RBS 2009 Annual Report Download - page 387

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385RBS Group Annual Report and Accounts 2009
Federal Home Loan Mortgage Corporation see Freddie Mac.
Federal National Mortgage Association see Fannie Mae.
FICO score – a FICO score is calculated using proprietary software
developed by the Fair Isaac Corporation in the US from a consumer’s
credit profile. The scores range between 300 and 850 and are used in
credit decisions made by banks and other providers of credit.
First/second lien – a lien is a charge such as a mortgage held by one
party, over property owned by a second party, as security for payment
of some debt, obligation, or duty owed by that second party. The holder
of a first lien takes precedence over all other encumbrances on that
property i.e. second and subsequent liens.
Forward contract – a contract to buy (or sell) a specified amount of a
physical or financial commodity, at an agreed price, at an agreed future
date.
Freddie Mac (Federal Home Loan Mortgage Corporation) is a US
Government Sponsored Enterprise. It buys mortgages, principally
issued by thrifts, on the secondary market, pools them, and sells them
as residential mortgage-backed securities to investors on the open
market. Its obligations are not explicitly guaranteed by the full faith and
credit of the US Government.
Futures contract is a contract which provides for the future delivery (or
acceptance of delivery) of some type of financial instrument or
commodity under terms established at the outset. Futures differ from
forward contracts in that they are traded on recognised exchanges and
rarely result in actual delivery; most contracts are closed out prior to
maturity by acquisition of an offsetting position.
G10 - the Group of Ten comprises the eleven industrial countries (Belgium,
Canada, France, Germany, Italy, Japan, the Netherlands, Sweden,
Switzerland, the United Kingdom and the United States) that have
agreed to participate in the IMF’s General Arrangements to Borrow.
Ginnie Mae (Government National Mortgage Association) is a US
Government Agency that guarantees investors the timely payment of
principal and interest on mortgage-backed securities for which the
underlying asset portfolios comprise federally insured or guaranteed
loans – mainly loans insured by the Federal Housing Administration or
guaranteed by the Department of Veterans Affairs. Ginnie Mae
obligations are fully and explicitly guaranteed as to the timely payment
of principal and interest by the full faith and credit of the US Government.
Government Sponsored Enterprises (GSEs) are a group of financial
services corporations created by the US Congress. Their function is to
improve the efficiency of capital markets and to overcome statutory and
other market imperfections which otherwise prevent funds from moving
easily from suppliers of funds to areas of high loan demand. They
include Fannie Mae and Freddie Mac.
Gross yield is the interest rate earned on average interest-earning
assets i.e. interest income divided by average interest-earning assets.
Guaranteed mortgages are mortgages that are guaranteed by a
government or government agency. In the US, government loan
guarantee programmes are offered by the Federal Housing
Administration, the Department of Veterans Affairs, and the Department
of Agriculture’s Rural Housing Service. In the Netherlands, the
Gemeentegarantie programme is run partly by the central government
and partly by the municipalities.
Home equity loan is a type of loan in which the borrower uses the equity
in their home as collateral. A home equity loan creates a charge against
the borrower’s house.
Impaired loans – a loan or other financial asset or portfolio of financial
assets classified as held-to-maturity, available-for-sale or loans and
receivables is impaired if there is objective evidence that an event or
events since initial recognition of the asset have adversely affected the
amount or timing of future cash flows from the asset.
Impairment allowance – see loan impairment provisions.
Impairment losses – for impaired financial assets measured at
amortised cost, impairment losses – the difference between carrying
value and the present value of estimated future cash flows discounted
at the asset’s original effective interest rate – are recognised in profit or
loss and the carrying amount of the financial asset reduced by
establishing a provision (allowance). For impaired available-for-sale
financial assets, the cumulative loss that had been recognised directly in
equity is removed from equity and recognised in profit or loss as an
impairment loss.
Individually assessed loan impairment provisions – impairment loss
provisions for individually significant impaired loans assessed on a
case-by-case basis, taking into account the financial condition of the
counterparty and any guarantor and the realisable value of any
collateral held.
International Accounting Standards Board (IASB) is the independent
standard-setting body of the IASC Foundation. Its members are
responsible for the development and publication of International
Financial Reporting Standards (IFRS) and for approving Interpretations
of IFRS as developed by the International Financial Reporting
Interpretations Committee (IFRIC).
Interest rate swap – a contract under which two counterparties agree to
exchange periodic interest payments on a predetermined monetary
principal, the notional amount.
Interest spread is the difference between the gross yield and the
interest rate paid on average interest-bearing liabilities.
Investment grade generally represents a risk profile similar to a rating of
a “BBB-”/”Baa3” or better, as defined by independent rating agencies.
Latent loss provisions – loan impairment provisions held against
impairments in the performing loan portfolio that have been incurred as
a result of events occurring before the balance sheet date but which
have not been identified as impaired at the balance sheet. The Group
has developed methodologies to estimate latent loss provisions that
reflect historical loss experience (adjusted for current economic and
credit conditions) and the period between an impairment occurring and
a loan being identified and reported as impaired.