mba financial notes

MACRO -- a rating system formerly used by examiners to evaluate the safety and soundness of savings institutions. MACRO is an acronym for the five elements that were evaluated: Management, Asset quality, Capital adequacy, Risk management and Operating results. Based on the examiner's evaluation, each element was rated on a scale of 1 to 5, and the institution was assigned an overall MACRO rating of 1 to 5. Rating 1 indicated a strong performance, significantly higher than average. Rating 2 reflected satisfactory performance, which was average or above. Rating 3 reflected performance that was marginal and as such was considered below average. Rating 4 referred to performance that was significantly below average. If left unchecked, such performance might have evolved into weaknesses or conditions that could have threatened the viability of the institution. Rating 5 was considered unsatisfactory; performance that was critically deficient and in need of immediate remedial attention. Such performance, by itself or in combination with other weaknesses, impaired the viability of the institution. The MACRO rating system was used by federal thrift examiners from 1984 until August 15, 1994, when it was replaced by the CAMELS rating system.

Macroeconomics -- the study of economics in terms of whole systems, especially with reference to general levels of output and income and to the interrelations among sectors within the economy. See microeconomics.

Maker -- an individual, firm, or other legal entity who signs a note, check, or other negotiable instrument and is authorized or responsible for so doing.

Mandatory delivery -- a type of loan purchase program offered by the Federal Home Loan Mortgage Corporation in which delivery of loans by the seller/servicer to Freddie Mac is required.

Manufactured home -- a dwelling that is wholly or substantially built in a factory with major components then delivered to the building site for assembly. Mobile homes, as well as prefabricated stationary homes, are included in the category of manufactured home.

Margin -- (1) in futures trading, a specific dollar amount, set by each exchange, that both buyers and sellers must deposit as a guarantee that both will perform as agreed to make or take delivery during a designated period of time. The deposit is held by the clearing organization of the exchange. (2) in stock transactions, margin refers to the down payment required when borrowing from a broker to finance the purchase of stock. In this case, margin requirements may be set by the Federal Reserve Board, the Board of Governors of the Exchange or the broker. The margin is expressed as a percentage of the purchase price.

Market -- (1) all persons possessing the ability and desire or potential desire to purchase and take delivery of a product or service. (2) the estimated or actual level of demand for a product

or service.

Marketability -- the relative ease in which an asset can be sold quickly at a price near the price at which similar assets are selling.

Marketable securities -- those securities for which there is a valid expectation of finding a buyer in an available, active market.

Marketable title -- title to property that is free of defects and that will legally be accepted without objection. Also known as perfect title, clear title, and good title.

Market data approach to value -- the estimation of the market value of a property by comparing it with similar properties in the general area that have sold recently under comparable conditions.

Market maker -- one who stands ready to buy or sell financial instruments at bid or asking prices throughout the business day. Market makers attempt to profit from the bid/ask spread.

Market research -- the process of gathering, analyzing and interpreting information about a market; about a product or service to be offered for sale in that market; and about the past,

present and potential customers for the product or service.

Market value -- the highest price a property will bring in a competitive and open market. The price that an owner is prepared to accept to sell property and a buyer is willing to pay. See fair market value, fair value, net realizable value, and book value.

Market value of portfolio equity (MVPE) -- see net portfolio value

Mark to market -- an accounting procedure by which assets are "marked," or recorded, at their current market value, which may be higher or lower than their purchase price or book value.

Mark to the market -- the daily adjustment of the amount of funds in margin accounts to reflect the market gain or loss on the position as measured by changes in the daily settlement price. This ensures that the account contains the minimum amount of margin funds required by the Federal Reserve Board, the Stock Exchange and/or the brokerage house involved.

Markup -- (1) the difference between the cost and selling price of an item or service expressed in either dollars or a percentage and calculated to cover the seller's operating expenses plus a profit. (2) the process of amending or changing legislation while in committee.

Master deed -- the basic condominium document that must be registered by the originating property owner prior to the conveyance of the first unit sold. Also referred to as the condominium declaration, the master deed thoroughly describes the entire condominium entity, and specifies essential elements of ownership that permanently govern its operation. Also called an enabling declaration, or matrix deed.

Master in chancery -- an official appointed by a court to take testimony, calculate interest, project damage costs, determine liens, and perform other related duties as requested by the court.

