UW Glossary

Question 1

A Piece, B Piece, etc.

Answer 1

One piece of a split loan. The first piece is called the “A” piece, the second piece is called the “B” piece, and so on. These terms are also used to describe tranches in a CMBS. The “A” piece is the top-quality piece and the one for which investors would be paid first if there were a lack of funds to pay all investors on a timely basis; the “B” piece in a CMBS is considered to be below investment grade and, therefore, more risky.

Question 2

9% LIHTC Cash Loan

Answer 2

A type of mortgage that provides financing for borrowers for affordable multifamily properties that have received 9% Low-Income Housing Tax Credits (LIHTCs).

Question 3

Abatement

Answer 3

The reduction in or reprieve from tax, debt or any other payment obligation. An abatement is sometimes included in a contract, for example abatement of rent in the event that a building is destroyed by fire, flood or other accident.

Question 4

Above-ground storage tank (AST)

Answer 4

A storage tank that is aboveground. It can be used to store a variety of materials including petroleum products, hazardous waste, or other hazardous materials. Occasionally, water can be stored in such a tank as well, especially if the community relies on well water.

Question 5

Acquisition

Answer 5

Mortgage funds are applied toward purchasing a property.

Question 6

Actual/360

Answer 6

A method of calculating interest payments that typically results in a lower interest rate for multifamily borrowers. The alternative method is 30/360.

Question 7

Ad Valorem

Answer 7

A tax, duty or fee that varies based on the value of the products, services or property on which it is levied.

Question 8

Adjustable Rate Mortgage or Floating Rate Loan (ARM)

Answer 8

A loan on which interest rates change periodically according to a preselected index. Ideal for borrowers who want to take advantage of lower short-term rates with prepayment flexibility; either called an adjustable-rate mortgage, ARM, or Floating Rate Loan.

Question 9

Agency Lender

Answer 9

A term used by brokers and Optigo Lenders to refer to Freddie Mac and Fannie Mae. For example, they might say a deal is going “agency” as opposed to Freddie Mac or Fannie Mae. Freddie and Fannie are actually not federal agencies, which is why the media only refers to us as the “GSEs”. However, brokers lump us in with HUD, which is a federal agency and Ginnie Mae, which is a wholly owned government corporation. In terms of competition, the lending landscape looks as follows: agencies, life companies (LifeCos), CMBS, and Other (Banks, S&Ls, Mortgage Co. etc.). See Government Sponsored Enterprise for more details.

Question 10

Amortization

Answer 10

The process of paying off debt over time in regular installments of interest and principal sufficient to repay the loan in full by the end of the amortization period. In multifamily lending, the amortization period is often longer than the term of the loan.

Question 11

Anchor Tenant or Major Tenant

Answer 11

The premier retail or office tenant that attracts other tenants. Can be used when discussing apartment buildings that contain some retail or office space. Also called “major tenant.”

Question 12

Annual Debt Service (ADS)

Answer 12

The amount of the annual mortgage payment.

Question 13

Annual Percentage Rate (APR)

Answer 13

The annual rate charged for borrowing or earned through an investment. In mortgage finance, APR is expressed as a percentage that represents the actual yearly cost of funds over the term of the loan. This includes any fees or additional costs associated with the transaction but does not take compounding into account. In other words, from the perspective of the borrower, APR attempts to calculate what percentage of the principal he/she will pay per period (in this case a year), taking every charge from monthly payments over the course of the loan, upfront fees, etc. into account.

Question 14

Appraisal

Answer 14

A report that provides an estimate or opinion of value. This report must meet Freddie Mac’s requirements as outlined in our Multifamily Seller/Servicer Guide.

Question 15

Area Median Income (AMI)

Answer 15

The household income for the median — or middle — household in a region. Each year, the Department of Housing and Urban Development (HUD) calculates the median income for every metropolitan region in the country. HUD focuses on the region — rather than just the city — because families searching for housing are likely to look beyond the city itself to find a place to live.

Question 16

Asbestos containing materials (ACM)

Answer 16

A potential environmental hazard sometimes found in pipe and boiler insulation, texture-finished ceiling and wall materials, structural coverings, drywall or joint compounds. Friable ACM is asbestos-containing material that releases fibers when pushed with a finger. The environmental survey or report must address whether and where asbestos is found on the property, its type, location, condition, approximate quantity and the asbestos concentration.

Question 17

Assessment

Answer 17

The value assigned to a piece of real estate. Often used to determine the taxes the owner must pay on that property. Tax assessments are sometimes used as a starting point for valuing a property during underwriting.

Question 18

Asset

Answer 18

A property or right that has monetary value. In the multifamily context, we are generally referring to the real estate.

Question 19

Asset Management & Operations (AMO)

Answer 19

Manages Optigo Servicer relationships and Optigo Seller/Servicer performance reviews along with ongoing risk and loss mitigation efforts for the Multifamily portfolio. Provides guidance for business transformation, including strategic planning, systems and processes. In addition, the department leads loan funding and document custody, loan servicing, Optigo Seller/Servicer counterparty risk, data management, governance and operational risk for the division.

