loan -- a loan in which payments have fallen behind schedule. Nondepository financial institution -- a company that deals in financial instruments but does not accept deposits. Examples are insurance companies and brokerage firms. Nondisturbance clause -- an agreement that permits a tenant holding a lease to remain in possession of a property despite any foreclosure against the owner(s) of the property. nonfiling insurance -- a type of private insurance that thrift institutions purchase to insure against a loss resulting from unintentional errors or omissions in the filing or recording of a security interest. Noninterest expense -- the sum of personnel compensation, legal expense, office occupancy and equipment expense, other noninterest expense and loan loss provisions. Noninterest income -- the sum of mortgage loan servicing fees and other fees and charges, profit (loss) from asset sales, leasing income, and other noninterest income. Nonmortgage loan -- an advance of funds not secured by a real estate mortgage. Nonoperating expenses -- the outlays and losses of a savings association that are nonrecurring in nature and that do not result from the ordinary savings and lending operations of the institution. These include the expense of maintaining real estate owned or a loss taken on the sale of a nonmortgage investment; also called nonrecurring expense. Nonoperating income -- the profit and revenue of a savings association that are nonrecurring in nature and that do not result from the ordinary savings and lending operations of the institution. These include profit on the sale of real estate owned or other nonmortgage investment. Nonpayment -- the failure to pay as agreed. Nonperformance -- the failure of a contracting party to provide goods or services according to terms of an agreement. nonperforming loan -- a loan that is not earning income and: (1) full payment of principal and interest is no longer anticipated, (2) principal or interest is 90 days or more delinquent, or (3) the maturity date has passed and payment in full has not been made. Accounting Dictionary Page 109

Nonrecourse loan -- a type of loan in which the only remedy available to the lender in the event of the borrower's default is to foreclose on the collateral; the borrower is not personally liable for repayment. Nonrecurring charge -- an cost, expense, or involuntary loss that is not likely to occur again. Nonresidential mortgage loan -- a mortgage loan secured by nonresidential property such as an office building, store, factory, or church. No-par stock -- a stock with no designated face value. North American Securities Administrators Association (NASAA) -- an organization made up of state and provincial securities regulators from all 50 states and Canada. Notary public -- a public figure authorized to attest to the signing of documents, such as deeds or mortgages. The notary public certifies that he or she has witnessed the signing of the document by also signing the document and affixing his or her official seal. notational voting -- a procedure in which matters to be decided are circulated among those eligible to vote, each of whom in turn indicates approval or disapproval by making a notation on the document being circulated. Note -- an instrument bearing legal evidence of debt. A note is signed by the maker (borrower) and promises to pay a specified sum of money to the lender at a certain future date and place. Notice account -- a savings account on which the customer agrees to give the thrift institution a specified notice before making a withdrawal, usually in return for higher interest rates. A penalty may be imposed by the institution for a withdrawal made without the agreed upon notice. Notice of commencement -- a document used in some states and recorded after a construction loan mortgage has been recorded. All mechanics' liens relate back to the date the notice of commencement was recorded, thus enabling the construction mortgage to remain a first lien, not subordinated to any labor or supplier claim for nonpayment of bills. Notice of completion -- a legal notice recorded after completion of construction. Mechanics' liens must be filed within a specified period thereafter. Notional principal -- the amount of principal underlying an interest rate swap transaction, and upon which is based the calculation of swap payments. Novation -- (1) the substitution of a new debt or obligation for a previous one. (2) the substitution of a new creditor or debtor for an old creditor or debtor. Accounting Dictionary Page 110

NOW accounts -- see negotiable order of withdrawal accounts.

O
Obligation -- the requirement imposed on a debtor to pay a debt and the legal right of a creditor to enforce payment. Obligee -- a creditor. Obligor -- a debtor. Obsolescence -- the loss of value or usefulness usually over a period of time, because of wear, changing technology or user preference. Occupancy rate -- the percentage of space or units that are leased or occupied. Odd lot -- a block of shares of less than a round lot, usually traded at one time. (A round lot is a multiple of 100.) Off-balance sheet activities -- the business activities of a savings association that generally do not involve booking assets (loans) and taking deposits. Off-balance sheet activities normally generate fees, but produce liabilities or assets that are deferred or contingent and thus, under GAAP, do not appear on the institution's balance sheet until or unless they become actual assets or liabilities with a value or cost that can be determined. Examples include guarantees substituting the institution's own credit for a third party such as in standby letters of credit; interest rate swaps; foreign exchange forward options; repurchase agreements; loan commitments; and recourse associated with sales of assets. Offer -- an expression of a willingness to sell something at a given price; opposite of bid. Offering -- an issue of securities or bonds presented for sale. Office of the Comptroller of the Currency (OCC) -- see Comptroller of the Currency. Office of Federal Housing Enterprise Oversight (OFHEO) -- a government agency responsible for ensuring the financial safety and soundness of the nation's two largest players in the secondary mortgage market, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). OFHEO is an independent office of the Department of Housing and Urban Development, and was established by the Federal Housing Enterprises Financial Safety and Soundness Act of 1992. Office of Financial Institution Adjudication (OFIA) -- an office that houses administrative law judges who conduct adjudicatory hearings for the federal financial institution regulatory Accounting Dictionary Page 111

agencies: the Office of Thrift Supervision, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, and the National Credit Union Administration. OFIA is housed at the Office of Thrift Supervision. Office of Thrift Supervision (OTS) -- a bureau of the Treasury Department that was authorized by Congress in the Financial Institutions Reform, Recovery and Enforcement Act of 1989, to charter, regulate, examine and supervise savings institutions. offsite improvements -- improvements in land development that are off the development site, such as utility lines, sidewalks, gutters and curbs, that enhance the value of the development. On account -- describes the application of a payment to reduce the outstanding principal of a loan. On margin -- the situation in which an investor borrows part of the purchase price of a security from the broker selling that security. Onsite improvements -- any construction of buildings or other improvements within the boundaries of a property that increases the value of the property. On-us checks -- a depositor's check that is presented for payment at the same financial institution that carries the account on which the check is written. A financial institution would
use the term to refer to checks drawn on accounts it holds and presented for payment at its counter.

Open-end credit -- a consumer line of credit that may be used repeatedly up to an established overall limit. Commonly known as revolving credit or a charge account, in which the customer may pay in full or in installments that include a finance charge. The term does not include negotiated advances under an open-end real estate mortgage or a letter of credit. Open-end investment company -- see mutual fund. Open-end lease -- a lease that requires a balloon payment based on the value of the leased property when the lease expires. Open-end mortgage clause -- a provision in mortgage contracts in some states, that declares the mortgaged real estate may be used as security for future additional advances from the original lender, if the lender and borrower agree. All subsequent advances under this clause represent a claim on the property dating back to the time of recording the original mortgage. open market operations -- purchases and sales of government and certain other securities in the open market by the New York Federal Reserve Bank as directed by the Federal Open Market Accounting Dictionary Page 112

Committee, in order to influence the volume of money and credit in the economy. Purchases of government securities inject reserves into the depository system and foster expansion in money and credit; sales have the opposite effect. Open market operations are the Federal Reserve's most important and flexible monetary policy tool. Open mortgage -- a mortgage loan that can be paid off, without penalty, at any time prior to maturity. Operating budget -- a detailed projection of all estimated income and expenses during a given future period. Operating capital -- funds available for use in financing the day-to-day activities of a business. Operating expenses -- charges incurred as a result of the customary savings and lending business of a thrift institution, not including interest on borrowed money, interest paid to depositors, nor taxes. Operating expenses include such items as salaries and related compensation costs, office space, furniture, fixtures and equipment, advertising, deposit insurance premiums, and professional and supervisory fees. Operating income -- for thrift institutions, income generated by the customary lending and deposit taking business of an association; sometimes called gross operating income. Major operating income items include interest earned on loans, loan fees and charges, net income from service corporations and subsidiaries, stock dividends received and earnings on reserves. Operating subsidiary -- a subsidiary of a federally chartered savings institution that engages only in activities permitted the parent thrift institution. Unlike service corporations, the stock of operating subsidiaries may be sold to non-thrift investors. See service corporations. Opportunity cost -- the difference between the yield that funds earn in one use and the yield they could have earned had they been placed in an alternative investment generating the highest yield available. Option -- an agreement granting the right to buy or sell property, or to use it in some fashion, for a stated price within a stated period of time. In investments, an option refers to a contract granting the right to buy or sell a security or a commodity at a set price within a stipulated time. Option day -- the specified date when an option expires unless it is exercised.

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Optional delivery -- a mortgage loan purchase program offered by the Federal Home Loan Mortgage Corporation in which the seller/servicer may decide not to deliver the loans and thus not consummate the sale. Ordinary income -- income subject to taxation at full or ordinary rates rather than at favorable capital gains rates. Original face -- the original principal amount, or face value, of a mortgage-backed security. Originate a loan -- to make or issue a loan; the process whereby a lender qualifies a borrower,
appraises the collateral, processes all documents, advances funds and places the loan on the books.

Origination fee -- a charge imposed by a lender for the evaluation, preparation and processing of loan applications. Outgo -- slang referring to any expense or cost. Out of the money -- the situation in which the fixed price of an option turns out to be a less favorable price than that currently available in the market, resulting in a loss for the investor. The holder of an option to sell a security is out of the money when the option price is lower than the market price. Conversely, the holder of an option to buy is out of the money when the option price is higher than the market price. Outstanding check -- a check that has not yet been presented for payment to the financial institution on which it was drawn. Outstanding debt -- that portion of a debt which remains unpaid. Outstanding loan balance refers to that portion of principal that has not been repaid. Overdraft -- a draft or check written for an amount that exceeds the funds in the account on which the check is drawn. Overdraft protection -- a line of credit that is activated when a customer writes a check that totals more than the funds in his or her checking account. With overdraft protection, the institution on which the check is drawn automatically loans money to the checking account when an overdraft situation occurs. Overdue -- the status of a payment that is late and not yet paid. Overhead -- the cost of equipment, materials and services that are necessary to conduct business but are unrelated to the products or services the firm offers.

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Overnight money -- any money that replaces daily. It generally refers to funds that are loaned by one institution to another overnight, including but not limited to the federal funds market. Over the counter -- the buying and selling of securities that are not listed on an organized exchange. Trading is handled by dealers through negotiation rather than through the use of a stock exchange's auction system. Overzoned -- the zoning of real property to permit development that exceeds the practical present highest and best use of the land. Owe -- to be obligated to pay something to someone in return for value received. Owner-occupant -- a property owner who occupies his or her property, as distinguished from an absentee landlord or owner. Ownership -- the state of holding a lawful claim or title to property.

P
Package provision -- an optional mortgage clause that allows the borrower to finance chattels such as major household appliances, carpeting, drapery and equipment under the original home mortgage and make a single monthly payment for the entire package. Paper profit -- an increase in the value of property or a security still held. Paper profits become realized profits only when the property or security is sold. Par -- the situation in which the face value of a security equals its actual selling price: sold "at par." Parity -- equality in amount, status or character. In futures trading, it is the situation in which cash and futures contracts are selling at equivalent yields. Parity clause -- a provision in a mortgage contract stating that all notes are equally secured and that no holder of the collateral will receive preferential treatment in the event of default or foreclosure. Partially amortizing loan -- a loan in which the periodic payments cover all of the interest charges but only part of the principal, therefore leaving an unpaid principal balance when the loan matures. Participation -- (1) ownership by two or more lenders or investors of all or a portion of a single mortgage or a package of mortgages. (2) the cooperative origination by two or more lenders of a single (usually large) mortgage loan. Accounting Dictionary Page 115

Participation certificate (PC) -- a document setting forth the description of a package of loans and the share of the package that is being bought or sold. Participation loan -- a loan made or owned by more than one lender; the joint investors share profits and losses in proportion to how much of the loan each owns. partnership -- a form of business organization in which two or more persons join in a business or commercial enterprise, sharing profits, risks and losses according to the terms set forth in their partnership contract. Party wall -- a wall built on a line between two adjoining properties and used by both owners. Par value -- (1) the value assigned to a share of stock by the issuer at the time the stock is first offered for sale. The par value may be more or less than the market value. (2) the value of a bond or note at maturity. (3) the face value of a security. Passbook -- a small book in ledger form in which are recorded all deposits, withdrawals and earnings of a customer's savings account. Passbook account -- a savings account that normally requires no minimum balance, no minimum term, no specified frequency of deposits, and no notice or penalty for withdrawals. Passbook accounts, once the most widely used form of thrift savings account, have been largely replaced by statement accounts that provide a monthly statement mailed to the depositor. Passbook loan -- a loan secured by funds in a savings account on deposit with the same
institution originating the loan. The pledged funds may not be withdrawn during the life of the loan.

