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A

Asset-Backed-Securities
An asset-backed security is a security whose value and income payments are derived from and collateralized by a specified pool of underlying assets. The process of creating such a pool – which usually consists of small and illiquid assets – is called securitisation. Mortgage-Backed-Securities are a special form of asset-backed securities and only backed by mortgage loans.

B

Bausparen
Bausparen links a phase of contractual savings on the part of a houshold usually remunerated below market to the commitment on the part of a credit institution to provide after a specific minimum period a loan at a rate also fixed below market at the time of contrat signature. As the rate of interest for the loan is predetermined in adavance, Bausparen insulates households from financial market volatility by design.

D

Down Payment
Financiers normally give loans up to a certain loan to value ratio. The balance would have to be paid by the buyer, as a payment before he draws on the loan amount. This balance amount is the down payment.

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F

Fannie Mae
Fannie Mae is the pronunciation of the acronym for Federal National Mortgage Association (FNMA).

Federal National Mortgage Association
The Federal National Mortgage Association is an important player on the US-American secondary mortgage market. Its purpose is to purchase and securitize mortgages. It was created 1938 by Congress and though it is today a shareholder-owned company it is still considered a government-sponsored enterprise operating under a federal charter and enjoying several privileges. In the wake of the subprime mortgage and financial crisis the Federal National Mortgage Association encountered severe difficulties so that it was placed into conservatorship of the Federal Housing Finance Agency.

Fixed Rate of Interest
A fixed interest rate is a rate of interest that remains static throughout the length of an agreed term and does not fluctuate with market changes. Mortgages with interest rates fixed for more than five years are usually (also by HFN) regarded as fixed rate mortgages.

Floating Rate of Interest
See Variable Rate of Interest

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L

Loan to value ratio
It is the amount of a loan as a percent of the value of the asset on which the loan is secured.

M

Mortgage
It is an agreement by which the borrower gives the lending institution the right to take possession of the property given as security if the loan is not repaid. Usually all the documents of the property have to be deposited with the financier.

Mortgage-Backed-Securities
A mortgage-backed security is a security whose value and income payments are derived from and collateralized by a specified pool of mortgage loans. Mortgage-Backed-Securities are a special form of asset-backed securities and created in a process called securitisation.

Mortgage Debt as Percent of GDP
It is used as a measure of the depth of the housing market. Correlation analyses have shown that higher ratios are related to faster and deeper financial innovations in the mortgage market in particular and more liberal financial markets in general. However, this measure comes with a lot of shortcomings. Its level is determined by many interlinked factors that can vary considerable from country to country. Likewise, there are no clear thresholds which define different development levels of mortgage markets.

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P

Prepayment
Prepayment means that the customer repays his/her loan before the tenure is over. As prepayments generally occur when market rates of interest decline following the loan origination, prepayment is a (reinvestment) risk to the lender. To compensate for the prepayment risk, a prepayment penalty clause is often included into the loan contract.

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R

Refinancing
The term refinancing refers usually to the funding mechanisms of credit institutions for their lending activities. In general, refinancing refers to the replacement of an existing debt obligation with a debt obligation bearing different terms.

S

Securitisation
In general, securitisation is the process of homogenising and packaging financial instruments into a new fungible one. HFN uses the term in a narrow sense (which usually applies today) so that it is talked of securitisation only if the transfer of a pool and its transformation in securities is considered. The securities created in the process of securitisation (in the narrow sense used by HFN) are called asset-backed-securities or mortgage-backed-securities.

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V

Variable Rate of Interest
The interest rate paid on a variable rate mortgage may change throughout the term of the mortgage. Variable rate loans are based on an index or other base rate for establishing the interest rate for each relevant period. HFN considers mortgages with interest rates fixed for less than five years as variable rate mortgages

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