Question 20

Asset Summary Report (ASR)

Answer 20

An ASR is a portion of the Investment Brief. It is the section used to summarize critical information about the deal using a long form narrative. Asset Summary Reports are part of the due diligence sent to K-Deal investors.

Question 21

Assisted Living (AL)

Answer 21

A type of seniors apartment that is sometimes licensed and which provides all meals, assistance with medication, assistance with Activities of Daily Life (ADLs) and which may include Alzheimer’s care. Most assisted-living facilities offer private or semi-private rooms that may or may not have kitchenettes. Freddie Mac will purchase loans on assisted living properties.

Question 22

Assumption

Answer 22

An agreement in which the buyer of a property agrees to take over the liability for the existing mortgage (and all other related mortgage documents) and begins to make the monthly payments. Assumptions are popular with borrowers because they are less expensive than a new loan.

Question 23

Balloon

Answer 23

A large payment due at the end of the loan term. Many multifamily loans amortize over 30 years, but have a 10-year loan term. This means that the principal is repaid at a rate that will pay off the full loan amount in 30 years, but the loan is actually due in 10 years. At the end of 10 years, the amount of remaining principal must be paid off with a balloon payment.

Question 24

Basis Points (BP)

Answer 24

One one-hundredth of one percent (0.01%). Used to measure changes in interest rates, delinquency as a percentage of our total mortgage portfolio, and servicing spreads. Often abbreviated, “bp” and pronounced “bip.” Example: “If we could just improve our price by a couple of bps, we could clench this deal.”

Question 25

Blanket Policy

Answer 25

An insurance policy covering more than one property. Also see Umbrella Policy definition.

Question 26

Bond

Answer 26

A certificate that represents a loan from the bond investor to the bond issuer.

Question 27

Borrower or Sponsor

Answer 27

A company, partnership or, in some cases, an individual that receives funds to finance properties and has an obligation to repay the debt with interest as described in the mortgage note. In conversation, borrower can mean two things at Freddie Mac. Typically, this is referring to the individual or institution applying for the loan in question, also referred to as the “sponsor.” When legally speaking this is referencing the “borrowing entity,” which is the entity that holds title to the property.

Question 28

Borrower Concentration

Answer 28

A measure of the Multifamily Division’s exposure to a single borrower or borrower principal. Includes loans from all programs, pilots and Early Rate-Lock loans that have not yet closed.

Question 29

Borrower Principal

Answer 29

Any person or entity that directly or indirectly controls the borrower, including general partners of a partnership, shareholders of a corporation, or members of a limited liability company. See Credit Policy for further details.

Question 30

Break-even Occupancy

Answer 30

Term used in underwriting to determine the percent of units that must be occupied by paying tenants in order for the owner to break even on cash flow after paying all operating expenses, reserves, and debt service.

Question 31

Bridge Loan

Answer 31

A short-term loan that provides financing from the end of a construction loan until the property is fully occupied and permanent financing can be obtained. Freddie Mac does not purchase bridge loans.

Question 32

Brief

Answer 32

A template created to summarize all critical information about a deal for an approver. A Brief consists of multiple sections including a Loan Term Summary, Credit Policy Exceptions list, Funding Conditions list, Asset Summary Report (ASR), and any attachments the underwriter feels are important to fully represent their understanding of the deal. Also known as the Investment Brief.

Question 33

Brownfield Site

Answer 33

A polluted, contaminated land site. This term could come up in an environmental report and would be a definite red flag for Freddie Mac.

Question 34

Building Law and Ordinance Insurance or Ordinance and Law Insurance (BLO)

Answer 34

Building ordinance coverage is insurance that covers the increased costs associated with repairing a damaged building. Such costs are due to changes in building codes since the building’s construction date. Older structures that are damaged may need upgraded heating, ventilating, electrical wiring, air-conditioning (HVAC), fencing, roofing materials, plumbing units, etc. to be up to date with city codes in order for the building to receive city approvals after repairs are completed. Building ordinance coverage helps policyholders afford potentially unforeseen expenses associated with fixing extensive property damage; also called, “law coverage.”

Question 35

Buy-Up or Premium Pricing

Answer 35

A situation where Freddie Mac agrees to pay the Optigo Lender more for a mortgage than the normal rate in exchange for the borrower paying a higher interest rate over the life of the loan. In this way, the Optigo Lender collects part of their upfront origination fees from Freddie Mac, instead of the borrower. In certain instances, Freddie Mac offers free Buy-Ups, meaning that the cost is not passed through to the borrower in the form of a higher interest rate. Freddie Mac uses Buy-Ups as a tool to incentivize Optigo Lenders to bring us more business. Also called “premium pricing.”

Question 36

Call Option

Answer 36

The price at which the holder of the option can purchase an underlying asset.

Question 37

Capital Expenditure (CapEx)

Answer 37

Investment in renovations and repairs to the property. This can mean interior upgrades such as cabinets, flooring or appliances, or exterior upgrades such as signage and amenities. Also known as “capex” or “CapEx.”

Question 38

Capital Markets (CM)

Answer 38

Performs pricing and securitization functions related to Multifamily mortgage purchases intended for securitization and new issue securities. Manages investor relations, securities marketing, and banker relationships.