Note Buyers Guide 101

F Fair Credit Reporting Act A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record. fair market value The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept. Fannie Mae Fannie Mae is a New York Stock Exchange company and the largest non-bank financial services company in the world. It operates pursuant to a federal charter and is the nation's largest source of financing for home mortgages. Over the past 30 years, Fannie Mae has provided nearly $2.5 trillion of mortgage financing for over 30 million families. Fannie Mae's Community Home Buyer's ProgramSM An income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate-income family's buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions. Fannie 97® A financing option for a fixed-rate mortgage that offers home buyers a 3 percent down payment loan with either a 25- or 30-year term. The mortgage features a loan-to-value (LTV) percentage of 97 percent, and is designed to expand homeownership opportunities for people with modest incomes. Borrowers must take a pre-purchase home-buyer education session to qualify for a Fannie 97 mortgage. Federal Housing Administration (FHA) An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing. fee simple The greatest possible interest a person can have in real estate. fee simple estate An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property. FHA coinsured mortgage A mortgage (under FHA Section 244) for which the Federal Housing Administration (FHA) and the originating lender share the risk of loss in the event of the mortgagor's default. FHA mortgage A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage. finder's fee A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower. firm commitment A lender’s agreement to make a loan to a specific borrower on a specific property. first mortgage A mortgage that is the primary lien against a property. fixed installment The monthly payment due on a mortgage loan. The fixed installment includes payment of both principal and interest. fixed-rate mortgage (FRM) A mortgage in which the interest rate does not change during the entire term of the loan. fixture Personal property that becomes real property when attached in a permanent manner to real estate. flood insurance Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas. foreclosure The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mrotgage debt. forfeiture The loss of money, property, rights, or privileges due to a breach of legal obligation. fully amortized ARM An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term. Face Value Value of security shown on certificate. Also called par value, which is typically $1,000. Family of Funds Group of mutual funds managed by the same investment management company. Each fund typically has a different objective; one may be a growth-oriented stock fund, whereas another may be a bond fund or an index fund. Shareholders in one of the funds can usually switch their money into any of the family's other funds, sometimes at no charge. Fed (Federal Reserve Bank) Refers to the U.S. Central Bank, whose functions include interest rate policy, regulation of banks, and stabilization of foreign exchange (FX). Federal Funds Non-interest-bearing deposits of banks with the Federal Reserve. Banks lend excess reserves out to each other. Federal Funds Rate Rate at which banks charge each other for lending out excess reserves. Federal Home Loan Bank A Federally chartered, privately owned company charged with regulating the S&L industry. FHLB See Federal Home Loan Bank. Financial Assets Securities that have a claim on assets. Financial Distress Financial Investment Investment in financial assets. Financial Intermediaries Financial institutions that assist the transfer of savings from economic agents with excess savings to those that need capital for investments. Financial Markets Markets or exchanges where financial assets are traded. The largest two in the U.S. are the NYSE and Nasdaq. Finance By Example (Archives): Inside the Black Box: A Roller Coaster Financial Risk Additional risk borne by shareholders because of a firm's use of debt. Firm Commitment Agreement between a company and its lead investment banker in which the latter is obligated to sell all the shares to be issued. Firm Specific Risk Uncertainty in returns due to factors specific to the company. See diversifiable risk. Fixed Assets (overhead) A cost that is fixed for a given period of time. It is not dependent on the amount of goods and services produced during the period. Tangible fixed assets include real estate, plant and equipment. Intangible assets include patents, trademarks, and customer loyalty. Float The float is the number of shares of a security that are outstanding and available for trading by the public. Floatation Cost The underwriter's revenue associated with assisting a firm in issuing and marketing new securities. FNMA Fannie Mae Federal National Mortgage Association. A publicly owned corporation sponsored by the federal government that provides liquidity in the mortgage market. It buys mortgages from mortgage underwriters financed by issuing bonds. Footnote A To be used if the fund's return to shareholders may differ due to capital gains or losses. This footnote applied to money market funds only. Footnote B To be used if there are any sales charges or account charges which impact yield. This footnote applies to money market funds only. Footnote C Capital gains figure includes return of capital. Footnote D To be used on any day that a mutual fund's net asset value is reduced by a capital gains distribution. Footnote F To be used by any type of fund that reports quotations as of the day prior to the day of reporting Footnote G To be used if the fund's capital gains figure includes short-term gains Footnote N To be used by mutual funds when the fund does not have a sales load, i.e. there is no front-end and no contingent deferred sales load. Footnote P To be used by mutual funds if the fund has adopted a rule 12(b)1 distribution plan under which a specific charge is made against the net assets of the fund Footnote R To be used by mutual funds with redemption fees, contingent deferred sales charges, or other charges deducted from net asset value upon redemption other than charges for special services such as wire transfer). Footnote S To be used on the ex-date for stock splits or stock dividends Footnote T To be used if the fund began reporting prices to Nasdaq during the current year. Footnote X To be used by mutual funds on any day a fund goes ex-dividend. Foreign A non-U.S. company with securities trading on Nasdaq. Free Cash Flow Value The value of a firm based on the cash flow available for distributing to any of the providers of long-term capital to the firm. The free cash flows equal operating cash flow less any incremental investments made to support a firm's future growth. Front Running refers to situations when a manager who has private information about the direction of movement of an asset takes a private position in the asset before purchasing it for the fund. Full-Service Broker Brokers who provide services in addition to assisting in buying and selling of securities in the secondary market. Services can include providing company profiles and investment strategy recommendations. Fund Supermarkets Mutual fund supermarkets, the likes of Charles Schwab and Fidelity Investments, are financial services companies that sponsor mutual funds, i.e., they provide investors with easy access to a broad range of mutual funds. Futures Contract This is an agreement that allows an investor to buy or sell a commodity, like gold or wheat, or a financial instrument, like a currency, at some time in future. A future is part of a class of securities called derivatives, so named because such securities derive their value from the worth of an underlying asset. These contracts trade on organized futures exchanges. Futures Exchange Traded contracts specifying a future date of delivery or receipt of a specific product or asset. The assets include agricultural products like, pork bellies and oranges; metal; and financial instruments and indices. They are used by firms to hedge against potentially unfavorable price changes, and by speculators who hope to benefit from betting on the direction or magnitude of change. Futures Market Where futures contracts are traded.