Pass-through security -- a security granting the holder an interest in a pool of mortgages. A portion of the payments of principal and interest from the underlying mortgages are passed through to the holder of the security. Past due -- the status of a scheduled loan payment that has not been paid on time. Past due loan -- a loan on which payment in full is 30 to 60 days past due, but partial payments are being made. See delinquent loan and nonaccruing loan. Patent -- in real estate, a patent is the original document issued for the purpose of granting public land to an individual. Pay -- to compensate, reimburse, or satisfy an obligation by giving over something of value, such as money. Payables -- a bookkeeping term for the costs of purchases or other obligations made but not yet paid. Accounting Dictionary Page 116

Payee -- the person or organization to whom a check, draft, or note is payable. The payee's name follows the words: "Pay to the order of." Payer -- the person or organization who is responsible for paying the amount stated on the face of a negotiable instrument. Payment -- that which is paid. The sum of money or other item(s) of value that is transferred from one party to another. Payoff -- the complete repayment of loan principal, interest and any other sums due; payoff occurs either over the scheduled full term of the loan, or through one or more prepayments. Payoff statement -- a document prepared when a loan payoff is being considered. It shows the current status of the loan account, all sums due and the daily rate of interest. Also referred to as a letter of demand. Penalty clause -- (1) a provision in a promissory note specifying a penalty for late payments. (2) a clause in a savings certificate specifying a penalty for premature withdrawal of funds. Penny stocks -- low-priced issues, often highly speculative, selling at less than $1 a share. Pension fund -- a fund set up to collect regular premiums from employees and their employers, invest those funds safely and profitably, and pay out a monthly income to employees who reach a specified age and retire. Percentage interest margin -- a ratio that compares the net interest margin to total assets. Percolation test -- a test given to soil to determine the soil's water seepage capacity, when the use of a septic tank is contemplated. Perfecting a title -- the elimination of any claims against a title. Performance bond -- a bond issued to guarantee performance of certain specified acts, such as the completion of construction of a property. Performance code -- a building code that specifies construction requirements according to performance criteria rather than to specific building materials, products, or methods of construction. See specification code, and prescriptive code. Performing loan -- a loan on which payments of principal and interest are less than 90 days past due. Period certain -- a predetermined amount of time during which a participant receives allowable distributions from an IRA. A period certain may be any length of time so long as the period is

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less than the participant's life expectancy. The longer the period of payments, the less each payment amounts to. Period of redemption -- the period of time during which a mortgagor may reclaim the title and possession of his or her property by paying the debt the property secures. Permanent lender -- a lender that provides long-term financing for projects after construction has been completed. Permanent loan -- a long-term loan of not less than 10 years that is fully amortized and made to purchase, rather than to construct, real property. Perpetual preferred stock -- preferred stock that has no fixed maturity date and that cannot be redeemed at the option of the holder. Cumulative perpetual preferred stock accumulates dividends from one dividend period to the next. Personal check -- a check drawn on a depository institution by an individual against the individual's own funds. Personal identification number (PIN) -- a number or code used by an account holder in conjunction with a credit or debit card to verify the user's identity to an automated teller machine. Personal loan -- an unsecured loan usually made for the purpose of debt consolidation, vacation or the purchase of durable goods. Also called a signature loan. Personal property -- any property that is not real property. While state laws vary on the definition of personal property, it is generally thought of as the movable items that a person owns. They can be tangible, such as furniture and other merchandise, or intangible, such as stocks and bonds. Pipeline -- an expression referring to loan applications in process up until closing or until the mortgage is sold. What's in the pipeline is taken into account when analyzing mortgage loan inventory and commitments on new mortgages. PITI -- stands for principal, interest, taxes and insurance. These elements generally are included in the borrower's monthly loan payment. Planned amortization class -- see collateralized mortgage obligation. Planned unit development (PUD) -- a type of residential, commercial, or industrial land development that provides more planning flexibility than traditional zoning and lot layout. Accounting Dictionary Page 118

Buildings are often clustered on smaller lots, permitting the preservation of natural features in common areas or open park-like areas. The development maintains the same or slightly greater density than is permitted by conventional zoning methods. Individual properties are owned in fee with the common areas owned jointly or deeded to the local government. Plat -- a map that shows land subdivided into lots with streets, boundaries, easements and dimensions drawn to scale. Pledged account mortgage (PAM) -- a type of mortgage loan in which the borrower's payments are supplemented by payments from a savings account pledged as additional collateral for the loan. The savings account is established with part of the down payment. Pledged loan -- a mortgage loan that has been identified and set aside as security for borrowing by the holder of the mortgage; particularly a loan that has been pledged as security for an advance from a Federal Home Loan Bank. Point -- an amount equal to one percent of the principal amount of an investment or a loan. Points are a one time charge assessed at closing by the lender to increase the lender's earnings on mortgage loans. Ponzi scheme -- an operation intended to defraud investors in which no new wealth is produced and creditors are paid off by borrowing ever larger amounts from new investors. Pool -- a large group of mortgages that back a mortgage security. Portfolio -- all of the income-producing assets held by an individual or institution, such as the income-earning securities and mortgage loans of a savings institution. Position -- a market commitment to go long (buy) or short (sell) a security or commodity. It also refers to the amount of securities or commodities owned (long position) or owed (short position). Postal money order -- an instrument, like a check, sold by United States post offices providing for the payment of a specified sum of money to the individual or firm designated by the purchaser of the money order. Posting -- the process of transferring journal entries to the general ledger. Power of attorney -- a document that authorizes one person to legally act as the agent for, or in place of, another person in performing various actions under specified conditions. Full power may be granted, or authority may be limited to certain functions.

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Preexisting use -- a land use that existed prior to and does not comply with a newly established zoning classification. See nonconforming land use. Preauthorized payment -- a system established by a written agreement under which a financial institution is authorized by the customer to debit the customer's account in order to pay bills or make loan payments. Prefabricated housing -- housing with structural or mechanical components manufactured and assembled away from the construction site. Preferred debt -- any obligation that has precedence over another debt. A senior or first mortgage is an example of a preferred debt. Preferred stock -- a stock that yields a fixed-dollar income. The stock represents equity, or ownership, in the company but generally carries no voting rights. The stockholder has a claim to the issuing firm's earnings and assets ahead of the holder of common stock, but behind the holder of a bond. Preliminary examination response kit (PERK) -- a package sent by OTS to a financial institution prior to the start of an on-site examination. The package contains forms and instructions to the institution for gathering various information and documents. The PERK also indicates the expected date of the examination, requests that the institution arrange various logistics details and asks the institution to have basic information ready for the arrival of the examination staff. Also called the advance package. Premium -- (1) the amount, often stated as a percentage, paid in addition to the face value of a note or bond. (2) a fee charged for the granting of a loan. (3) the price paid for an insurance contract. (4) a product given free or sold at discount, offered as an inducement to the public to open or add to a savings account, or to purchase other specified products or services. Prepayment -- a payment made before its scheduled due date. Prepayment clause -- a provision in a promissory note stating the amount a borrower may repay ahead of schedule without incurring a penalty. Prepayment penalty -- a fee assessed by a lender on a borrower who repays all or part of the principal of a loan before it is due. The prepayment penalty compensates the lender for the loss of interest that would have been earned had the loan remained in effect for its full term.

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Prescriptive code -- a building code that specifies construction requirements according to particular materials and construction methods, rather than to performance criteria. Same as a specification code. See performance code. Present value cost -- the cost in currently valued dollars of funds to be expended over a period of time, usually a number of years, less the net of any funds to be repaid. It is adjusted to compensate for the loss or gain of the opportunity to invest the funds rather than spend them -that is, compensate for the dollars' estimated earning potential in alternative uses. For example, the present value cost is reduced by the amount of income the funds are expected to earn until they are disbursed and increased to compensate for the loss of earnings thereafter, or until such time as the funds are repaid. Present value cost is used by federal regulators to estimate the impact on the thrift insurance fund of alternative solutions to troubled thrift institutions. Preservation of capital -- one of several objectives of investing, the goal being to prevent the loss of any capital invested by avoiding high-risk investments. Price -- the amount of money a seller receives for the goods or services sold. Price is the amount of money actually received by the seller, not necessarily the amount originally asked for. In the buying and selling of bonds and mortgages, price represents the difference -- expressed as a percentage -- between the amount paid for an instrument and the face value of that instrument. For example, if sold at par, the price is 100 percent of the face value; a premium price could be 105 percent; and a discount price could be 95 percent of face value. Price-level-adjusted mortgage (PLAM) -- a form of home loan in which payments are adjusted for inflation not by changing the interest rate but by changing the amount of outstanding principal. The loan is fully amortized, meaning the principal is repaid in a fixed number of years. Initial payments are low because the real rate of interest -- typically between 3 and five percent -does not include a factor for inflation. Instead, inflation or deflation increases or decreases the amount of outstanding principal, and correspondingly, the amount of the monthly payment. The payment is adjusted each month based on a predetermined index, such as the Consumer Price Index. It is assumed that the value of the home and the borrower's income increases or decreases in tandem with fluctuations in the amount of unpaid principal. A PLAM offers monthly payments that are substantially lower and less volatile than mortgages with adjustable interest

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rates, while assuring the lender will be repaid all the principal, plus interest, plus whatever inflation eats away. Prima facie -- at first view; that which appears to be true and is accepted as being true as long as contrary evidence is not detected. Primary dealer -- a securities firm that makes a market in government debt securities, acting as a principal in the trades. Federal Home Loan Bank System discount notes are sold through a group of primary dealers. Primary market -- the market in which lenders make mortgage loans directly to borrowers, as
opposed to the secondary market in which the original lenders sell those mortgage loans to investors.

Prime rate -- the interest rate charged by leading banks to their best, most secure customers. It tends to be a yardstick for general trends in interest rates. Principal -- (1) the capital sum of a loan. The amount of borrowed funds to be repaid. (2) an individual or firm buying or selling for his (her/its) own account. Principal balance -- the portion of a loan not yet repaid, exclusive of interest or other charges. principal basis -- the sale of securities through a dealer or group of dealers who buy and sell the securities at least initially for their own portfolios, assuming the market risk of holding the securities, and then selling the securities from their own inventory to their customers at a markup. See agency basis. Principal office -- see home office. Principal only (PO) -- see stripped mortgage-backed securities. Prior lien -- a mortgage that ranks ahead of another. Private enterprise -- an economy in which the production of goods and services is carried out by businesses owned and operated by people risking their investment of capital and/or labor in the hope of making a profit. Private mortgage insurance (PMI) -- insurance policies written by private companies insuring lenders against loss resulting from defaults on mortgages. private placement -- the sale of a debt security to one buyer or a few buyers, as opposed to offering the security to the public through a group of dealers. See direct placement. Private sector -- that portion of the economy composed of businesses and households, and excluding government. See public sector. Accounting Dictionary Page 122

probate -- the process of proving before a court of law that a document offered for official recognition as the last will and testament of a deceased person is genuine and the process of determining and resolving all issues concerning the will. Problem institution -- a savings association or savings bank that: (1) is subject to special regulatory controls or restrictions; (2) poses particular supervisory concerns to its federal or state regulator; (3) fails to meet its regulatory capital requirement; and/or has a composite MACRO rating of 4 or 5. Profit -- the excess of income over all costs and expenses. Profit and loss statement -- a summary listing a firm's total revenues and expenses within a specified period of time. Synonymous with income and expense statement. profit center accounting -- a method of accounting that identifies various segments of a business that are responsible for both revenues and expenses, as a way of measuring each segment's contribution to the profit of the company as a whole. Pro forma statement -- from Latin meaning "according to form." A pro forma statement is a financial statement projecting anticipated income, expenses and cash flow for some specified future period. Program trading -- computer-triggered, simultaneous buying and selling of securities in different exchanges to take advantage of price differences in two or more markets. Progress payment -- see draw. Promissory note -- a written promise to pay a stipulated sum of money to a specified party under conditions mutually agreed upon. Also called a note, promise, or bond. Property -- something that is owned or possessed. Property may be real (land), personal, tangible (touchable), or intangible (such as the interest in a play or other creative work). Property assessment -- the determination of the value of real property upon which taxes will be imposed. Pro rata -- Latin, meaning "according to the rate." Pro rata refers to dividing something (costs, income, profits, assessments, proceeds from a liquidation, etc.) among participants according to a rate in which each participant's share is in proportion to the part of the whole owned or claimed by the participant.

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Prorate -- to allocate between two or more parties, the proportionate share of each. For example, the payment of property taxes or insurance premiums may be prorated between buyer and seller. Prospectus -- a written offer to sell property or a security, providing a detailed description of what is being sold, including its characteristics and quality. Proxy -- (l) the authority or power to act for another. (2) a document giving such authority. (3) The person authorized to act for another. Public sector -- that portion of the economy composed of all levels of government, and excluding businesses and households. See private sector. PUD -- see planned unit development. Punch list -- a record of incomplete or unsatisfactory construction items covered by a contract, usually prepared by an architect or engineer, before certifying project completion. Purchase accounting -- a method of accounting when one enterprise is acquired by another. The surviving enterprise records as its cost the market value of the acquired assets less liabilities assumed. The difference between that market value and the total price paid is recorded as an asset called goodwill. See goodwill. Purchase agreement -- a signed document stating the purchaser's agreement to buy and the seller's agreement to sell a specified property under stated terms and conditions. Purchased credit card relationships (PCCR) -- the premium paid to acquire established credit card accounts from a financial institution. Buyers pay a premium over the dollar value of the credit card accounts themselves in order to acquire the customer loyalty in an established line of business. The premium is listed on the books as an intangible asset. Purchased mortgage servicing rights (PMSR) -- the right, acquired from another, to service a mortgage and collect a fee. The value of that right is listed on the books as an intangible asset. See mortgage servicing. Purchase-money mortgage -- a mortgage given to the seller, with the mortgage constituting all or part of the compensation received for the sale of property. Such a mortgage is used when the seller is also the lender. Most purchase-money mortgages are one or two years in length or, in some cases, up to five years. Purchase option -- a clause in a lease granting the lessee an option to purchase the leased property on or before the lease termination date, usually at a specified price. Accounting Dictionary Page 124

Purchasing power -- the value of money measured by the amount of goods and services it can buy. Put -- a contract giving the holder the right to sell a specific security at a specified price during a designated period. A put is purchased by someone who thinks the price of the underlying security will go down and who wants to lock in a higher selling price. Opposite of call.