Master plan insurance -- a form of insurance coverage that insures a financial institution against loss resulting from certain types of damage to a property pledged as security for a loan, whether or not the borrower maintains insurance coverage on the property.

Maturity -- (1) the end of the period of time for which credit, an insurance contract, or a mortgage loan is written. (2) the date(s) on which some types of investments such as bonds may be redeemed at face value. (3) the date on which a note, time draft, bill of exchange, bond, certificate of deposit or other negotiable instrument becomes due and payable.

Maturity intermediation -- borrowing funds at short-term and lending the funds obtained at longer term.

Maturity amount -- the value of an investment, including accrued earnings, at the time of its redemption.

Maturity mix -- the variety of lengths of terms of assets in a firm's or individual's investment portfolio, such as 90-day Treasury bills, and 20-year corporate bonds.

Mechanic’s lien -- a legal, enforceable claim for payment to a person who has performed work or supplied materials used in the construction or repair of a building. The building and land is attached as security for payment of the claim. Mechanic's liens are permitted by the laws of most states. Also called a materialmen's lien.

Members -- (1) all the savers and borrowers in a mutual savings institution who have the right to elect directors, amend the bylaws, approve any basic corporate change or policy or organization, and, in general, possess most of the rights of ownership that stockholders have in a stock corporation except the right to share in profits. (2) financial institutions that belong to one of the Federal Home Loan Banks.

Merger -- the combining of two or more savings institutions or other entities through one acquiring the assets and liabilities of the other(s). The acquired institutions lose their corporate identity and are absorbed into the surviving institution.

Merger-conversion -- a transaction in which a mutual thrift institution converts to stock form and simultaneously merges into an acquiring stock thrift or bank. The acquiring institution obtains the stock of the converting institution in exchange for stock in the new, combined institution that results from the merger. Account holders at the converting mutual are given the opportunity to buy stock in the new, combined institution.

Merit Increase Decision System (MIDS) -- the agency-wide computer program that helps OTS managers calculate employees' annual salary increases and bonuses based on performance.

Metes and bounds -- measurements of property contained in a deed by which the land location and its boundaries are defined by directions and distances.

Metropolitan statistical area (MSA) -- a geographic unit comprised of one or more counties around a central city or urbanized area with 50,000 or more population. Contiguous counties are included if they have close social and economic links with the area's population nucleus. Also known as a standard metropolitan statistical area (SMSA).

Microeconomics -- the study of economics in terms of individual areas of activity, such as the economics of a firm, a household, or of single economic components such as prices.

Military indulgence -- the protection against foreclosure afforded by the Soldiers and Sailors Civil Relief Act to a mortgagor who is about to enter or is in military service and whose ability to make payments on a loan is affected by the military service.

Mill -- one tenth of one percent; a measure used to state property tax rates.

Minimum gross yield -- the sum of the required net yield and the required servicing spread in a Freddie Mac purchase contract.

Minimum servicing spread -- the minimum amount of mortgage interest income to be retained by the originating lender (seller/servicer) as compensation for servicing mortgages purchased in whole by Freddie Mac.

Mint -- a facility where coins are manufactured.

Mobile home -- a movable, portable dwelling without permanent foundation, designed for year-round living.

Mobile home loan -- a loan to finance the purchase of a mobile home, secured by the lender's claim on the mobile home. The loan may include funds for associated costs such as transportation of the mobile home and setup on a new site.

Modification agreement -- a written agreement between a financial institution and a borrower that changes one or more terms of an existing mortgage loan such as the interest rate, number of years allowed for repayment, or amount of monthly payment.

Modular house -- a residence assembled in units or sections at a factory and transported to a building site where it is erected on a foundation. The term does not include mobile homes.

Monetarist -- one who believes that changes in the supply of money determine the course of

a nation's economy.

Monetary asset -- money or a pledge to receive a fixed amount of money without regard to future prices.

Monetary liability -- the promise to pay a specified amount of money, the sum of which is unaffected by inflation or deflation.

Money -- anything that is generally accepted as a medium of exchange, such as currency or precious metals. See money stock.

money market -- the activity generated by financial institutions that facilitate the purchase,

sale, and transfer of lendable funds in the form of short-term debt securities such as promissory notes, collateral loans, and Treasury bills.

money market certificate -- a certificate of deposit that when first authorized had a fixed maturity of six months and a $2,500 minimum deposit, with rates based on the weekly posting of average yields for United States Treasury bills. With deregulation in the 1980s, federal regulators now leave it up to each individual thrift institution to determine the maturity and yield of this savings instrument.

