Finance important Interview Question and answers

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.

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.

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 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 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.

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.

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.

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) 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.

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 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.

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.

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.