Q
Quadrominium -- a four-unit condominium. Quadroplex -- a structure containing four dwelling units with shared walls. Ownership of each unit may be fee simple or as a condominium. Qualified opinion -- an opinion issued by an independent auditor when the scope of the audit has been restricted in some manner or the financial records have departed from generally accepted accounting principles (GAAP). See adverse opinion. Qualified thrift investment (QTI) -- housing-related assets that a savings institution can count toward meeting its qualified thrift lender test. Qualified thrift lender (QTL) -- a savings institution that qualifies for low cost advances from its Federal Home Loan Bank and/or qualifies for federal tax benefits by virtue of having at least a certain percentage of its assets in housing-related investments. Traditionally, the minimum has ranged between 60 and 70 percent of assets. See actual thrift investment percentage. See qualified thrift investment. Quarter -- a United States coin equal to 25 cents or one-fourth of a dollar. Quitclaim deed -- a document by which the owner of real estate conveys to another the owner's legal right to, interest in and title to a property, but which contains no warranty or statement regarding claims, if any, that others might have in the property. Quick take -- the acquisition by government of private real property under the power of eminent domain, prior to the completion of condemnation proceedings, in order to avoid loss of time. Quiet title action -- a legal process to eliminate any claims against a property by persons other than the owner. The procedure is used to perfect the title to the property when quitclaim deeds can not be obtained from those who may have such claims on the property. Quotation (quote) -- the highest bid to buy and the lowest bid to sell a security in a given market at a given time. A quotation might be, for example, "32 1/4 to 32 1/2" meaning that

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$32.25 is the highest price any buyer wanted to pay at the time the quote was given and $32.50 was the lowest price any seller would take at the same time, in the same exchange.

R
Range bonds -- bonds that stop paying an investor when the bond's reference rate is higher or lower than a predetermined range on an established index. The bonds pay an above-market coupon rate as long as the reference rate falls within the range. For example, if LIBOR is the index, a range bond might pay LIBOR plus 75 basis points for each day LIBOR is between 3.5 and 5 percent. When LIBOR is less than 3.5 percent or more than 5 percent, the bond accrues no interest. A range bond is a type of structured note. Rate intermediation -- borrowing funds at short-term interest rates and lending the funds at longer term fixed rates. Rate of exchange -- the amount of currency of one nation that may be purchased on a specific date with a specified amount of the currency of another nation. Rate of return -- the measure of profitability of an investment. It measures the income that may be obtained from an investment against its purchase price, or its current market price. The rate of return refers to either the yield to maturity on a bond or the current income return of an investment such as a security. Also known as return on investment (ROA), or yield. Rate-sensitive -- describes a deposit account or security investment for which changes in its interest rate produce wide fluctuations in its supply and/or demand. Rating -- in securities trading, a formal opinion given by an independent, professional service on the credit standing of the issuer of a bond and on the investment quality of the security. The opinion is normally expressed in letters: AAA, Baa-l, etc. Raw land -- land in its natural state, with no man-made improvements such as grading, sewers, roads or buildings. Reaffirmation agreement -- an agreement that reinstates a previous debt after bankruptcy proceedings are completed. Real accounts -- the accounts: asset, liability, reserve and capital -- whose balances are not canceled out at the end of an accounting period, but are carried over to the next period. These accounts appear on the post-closing trial balance and the statement of condition (balance sheet). Also called permanent accounts. Accounting Dictionary Page 126

Real assets -- tangible assets in contrast to financial assets or securities. Real assets include real estate, land, gold, coins, stamps, art, and antiques. Real estate -- land and all physical property on, below or attached to the land. Houses, sewers, trees and fences are all real estate. Real estate investment trust (REIT) -- an investment vehicle established for the benefit of a group of real estate investors. A REIT is an unincorporated trust or association, managed by one or more trustees who hold title to the assets of the trust and control its acquisitions and investments. Real estate investments commonly include office buildings, apartment houses and shopping centers. Real estate mortgage investment conduit (REMIC) -- a entity through which an issuer can sell multiple class securities with call protection to investors. A REMIC may be a corporation, trust, association, or partnership, but in order to qualify, it must confine its investments to mortgages, cash, government securities, foreclosure property acquired in connection with imminent default of a mortgage, or other REMICs. Typically, a REMIC invests in a pool of mortgages, and sells interests in those mortgages through securities with one or more senior classes and a subordinated class that assumes the credit risk of defaults and delinquencies. This creates a form of self-insurance that increases the investment ratings for the senior securities. A REMIC does not keep its mortgage assets on its books, but sells them to investors through its securities. Real estate owned (REO) -- real estate owned by a savings institution as the result of default by borrowers and subsequent foreclosure by the institution. Real property -- all immovable property such as land and the buildings or other objects permanently affixed to the land. Realtor -- a real estate agent or broker who is a member of the National Association of Realtors, formerly the National Association of Real Estate Boards. Receipt -- a written acknowledgment that something of value was received. Receivables -- a bookkeeping term for amounts of revenue contracted for but not yet received. Receiver -- a party appointed by a court or regulatory agency to manage property subject to litigation, or the property and affairs of a bankrupt person or institution. The receiver maintains and manages the property in the interest of lenders or creditors until a final disposition of the property is made. Accounting Dictionary Page 127

Receivership -- the state of being under the administration of a receiver. A receivership removes the institution or company in receivership from its owners, who lose their equity. Since a receivership ends the corporate existence of an institution or company, it stops the payment of stock dividends and interest on debt. See conservatorship. Recession -- a period of reduced economic activity during which the level of unemployment rises, production slows, and general prosperity lags. Reconciliation -- the process of analyzing two related records and, if differences exist between them, finding the cause and bringing the two records into agreement. A common example of reconciliation is the comparison of an up-to-date check book with a monthly statement from the financial institution holding the account. Reconveyance -- the transfer of the title of property from the current owner to the most recent previous owner. Recourse -- (1) the right of a holder in due course to demand payment from the maker or endorser of a negotiable instrument, or from prior endorsers, if the instrument is dishonored by the maker. (2) the acceptance, assumption or retention of some or all of the risk of loss associated with an asset owned by another party. (3) in the secondary mortgage market, recourse refers to a provision in a sales contract by which a mortgage seller agrees to buy back the loan if default and foreclosure occur. See with full recourse, without recourse, with partial recourse. Recourse servicing -- mortgage servicing in which the company servicing a mortgage has assumed the financial risk in the event the borrower defaults on the loan. See mortgage servicing. Redacted -- the condition of a document that has been edited to remove sensitive or confidential information. Redeem -- to buy back, as in an issuer redeeming bonds at maturity, or a property owner redeeming his or her property after a foreclosure sale. Redemption of accounts -- the process by which a savings institution buys back the savings accounts of its depositors by paying their full withdrawal value. Redevelopment -- the urban process of improving cleared or undeveloped land, including erection of buildings and other facilities by public or private developers, but not including site
improvements installed by a local public agency in order to prepare the land for disposition to developers.

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redlining -- the refusal of a savings institution or other business to extend credit to, lend to, insure, or otherwise assume some financial risk involving property or a business located in a high-risk geographical area, usually a declining inner-city neighborhood. Redlining also refers to setting prohibitively high fees for financial services in a high-risk area. Refinancing -- the repayment of a loan with funds from a new loan secured by the same property as the first loan. The new loan may be from the same or a different lending institution. Regs -- slang for regulations. Regulation -- (1) a rule adopted by a federal or state government executive branch agency. A regulation is based on and carries out a law. (2) the act or process of governing or regulating. Regulatory accounting practices (RAP) -- accounting rules and procedures approved by the Office of Thrift Supervision for use by savings institutions under the agency's jurisdiction. They may differ from generally accepted accounting principles (GAAP), and are adopted by the agency to achieve policy objectives. Regulatory bulletin -- a directive issued by the Office of Thrift Supervision to its regulatory staff providing clarification of regulations and/or specifying guidelines and procedures. The regulatory bulletin series and the thrift bulletin series are the successors to the previous R, T, SP, and AB memoranda issued by the former Federal Home Loan Bank Board. Regulatory capital -- net worth as defined by rules adopted by a regulatory agency, which may be different than capital calculated under generally accepted accounting principles. Regulatory plan -- the OTS plan developed for regulating each savings institution. Rehabilitation -- the restoration, repair or improvement of a declining house, area, or neighborhood. Reinstatement -- the payment by a borrower of all past due, or delinquent, payments, thus restoring the loan to current status. Reinvestment -- the process of investing new capital in existing, mature, developed neighborhoods, most likely in inner city areas. The reinvestment is usually in the form of housing rehabilitation, public works improvements, and new or reconditioned commercial development. Release -- (1) the discharge of property from a mortgage lien. (2) a written statement that an obligation has been satisfied. Accounting Dictionary Page 129

Remainderman -- the person designated to receive assets at the end of a trust term. Remittance -- funds transferred from one party to another as payment for purchased goods or services. removal and prohibition (R&P) order -- an enforcement order issued by the Office of Thrift Supervision forcing a person out of a current position with a savings institution and prohibiting the person from ever again working for any savings association, bank or credit union that has federal deposit insurance without the prior written approval of the institution's regulator. If the person agrees not to challenge the issuance of the order, it is called a consent removal and prohibition order. Remuneration -- wages and other benefits received as compensation for employment. Renegotiable rate mortgage (RRM) -- an alternative mortgage loan in which the interest rate is renegotiated periodically. The loan may be either a long-term loan with periodic interest rate adjustments, or a short-term loan that is renewed periodically at new interest rates, but based on a long-term mortgage. Rent -- compensation paid the owner of property for the use and/or occupancy of the property. Reorganization -- the altering of a firm's capital, organizational, and/or management structure following a plan worked out during bankruptcy proceedings under Chapter 11. The objectives of reorganization are to eliminate the cause of the failure, settle with creditors, and allow the firm to remain in business. Replacement cost -- the current cost of producing a similar building or piece of equipment equal in utility and quality to the building or equipment already existing. Replevin --a legal action for the return of, or recovery of goods or chattels wrongfully taken or detained. Report of examination (ROE) -- the document that describes the findings and conclusions of an examination of a savings institution. The ROE is comprised of two sections: the narrative section containing analysis and comments of the examiners, and the appendix section containing various schedules, financial data, and other statistics used to support the findings and analysis and the assigned MACRO rating. repossession -- the process of a lender or his agent taking back items that were bought on credit or were pledged as collateral for a loan from a borrower who has fallen behind on loan payments.

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Reprice -- to change the interest rate. Money lent is priced at a rate of interest. It is repriced when the loan matures, the money is repaid and lent at a new rate. A certificate of deposit reprices when the CD matures and is either withdrawn or rolled over at the then prevailing rate. repurchase agreement (REPO) -- a financial transaction in which a dealer in effect borrows money by selling securities and simultaneously agreeing to buy them back at a higher price at a later time. The dealer invests the money paid for the securities, hoping to get a higher return than he owes on his obligation to repurchase the securities. Repurchase agreements are commonly called "repos," and they function in a way similar to a secured loan with the securities serving as collateral. In a reverse repurchase agreement, the dealer in effect loans money by buying securities and agreeing to sell them back to the customer at a higher price at a later date. In either case, the difference between the bought and sold price of the securities constitutes the yield on the transaction. See dollar reverse repurchase agreement. Also see retail repos. Rescission of contract -- the replacing of a contract by mutual consent or by either party for reasonable cause. See right of rescission. Reserved account -- an account subject to reserve requirements determined by the Federal Reserve Board. The rules require financial institutions to set aside (not invest) a portion of funds in such accounts as reserves to meet depositors' demands for cash withdrawals. The reserves are deposited at a Federal Reserve Bank or held as cash. Reserves -- (1) that portion of current earnings set aside to take care of possible future losses or for other specified purposes. (2) the portion of deposits in transaction accounts that must be held by depository institutions in liquid form (vault cash or deposits in a Federal Reserve Bank). Such reserves may not be used for lending or investing. The reserve ratio for transaction accounts or no personal time deposits in all depository institutions (including commercial banks, savings banks, savings and loan associations and credit unions) is set by the Board of Governors of the Federal Reserve System. A lower reserve requirement allows more expansion of deposit and loan volume, while a higher reserve ratio permits less economic expansion. That is because the lower the required reserve ratio, the greater the portion of deposits that can be lent, redeposited somewhere else, and lent again thus multiplying each dollar of the original deposit. Residential -- describes buildings which are used as dwellings by people.