Money market deposit account (MMDA) -- a savings account, offered by financial institutions, that pays fluctuating market rates of interest as long as the balance does not fall

below a predetermined minimum.

Money market fund -- the combined money of many individuals which is jointly invested in high yield financial instruments including U.S. government securities, certificates of deposit, and commercial paper. A money market fund is a mutual fund which strives to make a profit by buying and selling various forms of money rather than buying and selling shares of ownership in corporations.

Money order -- an instrument of exchange purchased for a fee from the U.S. Postal Service or from a financial institution. The instrument is an order to pay on demand a sum of money specified on the face of the order to a party (the payee) named by the purchaser. Since the purchaser has already paid the face amount of a money order to the issuer, the payee presenting the order to an agent of the issuer is sure of collecting the funds. Thus, money orders are easily converted to cash anywhere in the United States, or anywhere the issuer has agents.

Money stock

M1 -- the sum of currency held by the public, plus travelers' checks, plus demand deposits, plus other checkable deposits (i.e. negotiable order of withdrawal [NOW] accounts, and automatic transfer service [ATS] accounts, and credit union share drafts.)

M2 -- Ml plus savings accounts and small-denomination time deposits, plus shares in money market mutual funds (other than those restricted to institutional investors), plus overnight Eurodollars and repurchase agreements.

M3 -- M2 plus large denomination time deposits at all depository institutions, large denomination term repurchase agreements, and shares in money market mutual funds restricted to institutional investors.

Monopoly -- control of the supply, distribution and/or price of a commodity acquired by ownership, franchise or government patent.

Monophony -- a market situation in which there is only one buyer for an item.

Moot -- (1) of little or no practical value, meaning, or consequence. (2) subject to discussion or argument. (3) doubtful, theoretical, or hypothetical. (4) in law, an issue previously clarified by earlier cases or decisions of the court.

Morris plan bank -- a bank that handle small loans and consumer credit incorporating life insurance on the debtors.

Moratorium -- legal authorization to delay the collection of a debt, or the temporary suspension of some other activity.

Mortgage -- a legal document by which real property is pledged as security for the repayment of a loan; the pledge is canceled when the debt is paid in full.

Mortgage-backed bonds -- bonds that are secured by mortgages. Unlike mortgage-backed passthrough securities, mortgage-backed bonds do not convey ownership of any portion of the underlying pool of mortgages. However, mortgage-backed bonds do offer a more predictable maturity and thus offer a form of call protection.

Mortgage-backed passthrough securities -- securities that convey ownership of a fractional part of each mortgage in a pool of mortgages backing the securities. Mortgage payments are sent to the issuer of the securities and then passed through to those who bought the securities. Each security owner shares proportionally the interest and principal payments generated by the underlying pool of mortgages.

Mortgage banker -- an individual or firm that primarily deals in mortgages as a broker, originating loans and then selling the loans to investors.

Mortgage bond -- a bond secured by a mortgage on real property.

Mortgage broker -- a firm or individual who brings the borrower and lender together, receiving a commission if a sale results.

Mortgage derivative -- any of several types of securities that pay their investors with cash flows generated by the payments of principal and interest to an underlying pool of mortgages. Mortgage derivative products include collateralized mortgage obligations (CMOs), real estate mortgage investment conduits (REMICs), stripped mortgage-backed securities such as interest-only securities (IOs) and principal-only securities (POs), and pass-through mortgage-backed securities with senior/subordinated structures.

Mortgage discount -- the amount paid by the borrower to increase the yield of a mortgage to the lender. Sometimes called points, loan brokerage fee, or new loan fee. The discount is computed on the amount of the loan, not the selling price of the property.

Mortgagee -- the institution, group or individual that lends money secured by pledged real estate; the lender. See mortgagor.

Mortgage life insurance -- an insurance policy on the life of a borrower that repays an outstanding mortgage debt upon the death of the insured.

Mortgage loan -- an advance of funds from a lender, called the mortgagee, to a borrower, called the mortgagor, secured by real property and evidenced by a document called a mortgage. The mortgage sets forth the conditions of the loan, the manner and duration of repayment, and reserves to the mortgagee the right to repossess the pledged property if the mortgagor fails to repay any portion of principal and interest.