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Resolution Trust Corporation (RTC) -- a temporary federal government corporation chartered by

Congress in 1989 and affiliated with the FDIC that: (1) ensures that customers of failed thrifts have access to their insured deposits, and (2) disposes of the assets of failed thrifts. The RTC receives overall policy guidance from the Thrift Depositor Protection Oversight Board. The RTC was scheduled to finish its work and go out of business by December 31, 1995, and stopped accepting newly failed institutions on June 30, 1995. All subsequent business was to be handled by the FDIC.

Resolution Funding Corporation (REFCORP) -- sold bonds to raise funds that finance the work of the Resolution Trust Corporation (RTC). Resolved --the status of a troubled savings association that has been taken over by the government and
disposed of in some final fashion. Such resolution usually involves either selling the institution to new owners or closing it permanently and paying depositors their federally insured accounts.

Restrictive covenant -- a clause in a deed limiting the use of the property. retail repos -- repurchase agreements in which a thrift institution or bank sells a portion of a government security to its customer for cash, and simultaneously agrees to buy back the security for the same price plus interest at a future specified date. Such transactions are considered to be investments, not deposits, and thus are not federally insured. See repurchase agreement. Retained earnings -- the corporate profits that are neither paid out in cash dividends to stockholders nor used to increase capital stock, but are reinvested in the company. Retirement CD -- a certificate of deposit that combines elements of a deposit and an annuity. Returned check -- a check that was presented to the financial institution on which it was drawn, was refused payment by that institution and was sent back unpaid. Return on assets -- after-tax net income divided by total assets. Return on average assets -- a financial measurement of the efficiency with which a business uses its assets. Return on average assets is the ratio of net income divided by average total assets. Return on equity -- a measure of how effective a business has been in investing its net worth. Return on equity is expressed as a ratio, calculated by dividing net income by average equity. Revenue -- the total of all earnings received from the sale of a firm's product or service during a given period. Revenue bond -- a municipal bond that is secured by the income expected to be generated by the
project financed by the bond, as opposed to a general obligation bond that is secured by the government's taxing authority.

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Reverse-annuity mortgage (RAM) -- an alternative mortgage loan program in which the lender
makes periodic payments to the borrower. The loan is secured by the borrower's accumulated equity in the home. This type of loan is usually taken out by an older, retired person who has substantially paid for a home, and now needs additional income to live on. The borrower receives periodic payments from the lender, or from an annuity set up with the proceeds from the loan. The owner continues to live in the house until death, with the sale of the home at that time used to pay off the loan. This is a plan for taking money out of a home; for converting an existing frozen asset into current income.

Reverse repurchase agreement -- see repurchase agreement. Revocable trust -- a trust in which the grantor retains the right to revoke, and reclaim property that had been placed in the trust. Revolving credit -- a line of credit extended to customers who may use it as often as desired up to a
certain dollar limit. Items purchased using this line of credit, may be paid in full upon receipt of a monthly statement, or they may be paid for in several installments, for which an interest charge is added.

right of first refusal -- a provision in an agreement stating that a specified party must be given an opportunity -- before any others -- to either accept or reject an offer. The right of first refusal may extend, for example, to the act of selling property. In this case, if and when the owner decides to sell, the property must first be offered to the specified party. Upon refusal by the specified party, the property may then be offered under the same terms and conditions to others. Right of foreclosure -- the right of a lending institution to take over mortgaged property and close out the mortgagor's interest in it if the mortgagor violates the terms of the mortgage or loan note. Right of rescission -- the borrower's statutory right under the Truth-in-Lending law to change his or her
mind and cancel a loan within three business days from the date of the loan application.

right of redemption -- a right provided by law in some states permitting a mortgagor to reclaim foreclosed property by making full payment of the mortgage debt, including interest and fees, or the foreclosure sales price. The redemption period is for a specified period of time. Right of survivorship -- a right when property is co-owned and one owner dies. In that case, the entire, undivided property passes to the ownership of the surviving owner(s). Right of way -- authority granted to others by the owner of land to pass across the land, sometimes in the form of an access easement. Streets and sidewalks are normally part of the public right of way. Accounting Dictionary Page 133

Riparian -- pertaining to the water's edge. It is generally used to describe the rights of land owners whose property is adjacent to rivers, lakes or other bodies of water. Riparian rights -- the rights of owners of land adjacent to a body of water to the water and land below the high water mark. Risk -- the probability of loss, or the degree of uncertainty of being repaid, associated with loaning or investing funds. Risk-based capital -- one of three capital standards adopted for savings institutions in 1989. The standard is designed to require savings institutions to hold more capital for higher-risk assets. The value of each asset is weighted according to its risk and then capital is calculated at a fixed percent of each risk-weighted asset. The standard adopted in 1989 was 8 percent of riskweighted assets. See tangible capital and core capital. Ritzy Maes -- slang for mortgage-backed securities sold by the Resolution Trust Corporation. Roll over -- the process of reinvesting funds received from a maturing security in a new issue of the same or a similar security. Rollover -- the practice of reinvesting capital and interest of one investment into an identical new investment. Round lot -- a unit of stock, usually consisting of 100 shares or multiples of 100 shares. Routing and transit numbers -- the identification numbers printed on checks and drafts designating
the paying institution and its location. The numbers facilitate the check-collection process.

Rules of the class -- the terms and conditions established by a savings institution for each type of account and included in each savings account contract. They include rates of interest, penalty provisions, and any minimum deposits. Rule of 78s -- a method used by a lender to calculate an interest rebate on a loan that is paid off, or refinanced, prior to its maturity, or for accruing earned discount. A predetermined factor is applied to the portion of total interest generated during the period in question. Also, sometimes called sum-of-the-digits method. Run -- the situation in which large numbers of customers make massive withdrawals of their funds from a depository institution.

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Safe deposit box -- a container in a secure vault that is rented to an individual or organization for the safekeeping of valuables. Safety and soundness exam -- an examination of a thrift institution's financial strength and operating
policies and procedures to determine whether the institution is being run in a safe and sound manner.

Sale -- the transfer of ownership of an item or the entitlement to a service in exchange for money. Sale-buyback -- a financing arrangement in which the developer sells a property to an investor and then buys it back under a long-term sales contract. Sale-leaseback -- an arrangement in which a seller deeds property to a buyer for cash or other consideration, and the buyer simultaneously leases the property back to the seller, usually on a long-term basis. Sales -- the income received when goods or services are sold. Sallie Mae -- nickname for the Student Loan Marketing Association. S and L -- short for savings and loan association. Also S&L. Satisfaction of mortgage -- the recordable instrument given by the lender that evidences payment in full of the mortgage debt. Also known as a release deed. Save -- to put aside a portion of income, deferring its consumption until a future date. Savings -- the total accumulated amount of income that is not spent on consumption. Savings account -- an account maintained by a customer with a depository institution for the purpose of accumulating funds over a period of time. Funds deposited in a savings account may be withdrawn only by the account owner or a duly authorized agent, or on the owner's nontransferable order. The account may be owned by one or more persons. Some accounts require funds to be kept on deposit for a minimum length of time, while others permit unlimited access to funds. Earnings may be in the form of dividends, as in the case of a share type savings account, or interest as in the case of a deposit type account. Savings account loan -- a loan secured by funds on deposit in a savings account, normally maintained at the lending institution. Funds in the savings account equal to the amount of outstanding principal of the loan, may not be withdrawn. Savings & Community Bankers of America -- see America's Community Bankers. Savings and loan association -- an association of savers and borrowers formally established to accept deposits and make loans, primarily on residential real estate. An association may be Accounting Dictionary Page 135

organized as a mutual or a stock association. A mutual association is owned by its depositors and, in some cases, its borrowers. A stock association is owned by its shareholders. A savings and loan association may be chartered by a state or receive a federal charter from the Office of Thrift Supervision. Savings and loan associations are also called S&Ls, savings associations, building and loan associations, cooperative banks, or homestead societies. Savings association -- see savings and loan association. Savings Association Insurance Fund (SAIF) -- the fund that provides deposit insurance for savings institutions. SAIF was authorized by Congress in 1989 to take over the thrift deposit insurance role held by the former Federal Savings and Loan Insurance Corporation (FSLIC). SAIF is administered by the Federal Deposit Insurance Corporation (FDIC). Savings Association Trade Executive -- an organization made up of executives from state savings and loan trade associations. Savings bank -- a financial intermediary that accepts savings deposits and invests these funds in loans primarily for commercial and residential real estate, plus investments in government and high quality corporate bonds and blue chip stock. Savings banks may be state-or federally chartered and insured by the SAIF or the FDIC. In 1982, Congress removed all differences between federally chartered savings banks and federally chartered savings and loan associations as to the kinds of loans and investments they can make. Savings certificate -- a document that is evidence of ownership of a savings account, typically an account in which a stated amount of funds is deposited for a fixed term. Savings flow -- the net increase or decrease of the total of all savings account balances held by a savings institution during a specified period of time. Savings inflows -- the net increase over a period of time of the total of all savings account balances held by one institution or all balances held by a group of savings institutions. Savings institution -- a financial intermediary established to promote thrift by accepting savings from the public. Savings institutions include both savings and loan associations and savings banks. Savings institutions are also called thrift institutions. Savings liability -- the total amount of savings deposits entrusted to a depository institution by its depositors. It is the total amount of all savings account balances held by an institution, including earnings credited to such accounts, less redemptions and withdrawals. Accounting Dictionary Page 136

Savings outflows -- the net decrease over a period of time of the total of all savings account balances held by one institution or all balances held by a group of savings institutions. Sawbuck -- slang for a $10 bill. Scheduled items -- problem assets, which all SAIF-insured savings institutions must list in a separate
category in their financial reports to the Office of Thrift Supervision. Scheduled items include slow real estate and consumer loans, real estate owned as a result of foreclosure, and real estate sold on contract or financed at a loan-to-value ratio greater than normally permitted. The amount listed as scheduled items is one measurement of the soundness of an institution's portfolio.

Scoping an exam -- slang for planning the activities to be performed during a forthcoming examination of a savings association. The scope determines the areas to receive special attention, the procedures to be used and the depth of the review. In determining the scope, OTS staff considers: the institution's regulatory plan, prior examination reports, supervisory actions, correspondence, newspaper/magazine clippings, business plans, capital plans, audit reports, management letters, OTS financial analysis reports, SEC filings, and discussions with OTS and institution staff. Scratch -- slang for readily available money. Seasoned mortgage -- a mortgage that has been in effect at least one year and on which principal and interest payments are being made on time. Secondary mortgage market -- a market through which existing mortgage loans are bought and sold to other lenders, to government or private agencies, or to investors. Mortgage loans are originated to home buyers in the primary market and sold to investors in the secondary market. Second mortgage -- see junior mortgage. Section -- a parcel of land in a government survey comprising one square mile or 640 acres. Secured -- guaranteed as to full payment by the pledge of something of equal or better value. Secured loan -- a loan for which the borrower pledges collateral that will be forfeited to the lender if the borrower fails to repay the loan. Secured party -- the person or organization holding a security interest or lien against collateral. Also known as the mortgagee, the conditional seller, or the pledgee. Securities Act of 1933 -- federal legislation requiring the full and fair disclosure of all material information about the issuance of new securities. Accounting Dictionary Page 137

Securities Exchange Act of 1934 (SEA) -- federal legislation that established the Securities and Exchange Commission (SEC). The Office of Thrift Supervision administers the act's requirements for savings associations that are organized as stock corporations. Securities and Exchange Commission (SEC) -- a federal agency that regulates the securities exchanges and the over-the-counter markets, and works to protect investors from unfair and inequitable practices. The SEC administers the Securities Act of 1933, the Securities Exchange Act of 1934, the Trust Indenture Act, the Investment Company Act, and the Public Utility Holding Company Act. securities market -- a place or places where securities are bought and sold, the facilities and people engaged in such transactions, the demand for and availability of securities to be traded, and the willingness of buyers and sellers to reach agreement on sales. Securities markets include over-the-counter markets, the New York Stock Exchange, the Chicago Board of Trade and the American Stock Exchange. Securitization -- the process of gathering a group of debt obligations such as mortgages into a pool, and
then dividing that pool into portions that can be sold as securities in the secondary market.

Security -- (1) the collateral that is given, deposited, or pledged to guarantee an obligation or the payment of a debt. For example, the property on which a mortgage is issued is the security for the mortgage loan. (2) a financial instrument that provides evidence of a debt, or of rights to share in earnings or the distribution of property. Stocks and bonds are securities. (3) measures taken to protect property against theft or vandalism. Security agreement -- a document or section of a note that contains a description of the loan collateral. It establishes the lender's rights to the collateral in the event of default on the loan. Security deposit -- money paid by a renter to a landlord as security against abuse of the rented property. The deposit is returned to the renter when the renter leaves the property in good condition, except for normal wear and tear. Security instrument -- the mortgage or trust deed that is the evidence of the pledge of real estate as security, as distinguished from the note or other credit instrument. Security interest -- an enforceable claim to collateral pledged to secure payment of a debt or performance of an obligation.

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Security interest in household goods -- a clause in a loan contract giving a lender a nonpossessory lien on a borrower's personal property, including household goods. This credit practice was prohibited for savings institutions by federal regulation in 1985. Seed money -- funds required to start a development project, or to attract other capital investment. Seisin -- the act of taking possession of real estate by its rightful and lawful owner. Seizure -- the act of taking possession. Self-check -- (1) a check deposited in a financial institution for credit to the check writer's account. (2) a check presented for payment at the institution on which it was drawn. Self-liquidating -- the status of an asset that over a period of time returns the total amount of its cost. For example, a fully amortized mortgage is a lender's self-liquidating asset. Sellers market -- a market condition in which demand for a product or service exceeds available supply, resulting in higher prices favoring the seller. Opposite of buyer's market. seller-servicer -- an organization approved by the Federal Home Loan Mortgage Corporation (Freddie Mac) that sells mortgages into the secondary market and services mortgages by collecting and forwarding monthly payments, maintaining records and performing any other functions needed to keep the mortgage loans current. Selling group -- a syndicate of securities dealers that participates in selling an issue of securities to the public. Selling price -- the cash price that a buyer must pay for purchased goods or services. Selling short -- a technique employed by an investor who believes the market price of a security will drop. The investor borrows stock, which he then sells (even though he doesn't own it). If the price of the stock drops, the investor can buy the same stock for less than what he originally sold it for, and make a profit, after paying the brokerage commission for borrowing the stock. The investor must return a like number of shares of the borrowed stock to the stock lender. Senior mortgage -- a first mortgage. Senior securities -- preferred securities and bonds that receive higher priority for payment than common stock when a company is liquidated. Serial bond -- a bond issue in which a portion of the bonds are scheduled to be retired at regular intervals over a period of years. Serial bonds are issued when the underlying security for the

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bonds depreciates through use or obsolescence. The maturities of the bonds are scheduled so that at any time, the bonds still outstanding will not exceed the declining value of the security. Service bureau -- a business that rents computer time or sells data-processing services to savings institutions and other users. Service charge -- a fee imposed by a financial institution for a service, such as triggering an overdraft loan provision in a checking account. Service Corporation -- a corporation wholly owned by one or more savings institutions that engages in business activities reasonably related to a savings institution. All activities must be approved by the Office of Thrift Supervision, and can include some activities that the parent thrift may not engage in directly. Typical service corporation activities include: originating, holding, selling and servicing mortgages; performing appraisal, brokerage, clerical, escrow, and research services; and acquiring, developing, renovating or holding real estate for investment purposes. See operating subsidiary. Service life -- the anticipated duration of an asset's usefulness. Servicing -- see loan servicing. Servicing contract -- a document used in secondary mortgage market transactions that details servicing
requirements and legally binds the institution servicing the mortgage to carry out the requirements.

Setback lines -- lines on a plot drawing that delineate how close to the edges of the property a structure may be built. A structure may not extend past the setback lines, thus may be no closer to the perimeter of the property than the setback lines. Setback lines are defined in building codes, deed restrictions, and zoning regulations. Settlement -- the conclusion of a transaction when that which was bought is delivered to the buyer and payment is made to the seller. Settlement costs -- money paid by borrowers and/or sellers to effect the closing of a mortgage loan.
This normally includes an origination fee, discount points, title insurance premium, survey costs, attorney's fees, and prepaid items such as insurance and tax payments to the escrow account.

Settlement day -- the deadline by which the seller must deliver and the purchaser must pay for that which has been bought. Settling -- (1) the process of balancing in-coming drafts that are accepted, as well as returned checks that an institution receives and making payment for the drafts within the check-collection Accounting Dictionary Page 140

system. (2) the process of delivering and paying for items previously purchased. (3) an agreement reached between two or more parties in contention. (4) a property arrangement to
satisfy a dispute, as between a husband and wife. (5) the winding up and final distribution of an estate.

Settlor -- a person who makes a settlement or creates a trust of property. Also called a grantor. Severally -- separately, singly. For example, severally owned property is property owned by one person. Being severally responsible for debt means a person or organization is solely responsible for repayment of the obligation. Share -- a unit of stock of a corporation. Each share is equal to and has the same value as any other share of the same stock. Each share is a portion of ownership of the corporation. Shared-appreciation mortgage (SAM) -- a mortgage which gives the lender a portion of any future increase in the value of the mortgaged property when sold in return for a lower rate of interest to the borrower. Shared equity loan -- a loan in which the lender shares in the equity of the mortgaged property in return for a lower interest rate to the borrower. Shareholder -- someone who owns or holds shares of stock in a corporation such as a stock savings and loan association. Shares outstanding -- all shares of stock issued by a corporation, excluding treasury stock. Shave -- (1) to cut a price by a small margin. (2) Reducing the amount a seller receives by raising the charge for handing the sale of a low quality financial instrument. shelf registration -- the marketing procedure in which a company registers a large amount of securities with the Securities and Exchange Commission (SEC) at one time, and then sells them "off the shelf" in smaller batches as market conditions warrant. Sheriffs deed -- a deed given by court order to convey title to property that has been sold to satisfy a judgment of delinquent taxes. Short -- the activity of selling something prior to owning it. In securities markets, selling short means a trader sells a futures contract or makes a forward contract for the sale of a cash commodity or instrument without owning what is sold. The trader must then buy an identical amount in order to deliver what has been sold. The trader will make a profit in a market with
declining prices, since he will buy for a price less than the previous price at which he sold. See long.

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Short covering -- the buying of stock to use as a replacement for identical stock that was
previously borrowed and sold. The purchased stock may be used to repay the original stock lender.

Short position -- the status of a transaction in which an investor has sold stock that he or she borrowed but did not own at the time of sale. The position remains short until the investor actually buys stock in sufficient quantity in order to return the same amount of stock that was borrowed to the stock lender. See selling short. Short-term deposits -- deposits with a maturity of less than one year. sight draft -- a customer's order to a financial institution holding the customer's funds to pay all or part of them to another institution in which the customer has another account. The draft is payable upon delivery to the first institution, or "upon sight." Also called a customer draft. Signature card -- a form signed by a depositor upon opening an account at a financial institution. The card establishes the type of account ownership and sets forth the account terms and the obligations of the customer and the institution. Signature cards are used for subsequent
identification of the customer by comparing the customer's signature with the signature on the card.

Silver certificate -- a form of U. S. paper currency. The certificate is a receipt for a stated amount of silver in the U. S. Treasury, but the redemption privilege was revoked by Congress in 1968. Silver certificates were first issued in 1873. Simple interest -- interest that is calculated on the outstanding principal balance and not on any interest previously earned. See compound interest. Single entry -- a method of bookkeeping in which each transaction is entered only once on the account books. See double entry. Single-family dwelling -- a detached housing unit with open space on all sides. Sinking fund -- a fund used to accumulate the cash needed to pay off bonds or other debt instruments, or to pay for future replacement of plant and equipment. Site value -- the worth of raw land, without improvements. Situs -- Latin for a place or situation where a thing is located. For example, a home is the situs of the owner's personal property. Skip -- (1) to move with no forwarding address leaving a debt unpaid. (2) a person who skips. Skiptracing -- the work of collectors in developing information to locate delinquent debtors and collect payment. Accounting Dictionary Page 142

Skip-payment clause -- a provision of some mortgage contracts that allows the borrower to skip
monthly payments up to the amount of payments that have previously been paid ahead of schedule.

Sky lease -- a lease of air rights, or the right to build a structure that, except for its supports, is constructed above a plane over a specified property. slow consumer credit -- Office of Thrift Supervision regulations define slow consumer credit as closed-end consumer credit accounts 90 to 119 days delinquent, and open-end consumer credit accounts delinquent 90 to 179 days. Slow loan -- a loan for which payments have fallen behind schedule. Such delinquent loans must be reported to federal regulators. Office of Thrift Supervision regulations spell out what constitutes a slow loan in terms of the loan's age and how long it has been delinquent. Loans less than one year old are slow when 60 days delinquent; those between one and seven years old are slow when 90 days delinquent, etc. Small Business Administration (SBA) -- a federal government agency that makes, guarantees
and purchases participations in loan to small wholesale, retail, service and manufacturing businesses.

Small saver certificate -- a general term for a fixed-rate savings account with a minimum maturity of 18 months, but no minimum deposit. New issues have an interest rate tied to the average yield on comparable Treasury securities. Solvency -- the condition that exists when liabilities amount to less than total assets, thus providing the ability to pay debts. Solvent -- the state of being able to meet expenses and pay debts. Source document -- the original record of a transaction or an event. Sources and uses of funds statement -- a thrift industry statement that shows the cash flow between balance sheet accounts in a given reporting period. Special assessment -- a property tax levied for a specified improvement only on those properties directly benefiting from the improvement. Special assessments are used to pay for such improvements as sewers, water systems, street repairs and street lights. Also called an improvement lien. Special assessment district -- any geographic area over which a governing authority has power to levy taxes for specific public uses. Examples include: school districts, water and sewer districts and lighting districts. Accounting Dictionary Page 143

special mention -- a designation used by OTS examiners for thrift institution assets that do not currently expose the institution to enough risk to warrant adverse classification, but do possess credit deficiencies or potential weaknesses deserving management's close attention. Special mention assets have a potential weakness or pose an unwarranted financial risk that, if not corrected, could weaken the asset and increase risk in the future. See criticized assets. Special series program -- a program of the Federal Home Loan Banks in which an advance to one member thrift institution is matched in amount and term to a certificate of deposit placed with the Bank by another member institution. Specie -- coined money. Specific valuation allowance -- a reserve held against specific assets classified as loss. See general valuation allowance and valuation allowance. Specification code -- see prescriptive code. Speculation -- the act of knowingly investing funds in a venture carrying higher-than-average risks in the hope of making above-average profits. Speculators expect to make a profit because of price changes. Spendthrift provision -- conditions written into a trust instrument that are designed to prevent the beneficiary from spending income from the trust extravagantly or wastefully. Spendthrift provisions limit the right of the beneficiary in disposing of his or her interest in the trust, such as by assignment, and limit the right of creditors to reach it, such as by attachment. Spin off -- the separation of a subsidiary or division of a corporation from its parent by making it a new corporate entity and by issuing shares in the new entity. Shareholders in the parent receive shares in the new entity in proportion to their original holding and the total value remains approximately the same. Split -- the division of the outstanding shares of stock in a corporation into a larger number of shares. For example, a three-for-one split would result in each shareholder receiving three shares for every old share held. The split merely increases the number of shares issued, and does not immediately alter the total capital of the company, nor each stockholder's proportionate equity in the company. Split-rate account -- a savings account that pays higher rates of interest for higher account balances. Spot delivery -- immediate delivery. Accounting Dictionary Page 144

Spot market -- see cash market. Spot zoning -- zoning that does not fit any predetermined pattern of land use. Spousal IRA -- an Individual Retirement Account (IRA) established by a working spouse for his or her non-working spouse. Spousal IRAs were created by the Tax Reform Act of 1976. Spread -- (1) the difference between the interest rate at which money can be lent (the return on investments), and the rate at which money can be borrowed (the cost of funds). (2) the difference between two related prices. (3) the difference between the bid and asked prices of securities. Squatter -- someone who illegally occupies another's property. Stale-dated check -- a check payable on demand that remains uncashed for an unreasonable length of time after its issue. Standard Metropolitan Statistical Area (SMSA) -- one or more cities or counties designated by the Department of Commerce as an integrated economic and social unit with a large population nucleus. Standard program -- a program in which the Federal Home Mortgage Corporation purchases mortgages for cash. Standby commitment -- a promise by a lender to lend a specified amount of money at specified terms at a future date. The borrower has the right to cancel the loan. In the secondary mortgage market, the term refers to a promise to purchase a loan or loans under specified terms, with the seller retaining the option to cancel. standby letter of credit -- a guaranty issued by a Federal Home Loan Bank on behalf of a member thrift institution wishing to enter into an interest rate swap agreement on its own. If the member institution defaults on its swap contract, the standby letter of credit obligates the District Bank either to pay a stated amount to the counterparty or to assume the swap obligation of the member institution. Starts -- residential units on which construction has begun. See housing start. State-chartered association -- a savings institution that has received its operating charter from a state regulatory authority. Statement -- a written record prepared by a financial institution, usually once a month, listing all transactions for an account, including deposits, withdrawals, checks, electronic transfers, fees and
other charges, and interest credited or earned. The statement is usually mailed to the customer.