Mortgage loans outstanding -- the total dollar amount of money that is owed by mortgagors.

Mortgage note -- a written promise to repay a specified sum of money plus interest at a specified rate. While the mortgage itself pledges the title to real property as security for a loan, the mortgage note states the amount of debt and the rate of interest, and makes the borrower who sign's the note personally responsible for repayment.

Mortgage origination -- the making of a new mortgage, including all steps taken by a lender to attract and qualify a borrower, process the mortgage loan, and place it on the lender's books.

Mortgage participation -- the division of a mortgage or pool of mortgages into units that are sold to one or more investors, each of whom participates in receiving payments of principal and interest.

Mortgage pool -- a group of mortgages assembled to form the collateral for securities. Mortgage payments of principal and interest into the pool are used to pay those who invest in the securities.

Mortgage portfolio -- the total of all mortgage loans held by a lender or investor.

Mortgage revenue bonds -- tax exempt bonds issued by state and local governments. Funds raised by the sale of the bonds are used to finance home mortgages. Revenue from mortgage payments is used to repay the bonds.

mortgage servicing -- the activity of keeping a mortgage loan current, including collecting monthly mortgage payments, forwarding principal and interest payments to the current mortgage holder (if the loan has been sold), maintaining escrow accounts, paying taxes and insurance premiums, and taking steps to collect overdue payments. Mortgage servicing may be performed by the original lender, or the lender may sell the right to service a mortgage to another company, which performs the service for a fee. Some companies, including some savings associations, specialize in servicing mortgages, both their own and those made by other lenders. The original lender may sell the mortgage servicing rights to one company and sell the mortgage itself to another company. See mortgage servicing rights. See recourse servicing. See purchased mortgage servicing rights.

Mortgage servicing rights -- the right to service a mortgage. See mortgage servicing.

Mortgage take back -- a mortgage loan issued by the seller of the mortgaged property.

Mortgagor -- the owner of real estate who pledges the property as security for the repayment of a debt; the borrower. See mortgagee.

Multifamily structure -- as defined in federal government statistics, a structure containing more than four dwelling units.

Municipal bond -- a tax exempt debt obligation issued by a state or local government agency to raise funds for the public good, such as building low-income housing, improving streets or

building bridges. The bonds are redeemed with interest and are backed by the government's taxing authority.

Muniment of title -- (1) anything that protects or enforces a title. (2) written proof that aids an owner in defense of title to a property. (3) deeds and contracts that show conclusive proof of ownership.

Mutual association -- a savings association structured so that its members, made up of depositors, and in some cases its borrowers, have the right to elect the board of directors. A mutual association does not issue capital stock, and thus, its members do not share in profits of the association. See stock association.

Mutual capital certificate -- a long-term debt security issued by a federal mutual savings association that is subordinated to all other claims on assets, and is not covered by federal deposit insurance. They could be counted as part of an institution's regulatory net worth, and were authorized by federal regulators, who purchased the certificates, as a temporary way of helping savings associations meet minimum regulatory net worth requirements.

Mutual fund -- a financial corporation that sells shares of its own stock and invests the funds thus raised in the stock and securities of other corporations or in government securities. Dividends paid to shareholders are based on the earnings of the securities held by the fund, minus operating expenses. A mutual fund pools the funds of many investors and provides professional management in investing those funds. Also called an open-end investment company.

Mutual holding company -- a corporate structure that combines elements of a mutual savings association, which is structured so that its depositors, and in some cases its borrowers, have the right to elect the board of directors, with elements of a stock savings and loan, which is owned by its shareholders. In a mutual holding company setup, association depositors have the right to elect directors of the mutual holding company, which in turn holds a majority of the voting stock of its subsidiary savings association. The balance of the thrift's stock can be sold to outside investors to raise capital. Mutual holding companies were first authorized by the Competitive Equality Banking Act of 1987 (CEBA). Those provisions were clarified by Congress in the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).

Mutual savings bank -- a financial institution chartered by state or federal government to: (1) provide a safe place for individuals to save and (2) invest those savings in mortgages loans, stocks, bonds and other securities. Most mutual savings banks are located in the Northeast, and are owned by their depositors and borrowers. A mutual savings bank does not issue capital stock. Profits are distributed to the owner/customers in proportion to the business they do with the institution.