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Statement of changes in financial position -- a financial statement that outlines the sources and uses of funds and explains any changes in cash or working capital. Statement of condition -- a statement of the amount and type of assets and liabilities of an organization at the close of business on a given date; also called a balance sheet. Statement of financial accounting standards (SFAS) -- an accounting rule or procedure issued by the Financial Accounting Standards Board. Statement of operations -- a summary of an organization's financial operations during a specified period, showing income and its allocation to operating expenses, payment of earnings, and additions to reserves. Statement savings -- a type of savings account in which the customer's record of account activity is contained in statements mailed to the customer each month (or at some other stated interval). The statement lists all account action -- deposits, withdrawals, interest postings and fees -- occurring within a specified period. Statute -- a law enacted by a legislature. step-up bond -- a bond that pays the investor an initial above-market yield for a short, noncall period and then, if not called, steps up to a predetermined higher coupon rate. The bond may include a series of step-up rates and is callable at every step-up date. For example, the initial rate may be 5 percent, increasing to 6 percent after two years, and 7 percent after four years. The bond is designed to protect the issuer against falling market interest rates. If interest rates fall, the issuer can call the bond. If interest rates rise to levels equal to or higher than the step-up rate, the issuer would likely not call the bond. A step-up bond is a type of structured note. Stock -- (1) shares of ownership in a corporation. (2) the capital raised by the sale of shares. (3) a certificate that shows ownership of a stated number of shares. Stock association -- a savings and loan association that sells stock to raise capital. It is owned by those who buy its stock, called shareholders, and they may share in profits earned by the association. See mutual association. Stockbroker -- a person who serves as a middleman and, for a fee, facilitates the transactions between buyers and sellers of stock.

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Stock certificate -- a document that constitutes written evidence of ownership of a company's shares. The certificate lists the number of shares registered in the name of the owner, the corporation issuing the shares, and whether the stock is sold at par value or at market prices. Stock dividend -- a portion of the net earnings of a corporation paid to the corporation's
stockholders of record, with the payment consisting of additional shares of stock rather than cash.

Stock exchange -- an organization that provides a market for trading stocks and bonds. Stockholder -- the owner of one or more shares of stock representing some degree of ownership of a corporation. Stock split -- see split. Stock split-down -- the reverse of a stock split. The total number of shares outstanding is lowered by issuing a new stock share to replace each of two or more shares presently in circulation, thus increasing the market value of the new shares. Also called a reverse stock split. Stop payment order -- an order by a customer instructing a financial institution to refuse payment when presented with a specific draft or check written by the customer. Story -- the part of a building included between two floors. Straight-line depreciation -- the amortization of an asset's cost into uniform, periodic amounts of expense during the asset's useful life. Striking price -- the fixed price at which a security can be purchased in a call contract or sold in a put contract. Also called the exercise price. Stripped mortgage-backed securities -- mortgage pass-through securities in which the cash flow from the underlying mortgages is separated. All principal is diverted into securities that pay only principal back to the investors, while all interest is diverted into securities that pay only interest. The interest-only (IO) and principal-only (PO) securities are used as hedging tools to provide greater stability for mortgage portfolios during periods of fluctuating interest rates. Structured notes -- debt securities which have many of the same characteristics as derivatives but which are generally not backed by mortgages or other collateral. They take various forms and often contain complex rate-adjustment formulas and embedded options including calls, caps, and collars. The notes are often customized to meet the needs of a particular investor. Types of structured notes include: step-up bonds, index amortizing notes, dual index notes, de-leveraged bonds, range bonds and inverse floaters. Structured notes are issued by corporations and Accounting Dictionary Page 147

government sponsored entities such as the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Federal Home Loan Banks. Student Loan Marketing Association (Sallie Mae) -- a federal government-sponsored private corporation created to increase the flow of funds into student loans by facilitating the purchase of student loans in the secondary market. It is commonly called Sallie Mae. Subcontractor -- a person or company under contract to perform work for a developer or a general contractor. Subdivision -- land divided into several parcels, usually intended for development and individual resale. Sublease -- a lease executed by a leasee to a third person granting use of the leased property for the payment of rent for a period of time no longer than the original lease. Subordinated debt -- borrowing in the form of an unsecured note, debenture, or other debt instrument, which in the event of the debtor's bankruptcy, has a lesser claim to the assets of the debtor than other classes of debt. Subordination clause -- a mortgage clause that makes other debts or rights in the collateral real estate secondary to the claim of the mortgage lender. Subrogation -- the substitution of one person for another in reference to a debt, claim or right. Subscribe -- (1) to buy or pledge to buy an investment, such as stock or a deposit, in a savings institution. (2) to sign or mark a document to signify approval of its contents. Subscriber -- a person who promises in writing to purchase a certain number of shares of stock of a specified corporation, or to deposit a certain amount of funds in a mutual savings institution. Subscription -- a written agreement to purchase that which is offered. Subsidiary -- an organization controlled by another organization or company. Subsidize -- to furnish financial aid for a specific purpose. The government subsidizes housing in a number of ways including low-interest loans, rent assistance payments and the income tax deduction for mortgage interest payments. Substandard -- one of the categories of classified assets. See classification of assets. Suburb -- a residential area near a city; the area has an identifiable character and name, but is not necessarily incorporated. Sum-of-the-digits depreciation -- a method of calculating the depreciation of residential property authorized by the 1969 Tax Reform Act. For example, assuming a structure has 20 Accounting Dictionary Page 148

useful

years,

its

number

of

useful

life-years

would

be

calculated

by

adding:

1+2+3+4+5+6+7+8+9+10+11+12+13+14+15+16+17+18+19+20=210 years. This becomes the denominator in the calculation of the depreciation value in any given year. The numerator is the number of years remaining in the useful life of the property; in the first year this would be 20, in the second year 19, etc. Thus, the formula for establishing the deprecation value in the first year would be 20/210 times the depreciation base. Sunset -- termination of an entity or activity at the end of a stated period of time. Sunshine Act -- a 1976 federal law called Government in the Sunshine Act that requires (1) most meetings of most federal agencies shall be open to the public and (2) the fullest practical disclosure to the public of the government decision making process. Superstructure -- the portion of a building above the ground or above its foundation. Super NOW account -- a variation of the negotiable order of withdrawal (NOW) account. With a Super NOW account the offering financial institution sets a higher interest rate if the account balance is maintained above a specified minimum. If the balance drops below the minimum, the account earns the same rate as the institution pays on regular NOW accounts. Supervised lender -- a Veterans Administration classification meaning any lender subject to examination and supervision by a state or federal agency. Supervisory agent -- a title no longer officially in use. Prior to the regulatory reorganization of October 1989, the title referred to an official at one of the Federal Home Loan Banks who had lawful authority delegated by the former Federal Home Loan Bank Board to carry out the enforcement of laws and regulations dealing with the operation of savings institutions. The president of each District Bank was traditionally designated the district's principal supervisory agent. In October 1989, the supervisory agents became employees of the Office of Thrift Supervision and now have various titles including assistant deputy district director, assistant director, and supervisory examiner. Supervisory agreement -- a formal, written agreement between the board of directors of a savings institution and the Office of Thrift Supervision. The provisions of the agreement may require the institution to cease any statutory or regulatory violations or unsafe or unsound practice, and the agreement may require affirmative corrective action by the institution to correct any existing violations, management or operational deficiencies, or other unsound practices. Accounting Dictionary Page 149

Violation of a supervisory agreement is cause for the Office of Thrift Supervision to initiate cease and desist proceedings against the institution or against an officer, board member or employee of the institution. See consent merger agreement. Supervisory conversion -- the conversion of a savings institution from a mutual form of ownership to stock ownership, with the conversion arranged by the Office of Thrift Supervision. A supervisory conversion is normally used when OTS, as the thrift's supervisor, has arranged the sale of a troubled institution to new owners. Unlike a normal conversion, a supervisory conversion does not require that the new capital stock be first offered for sale to the institutions depositors and borrowers. All of the new stock is acquired by the thrift's new owners. Supervisory goodwill -- goodwill that is created when the purchase of a savings institution is arranged by its federal regulator. See goodwill. Supervisory merger -- a consolidation of savings institutions arranged by the Office of Thrift
Supervision in which a weak institution that is at or close to insolvency is merged into a strong institution.

Surcharge -- an additional charge imposed for a specific service, product or purpose. Surety bond -- a guarantee by which a third party (the guarantor) is bound to assume responsibility for the completion of a project or the performance of contracted acts if the second party (the contractor) defaults. Surplus -- (1) that which is over and above, or in addition to the required amount. (2) a mutual savings institution's retained earnings after payments to savers and additions to reserves. In a stock institution, these funds are called undivided profits. Survey -- (1) a detailed inspection or investigation. (2) the act of making a comprehensive inspection. (3) a map-like document that shows the exact boundaries of a property, including lot lines and placement of roads, buildings and other improvements on the property. Survey of savings capital -- a report on savings accounts, generally grouped by the rate of interest paid, or by type of account. Swap -- (1) a technique of the Federal Home Loan Mortgage Corporation by which original lenders exchange the mortgages they have made for Freddie Mac Participation Certificates (PCs), which provide the lender with ownership interests in the same mortgages. Freddie Mac refers to the transaction as the Guarantor Program, because the corporation adds its own guarantees to the safety of the mortgage investment. (2) a financial transaction in which two Accounting Dictionary Page 150

counterparties agree to exchange streams of payments over a period of time according to a predetermined rule. For example, the counterparties may swap interest payments, with each paying the other's interest on the same amount of principal. Usually a fixed rate interest obligation is swapped for a floating rate interest obligation, so that both parties can match the form of interest they owe on their debts with the form of interest income they expect to receive on their assets -- fixed with fixed, or floating with floating. Or, the counterparties may swap payments in one denomination of currency for payments in another country's currency. Both interest rate swaps and currency swaps are designed to lessen market exposure of paying off debt in an environment of potentially changing interest rates. Sweat equity -- the investment of labor, in lieu of cash, by the owner-occupant of a property. Such labor creates improvements that increase the market value of the property, and thus the owner-occupant's equity. Sweep -- an arrangement to maximize the interest earned by a customer who has both a highinterest rate account and a low- or no-interest account at the same financial institution. Funds not being immediately used in the low-interest account are automatically transferred (swept) to the high-interest account, where they remain until the balance in the low-interest account drops below a certain minimum and the funds are transferred back to the first account. The funds may be swept to the high-interest account overnight, or for longer periods of time. Syndicate -- (1) a temporary association of two or more persons formed to carry out some specific business venture, such as the development of large-scale real estate projects. (2) a group of securities dealers who work together to distribute a new issue of securities. Syndicated loan -- a loan advanced jointly by two or more financial institutions.

T
Takedown -- the actual transfer of money from a lender to a borrower under a loan agreement, loan commitment, or line of credit. Takeout commitment -- a promise by a lender to provide a long-term mortgage loan upon satisfactory completion of construction. Takeout loan -- a permanent loan on real property, which takes out the interim, construction loan.

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Tandem plan -- a program in which the Government National Mortgage Association (GNMA) buys certain mortgages at a subsidized price for subsequent resale at market prices to the Federal
Home Loan Mortgage Corporation (FHLMC) or the Federal National Mortgage Association (FNMA).

Tangible assets -- physical and material assets that have shape and form, and can be touched. Examples are cash, land, and buildings. Tangible capital -- OTS defines a thrift institution's tangible capital as outstanding stock plus retained earnings. In 1989, OTS set the minimum tangible capital requirement for savings institutions at 1.5 percent of assets. See core capital and risk-based capital. Tangible equity -- the amount of a savings association's core capital plus the amount of outstanding cumulative perpetual preferred stock minus all intangible assets not previously deducted except purchased mortgage servicing rights that may be included in core capital and qualifying supervisory goodwill that can be counted as core capital. Tangible net worth -- same as tangible capital. See tangible capital. Targeted examination -- an examination that focuses on specific areas of a financial institution's operations. Tax abatement -- a reduction of taxes or an exemption from taxes granted by a local government on a piece of real property for a specified length of time. Taxable year -- the 12-month period used as the basis for calculating federal tax on income received during that time period. Also called the tax year. Tax deed -- a deed on property issued when the property is purchased at a public sale for nonpayment of taxes. Tax-deferred annuity -- an investment vehicle generally used to create income for retirement. Pretax dollars are invested by an employer for an employee to provide a future stream of income to the employee for either a fixed number of years, or for life. Federal income tax on the pretax
dollars invested and on the interest they earn is postponed until the retirement income is received.

Tax-deferred income -- income which is subject to tax when earned, but for which the actual tax payment is postponed until a later time. Tax-deferred investment -- an investment that is subject to tax, but on which the actual tax payment is postponed until a later time. Normally, the payment is delayed until a person is in a lower tax bracket, thus reducing the tax liability. Accounting Dictionary Page 152

Tax escalation clause -- a provision in a lease for the tenant to pay for any increase in real estate taxes imposed on the leased property. Tax-exempt -- the state of an investment that produces income not subject to federal and/or state income tax. For example, tax-exempt bonds are sold by local governments to finance such public projects as sewers, school construction and parks. Tax lien -- a government claim against real property for unpaid taxes. Tax participation clause -- a provision in a lease stipulating that the tenant will pay all or part of the real estate taxes on the leased property. Also called a tax stop clause. Tax sale -- the sale of property by a taxing authority or an officer of the court acting on a judgment to satisfy the payment of delinquent taxes. Tax-sheltered income -- all income which is exempt from taxation or on which taxes are deferred. Tax sheltering -- any legal means of postponing or reducing the amount of tax due. Tax stop clause -- see tax participation clause. Teaser rate -- an initial, below-market interest rate offered on loans. After the initial time period, the permanent rate takes effect. Teller -- an employee of a depository institution who waits on customers, usually from behind a counter or some other partition. Tellers accept deposits, provide cash or checks for withdrawals, and perform most other routine customer services involving transfers of funds. Tellers check -- a check drawn by a depository institution on an account maintained at a second depository institution and signed by a teller at the originating institution. Teller's checks are often used in payment of withdrawal orders. Tenancy -- the holding of property (including real estate and deposit accounts) either by ownership or by lease. Tenancy at will -- the lease of real estate that may be canceled at the will of either the landlord or the tenant, usually with notice. Tenancy by the entirety -- a form of ownership by a husband and wife, recognized in some states, in which one may not act without the other's consent in matters affecting property. When one dies, the rights of the deceased spouse automatically pass to the survivor. See tenancy in common, and joint tenancy.

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Tenancy in common -- a form of ownership in which two or more parties own property, with each owning a separate interest. When one owner dies, that owner's share passes to his or her heirs and not to the remaining owners. When ownership of a deposit account is established as tenancy in common, the signatures of all owners are necessary for a withdrawal. See joint tenancy and tenancy by the entirety. Tenant -- a person or organization that has the temporary use and right of occupancy of real property owned by another. Tender offer -- a public offer to buy shares of stock from existing stockholders of one public corporation by another company or other organization under specified terms good for a stated time period. The offer is for stockholders to "tender" (surrender) their holdings for a stated price, usually at a premium above the current market price. The offer is made subject to the buyer being able to obtain at least a minimum number and no more than a maximum number of shares. Term -- the period of time established to repay a loan or redeem a security. Term deposit -- funds deposited in a savings account, the terms of which impose a financial penalty if funds are withdrawn before a specified date. Term loan -- a loan with a maturity of usually three to five years, during which time interest is paid, but no payments to reduce principal are made. The entire principal is due and payable at the end of the loan term. Term mortgage -- a mortgage loan with a fixed time period, usually five years or less, during which only interest is paid. At the end of the term, the entire principal is due and payable. Terms -- the details, specifications, obligations, requirements, and conditions of an agreement, or contract. Testament -- the written declaration of an individual citing how he or she wishes his or her property to be disposed following his or her death. Testamentary account -- deposited funds owned and controlled by an individual and invested in a revocable trust account, tentative or Totten trust account, payable-on-death account, or a similar account for which there is evidence of the intention that deposited funds will be paid to a named party at the time of the account owner's death. Testate -- the status of having signed and left a legal will at the time of death.

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Testator -- a male who has set forth in a will his desires and bequests for the distribution of his property when he dies. Testatrix -- a female who has set forth in a will her desires and bequests for the distribution of her property when she dies. Three-flat -- a three-story walk up apartment building in which each dwelling unit occupies one story and all share a common main entrance. Thrift -- another term for a thrift institutions. Thrift Administration Review Program (TARP) -- an OTS program to help savings
associations improve their books, records and loan files and to implement better internal controls.

Thrift bulletin -- a directive issued by the Office of Thrift Supervision to thrift institutions providing clarification of regulations or laws and/or specifying guidelines and procedures. The thrift bulletin series and the regulatory bulletin series are successors to the previous R, T, SP, and AB memoranda issued by the former Federal Home Loan Bank Board. Thrift Depositor Protection Oversight Board (TDPOB) -- a government agency that provides guidance to the Resolution Trust Corporation (RTC). The TDPOB was formerly the Resolution Trust Corporation Oversight Board. It was renamed and reorganized by the Resolution Trust Corporation Refinancing, Restructuring, and Improvement Act of 1991. Thrift financial report (TFR) -- the report that savings institutions must file each quarter with the Office of Thrift Supervision. The report includes detailed information about the institution's operations and financial condition. The thrift financial report for savings institutions is similar to the call report required of commercial banks. Thrift industry -- all of the operating financial institutions that primarily accept deposits from individual savers and loan funds for home mortgages. These include savings and loan associations, savings banks and credit unions. Thrift Information Exchange System (TIES) -- a computer data base used by Office of Thrift Supervision staff to access information on individual savings associations and various segments of the thrift industry. Thrift institution -- the general term for savings banks, savings and loan associations, and credit unions. Tick -- a small fluctuation in price, either up or down. Accounting Dictionary Page 155

Tier 1 capital -- as defined by OTS' Prompt Corrective Action regulation, tier 1 capital is the same as core capital. Tier 1 risk-based capital ratio -- the ratio of tier 1 capital to risk-weighted assets. Time Activity Reporting System (TARS) -- the agency-wide computer program used to keep track of hours worked by OTS employees. Time deposit -- a deposit of funds in a savings institution under an agreement stipulating that (a) the funds must be kept on deposit for a stated period of time, or (b) the institution may require a minimum period of notification before a withdrawal is made. Time sharing -- a form of real property ownership that grants each of several owners the exclusive right to occupy a housing unit during a specified time period each year. Title -- (1) the ownership right to property, including the right of possession. (2) the document or instrument constituting evidence of such an ownership right. See abstract of title. Title binder -- a written evidence of temporary title insurance coverage in force for a limited period of time, which is to be replaced by a permanent policy. Title Company -- a business firm that examines real property titles, reports its findings as to the legal status of such titles, and issues insurance policies to indemnify the owner and lender against financial loss resulting from unknown title defects or prior claims against the property. Title defect -- any fact, circumstance or lawful right that could successfully claim all or part of a property or could challenge the ownership of the property. Title insurance -- the insurance that protects both the lender and the homeowner (borrower) against loss resulting from any defects in the title or claims against a property that were not uncovered in the title search, and that are not specifically listed as exemptions to the coverage on the title insurance policy. Title report -- a written statement by a title guarantee company that sets forth the condition of title to a specified piece of real estate as of a certain date. Title search -- a review of public records to determine whether there are any claims or defects in the current owner's title to real estate. torrens system -- a method of registration of title to land with the appropriate public office, by which an official certificate at the office always shows the condition of the title and the person in whom it is vested. Accounting Dictionary Page 156

Tort -- a wrongful act committed against another person or against another person's property, for which the injured party is entitled to compensation. Tortfeasor -- a person who commits a tort. Totten trust account -- a trust account established without a written trust agreement. The trustee deposits his or her own money into the account. The trustee retains ownership of the account, but holds it in a revocable trust for a named beneficiary. Upon the death of the trustee/depositor, the balance in the account may be claimed by the beneficiary. Town house -- a low-rise, single-family dwelling, attached to one or more similar dwellings by common walls, and having a separate entrance. Township -- a legal description of land established by the government survey system, six miles square, containing 36 sections or 36 square miles or 23,040 acres. Tract -- an area of land designated for a specified purpose or a specified development. tract house -- a house located in a subdivision in which style, floor plan, color, design, and price are repeated in various structures within the development. Trade -- the consummation of the purchase or sale of a security. Trade date -- the date a security transaction is executed. Trader -- an individual who buys and sells securities for his or her own account for short-term profit (loss). The term also refers to an employee of a broker, dealer or financial institution who buys and sells securities for the firm or its clients. Trading account -- a group of securities that are purchased with the express intent of selling them prior to their maturity. Tranche -- one of the classes, portions or segments of a bond or mortgage-backed security, such as a Collateralized Mortgage Obligation (CMO). Each tranche normally offers different terms, usually involving the length of time it takes for principal to be repaid to investors. With this type of security, all payments of principal from the underlying mortgages are diverted initially to the first tranche. When all principal has been repaid in the first tranche, payments of principal begin to the second tranche and, after the second tranche is retired, the payments continue in turn to the rest of the tranches, like a series of steps, until investors in the last tranche have been repaid. By selecting a particular tranche, investors choose whether they want their funds repaid quickly or whether they want to lock in their investment for a longer period of time. In another meaning, Accounting Dictionary Page 157

tranche also refers to a portion of a bond that is distributed in another geographic area, such as a foreign country. Transaction -- (1) any agreement between two or more parties that establishes a legal obligation. (2) the act of carrying out such an obligation. (3) all activities that effect a deposit account that are performed at the request of the account holder. (4) All events that cause some change in the assets, liabilities or net worth of a business. Transaction account -- any account from which funds may be transferred to a third party on demand of the account holder. Included are demand deposit (checking) accounts, negotiable order of withdrawal (NOW) accounts, automatic transfer (bill paying) accounts, and credit union share draft accounts, Transfer agent -- a company that issues, registers, and redeems securities on behalf of the security issuer. Transfer and stamp taxes -- the taxes paid to a local or state government in connection with the execution or recording of mortgages or other financial instruments. Transit number -- see ABA number. Travelers check -- a type of check designed especially for business or vacation travelers. The traveler pays for the checks in advance. Thus the check is an order from the issuing company to pay on demand. Traveler's checks are issued in various fixed denominations, may be cashed almost anywhere in the world, and are insured against loss, theft, or destruction. Treasury bill (T-bill) -- a short-term debt obligation issued by the U. S. Treasury at a discount under competitive bidding, with a maturity of up to one year. The bills are issued payable to the bearer only, and are sold at a minimum face value of $10,000. Treasury bond -- a federal government debt obligation, ordinarily payable to the bearer, that is issued at par, with maturities of more than five years, and with interest payable semiannually. Treasury certificate -- a U. S. Treasury security usually issued at par with a specified rate of interest and a maturity of one year or less. It is issued payable to the bearer and sold in minimum amounts of $l, OO0. Treasury note -- a debt obligation of the U. S. Treasury, usually issued payable to the bearer with a fixed maturity of not less than one year nor more than seven years. It is issued at par, with a specific interest return payable semiannually. Accounting Dictionary Page 158

Treasury securities -- interest-bearing debt obligations of the U. S. government that are issued by the Treasury as a means of borrowing money to meet government expenditures not covered by tax revenues. Marketable Treasury securities include bills, notes, and bonds. See Treasury bill, Treasury note, and Treasury bond. Treasury stock -- shares of stock previously issued by a corporation that have been reacquired by that corporation by purchase, gift, donation, inheritance or other means. Tri-party agreement -- see buy-sell agreement Triplex -- a low-rise building comprised of three dwelling units, each with a separate entrance and yard, but sharing some common walls. Truncation -- the arrangement under which a financial institution does not return canceled checks or drafts to the account holder. Instead, the checks or drafts are microfilmed and the microfilm becomes the record if the customer requests a copy of the check or draft. Trust -- a legal entity created to manage property for the benefit of a specific person or persons. A trust is funded when the owner (the grantor) transfers ownership of property to another (the trustee) for the immediate or eventual benefit of a third person, (the beneficiary). The person who creates a trust is called a grantor, settlor or trustor. The person designated to receive assets at the end of the trust term is called a remainderman. Trust account -- (1) a savings account, established under a trust agreement, containing funds administered by a trustee for the benefit of another person or persons. (2) an escrow account. Trust agreement -- a written agreement under which a grantor transfers legal ownership of property to another person or organization charged with administering the property for the benefit of a third person or persons. See deed of trust. Trust deed -- see deed of trust. Trustee -- (1) a person to whom the title of property has been conveyed for the immediate or eventual benefit of another. (2) the legal title holder and controller of funds in a trust account established under a trust agreement for the benefit of another. Trust fund -- an amount of capital which a person (the trustor) places in custody of a trustee to be administered for the benefit of another (the beneficiary). Trust indenture -- see deed of trust.

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Trustor -- an individual who establishes a trust by giving property to a trustee for the benefit of another. Also called a settlor. Truth-In-Lending -- the popular name for the Consumer Credit Protection Act (Regulation Z), which requires lenders to disclose to borrowers the cost of financing during the life of the loan. Turnkey project -- a project in which a builder/developer contracts to construct a completed facility that includes all items necessary for use and occupancy. All that is required of the buyer to begin using the facility is to turn a key in the new door lock and enter.

U
Uncollected funds -- funds that have been deposited in an account by means of a check drawn on another institution that has not yet paid the check. Underwater loan -- a loan that, if sold, would be worth less than its current book value. Loans "sink" underwater because: (1) payments are delinquent, or (2) the loan's interest rate is below current market rates for similar loans of similar maturity, or (3) the collateral of a delinquent loan has decreased in value below the amount of outstanding principal. Underwrite -- (1) to sign one's name at the end of a document, thus signifying agreement or concurrence with the contents of the document. (2) to assume risk and liability for specified events in return for a fee. An insurance company, by signing a policy, becomes the policy's underwriter, thereby assuming the risk of being liable for losses if events specified in the policy occur. (3) in mortgage lending, the act of assessing the risk of a loan and matching it to an appropriate rate of interest and term. (4) to guarantee the sale of a new issue of securities, usually by a securities dealer or a syndicate of dealers. Undivided interest -- a complete or partial ownership of all parts of a whole. For example, an undivided interest in a pool of mortgages means the ownership or rights to a certain percent of each and every mortgage in the pool. Unearned income -- (1) income that has been collected in advance of the performance of a contract. (2) Income that is derived from investments, such as dividends, property rentals, and other sources not involving the individual's direct personal efforts. Unearned interest -- interest on a loan that has already been collected but has not yet been earned because the principal has not been in the hands of the borrower long enough. Unencumbered property -- property that is fee and clear of debts or liens. Accounting Dictionary Page 160

Uniform Commercial Code -- a set of business-related laws dealing with the sale of goods, their transportation and delivery, financing, storage, payments, and various other commercial transactions. These model laws have been adopted, with minor modifications, by most states to provide some consistency among states' commercial laws. They were drafted by the National Conference of Commissioners on Uniform State Laws. Uniform Gift to Minors Act -- a law in most states that sets forth provisions for giving a minor an intangible gift, such as a savings account, stocks or bonds. The giver (usually a parent) serves as custodian with direct control over the gift. For example, the custodian can sell the gift for the benefit of the child, as long as proceeds are reinvested and the minor receives all gains and income from the gift. Once established, the giver/custodian may not take back the gift. Income from the gift, such as interest from a savings account, is reported and taxed under the name of the minor, at the minor's usually low tax rates. Uniform settlement statement -- a form that lists all charges imposed on the borrower and the seller in connection with a home mortgage loan settlement. The Real Estate Settlement Procedures Act requires that the lender make the statement available to the buyer and seller at the time of settlement. Uniform Standards of Professional Appraisal Practice (USPAP) -- rules used in appraising the value of property. The standards are promulgated by the Appraisal Standards Board of the Appraisal Foundation. Uniform Thrift Performance Report (UTPR) -- OTS' national financial monitoring report used by OTS examiners and analysts to monitor and analyze the activities, condition and performance of individual thrift institutions. The UTPR is also used to focus examiner efforts for on-site examinations of thrifts. First developed in 1992, the detailed UTPR tracks a savings association's financial information over a three-year period. OTS computers produce a UTPR for each savings institution, using data submitted by savings associations in their quarterly Thrift Financial Reports. A UTPR report compares a thrift institution to other peer group associations using percentile ranks and medians, and identifies trends. Unimproved land -- land in its natural state with no man-made changes in its appearance. United States League of Savings Institutions -- a former national organization representing the thrift industry. It was founded in 1892 in Chicago. The U.S. League merged on June 1, 1992 with Accounting Dictionary Page 161

the National Council of Community Bankers to form the Savings & Community Bankers of America. Its name was changed to America's Community Bankers on January 29, 1995. Unlisted security -- a security that is not listed on any stock exchange, and thus is traded overthe-counter. Unrealized profits -- paper profits that do not become actual profits until the asset producing the profit is sold or redeemed. Unsecured credit -- credit extended on the borrower's promise to repay the debt, and for which collateral is not required. Unsecured debt -- an obligation, generally a loan, not backed by a pledge of assets. Urban area -- according to the U. S. Bureau of the Census, any community with a population of 2,500 or more, whether incorporated or not. Urban renewal -- the redevelopment or rehabilitation of real property in a city, usually as the result of a cooperative effort by private developers and local government. Usury -- interest charges that are higher than allowed by law.

V
VA -- see Veteran's Administration. Vacancy factor -- a measurement of gross rental income loss due to vacancy and non-collection of rent. The rate is expressed as a percentage, and is calculated by dividing lost rental income (from vacancy and non-collection) into total potential gross rental income (including income from other rental units and the lost income). Vacancy rate -- the percentage of housing units that are unoccupied. Validation -- proof, confirmation, or evidence to confirm or legally support a claim or contract. Valuation -- an estimated value or worth of something. Valuation allowance (or valuation reserve) -- funds in an account established to cover probable loan losses. If a savings association believes a loan is uncollectible, it sets aside in the reserve account a portion of earnings equal to the difference between unpaid principal and the market value of the loan. If the loan is charged off as worthless, the institution writes down the loan portfolio and the reserve account by equal amounts. See specific valuation allowance and general valuation allowance.

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Value -- the monetary worth of property, goods or services. See fair market value, fair value, and net realizable value. Variable rate certificate -- a certificate savings account on which the interest rate varies during the term of the deposit according to a predetermined schedule, formula, or index. Variable rate mortgage -- see adjustable rate mortgage. Variance -- permission from an appropriate governing agency to not conform to specific construction codes, zoning regulations, or other prescribed restrictions concerning property use. Vault -- a secure room or rooms in a financial institution where cash on hand is stored and safe deposit boxes are located. Velocity -- (1) the rate at which money flows from one transaction to another. The number of times money changes hands in a given time period. (2) the rate at which total money in circulation is spent on goods and services in a given time period (usually measured as the ratio of GNP to the money stock). Greater velocity thus means that a given amount of money is used for a higher dollar volume of transactions. Vend -- to sell, or offer to sell, something. Vendee -- a buyer of property, goods or services. Vendor -- a seller of property, goods, or services. Vendors lien -- the right of a seller who has not yet been paid to take back possession of sold property until its purchase price has been received from the buyer. Venue -- the place where a suit or charge is brought to court, generally the place or jurisdiction where the alleged wrong was committed. Vest -- (1) to confer the right of immediate or future possession and use of property. (2) a designation of ownership or possession of property. For example: a title is said to vest in John Doakes. (3) a designation of the endowment of rights, power or authority. For example: the authority to regulate the thrift industry is vested by Congress in the Office of Thrift Supervision. Vested interest -- a fixed interest in tangible or intangible property, although the right of possession, use and enjoyment may be postponed until some future date or until the happening of some specified event. Veterans Administration (VA) -- a federal government agency that, among other things, aids veterans of the U. S. armed forces in obtaining housing. VA loans offer a guarantee to the Accounting Dictionary Page 163

lending institution as to repayment of the loans and result in veteran home buyers being able to obtain mortgage loans with a lower down payment. Voluntary association account -- a savings account held by a nonincorporated group, such as a
club, baseball team, church, civic group or charity; otherwise generally similar to a corporation account.

Voluntary conveyance -- see deed in lieu of foreclosure. Voting stock -- stock that gives the holder the right to vote in the election of the corporation's directors, in the appointment of auditors and in other matters brought up at the annual
stockholders' meeting. Most common stock is voting stock. Most preferred stock in nonvoting stock.

Voucher -- (1) a written statement that bears witness or substantiates a transaction; for example providing evidence that services have been rendered, goods purchased, or some other expenditure has been made. (2) a printed form authorizing a disbursement. Voucher check -- a check to which is attached a form (voucher) describing the purpose of the check, and/or explaining various items on which the check is based. The voucher is detached before the check is cashed. Voucher payment plan -- a system of advancing funds from lender to borrower in a construction loan. The borrower/contractor must complete a ledger form requesting each loan payout when particular, prespecified stages of construction are reached.

W
Wage -- compensation paid to employees. Wage assignment -- a clause in a loan contract that allows the lender to obtain the borrower's wages in the case of a default without notice or a hearing. This credit practice was prohibited by federal regulation in 1985. Wage garnishment -- a process granted by a court order by which a lender obtains, directly from an employer, part of the salary of an employee who is behind in payments to the lender. Waiver -- the voluntary relinquishment of a right to one's own property or to a claim against another's property, or to any other legally enforceable right. Waiver of exemption -- a loan contract clause that contains a waiver or limitation of the borrower's right to exempt his or her personal or real property from attachment, execution or other legal process in the event of a default. This credit practice was prohibited by federal regulation in 1985. Accounting Dictionary Page 164

Warehousing -- the borrowing of funds by a retail lender on a short-term basis using permanent mortgage loans as collateral. This form of interim financing, called a warehouse loan, is used to raise funds to make home mortgages and carry them until the mortgages are packaged and sold
"out of the warehouse" to an investor. Proceeds from the sale are used to reduce the warehouse loan.

Warehouse loan -- see warehousing. Warrant -- (1) a certificate giving the holder the right to purchase securities at a stated price within a specified time period. (2) a written order, signed by a magistrate in the name of the government directing an officer to make an arrest. Warranty -- a statement, either written, expressed or implied, providing assurance that some specified provision in a contract, such as a sale, is true. Warranty deed -- a deed in which the seller warrants that the title to the real estate to be sold is good and salable. Water table -- the point beneath the surface of the ground at which natural ground water is found. It is one of the factors considered by mortgage lenders. Way -- a street, alley or other thoroughfare or easement permanently established as a passage for people and/or vehicles. Wealth -- the value of one's total possessions and property rights. When issued -- short for "when, as, and if issued." The term indicates a conditional sale of a security; the security has been authorized but not yet issued and paid for. All when-issued transactions are on a conditional basis until the security is delivered to the buyer and payment is delivered to the issuer. Federal Home Loan Bank System bonds are sold on a when-issued bas is. White elephant -- slang for property or a business that is so costly to maintain or operate that it is impossible to make a profit. Whole loan -- a mortgage loan sold in its entirety. When a whole loan is sold by the original lender to an investor, all of the contractual rights and responsibilities of the original lender pass to the investor. Will -- a written document signed by an individual that sets forth how the person desires his or her property to be distributed upon the person's death. Windfall profit -- an unexpected profit arising from causes not controlled by the recipient.

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Wire transfer -- an order to pay or to credit money transmitted electronically rather than by paper check. Withdrawal -- a removal of funds from a savings or checking account by the account's owner. Withdrawal form -- a source document filled out by a customer to authorize a withdrawal from
the customer's savings or checking account. The form is kept by the savings institution for its records.

Withdrawal penalty -- a charge imposed upon an account holder for the early removal of funds
from a certificate account; usually an amount equal to interest earned during a prespecified period.

Withdrawal ratio -- withdrawals expressed as a percentage of gross savings during a given period of time. Withdrawal value -- the amount credited to the savings account of a thrift institution depositor, less deductions as shown on the records of the savings institution. With full recourse -- a term used in the secondary mortgage loan market. It refers to a written clause in a sales agreement by which a lender sells mortgages to an investor. It means the seller/lender will fully reimburse the buyer/investor for any losses resulting from the purchased loans. This may be accomplished by the seller taking back any loans that become delinquent. Without recourse -- a term used in the secondary mortgage market. It is a clause in a sales contract by which a lender sells mortgage loans to an investor. It means the seller/lender is under no obligation to reimburse the buyer/investor for any losses resulting from the purchased loans. See with full recourse. With partial recourse -- a secondary mortgage market term referring to a clause in the sales contract by which lenders sell their mortgage loans to investors. It means the seller/lender is obligated to reimburse the buyer/investor for an agreed-on portion of any losses resulting from default or other problems in the purchased loans. Working capital -- liquid assets available for conducting the daily affairs of a business. Workout agreement -- a plan approved by borrower and lender by which a delinquent borrower can reschedule loan payments so that the entire outstanding principal is eventually repaid. Worth -- the total value of something. Wraparound mortgage -- a financing device that permits an existing loan to be refinanced and new, additional money to be advanced at an interest rate between the rate charged on the old loan and the current market interest rate. The creditor combines or "wraps" the remainder of the old Accounting Dictionary Page 166

loan with the new loan at the intermediate rate. The borrower makes one payment, to the new lender, who in turn makes the monthly payments to the original lender. The amount of the wraparound mortgage is the total of the outstanding principal of the first mortgage (which remains in effect) and the additional outstanding funds advanced by the wraparound lender. Writ -- a written order, under the seal of government authority, issued by a court and directing an
officer of the court to perform some act, or enjoining a party to do or refrain from doing some act.

Write-off -- the accounting procedure used when an asset has been determined to be uncollectible and is therefore charged off as a loss. On the books, the amount is removed from the asset portion of a balance sheet and recorded as an expense item on the income statement.

Y
Yard -- (1) the open, unoccupied ground area on a lot, between the exterior walls of a building and the property line. Yards may be to the front, rear or side of the building. (2) Slang for a $100 bill. Yield -- (1) the return on an investment, expressed as a percentage of the price originally paid for it. If the investment, such as a security, is to be sold, its yield is its return expressed as a percentage of its current market price. (2) Income derived from an investment in property. (3) to give up possession; to pay. Yield curve -- a chart in which yield levels are plotted on the vertical axis and the terms to maturity of debt instruments of similar creditworthiness are plotted on the horizontal axis. Yield to maturity -- the average annual yield of a fully amortized loan, that is held by an investor for the life of the loan. The average rate takes into the account the fact that the outstanding principal, and consequently the amount of interest, declines each year until the loan is fully paid. When the term is used in reference to a bond or other security, it means the average annual rate of return of the security when held to maturity, taking into account discounts or premiums paid when the security is purchased and capital gains or losses.

Z
Zero-coupon bond -- a security sold at a deep discount from its face value and redeemed at its full face value at maturity. These bonds pay no interest. Instead, the investor's return is the difference between the purchase price of the bond and its face value when redeemed. Since these

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bonds do not pay interest, there are no interest coupons attached to the bond document, hence the name "zero-coupon bond." Even though the yield is not paid until maturity, the return accrues and is taxable on a prorated basis each year of the bond's life. Zoning -- a legislative process that divides a community into areas (zones) of specified land use and that regulates the location, height, density, type and overall size of buildings within each zone. The zones are designated according to broad categories of land use, such as residential, commercial or industrial, and more specifically as to building type or density of land use, such as single family or multifamily residential. Zoning code, law or ordinance -- a local law prescribing how and for what purpose each parcel of land in a community may be used.

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