Audit Related Product 

OIG-11-065

SAFETY AND SOUNDNESS: Material Loss Review Glossary 

April 11, 2011 

Office of 

Inspector General 

Department of the Treasury 
DEPARTMENT OF THE TREASURY

WASHINGTON, D.C. 20220

OFFICE OF 

INSPECTOR GENERAL

April 11, 2011 

OIG-11-065 

Glossary of Terms Used by the Office of Inspector General in Reports on 

Treasury-Regulated Financial Institution Failures 

Introduction and Purpose

The Department of the Treasury Office of Inspector General (OIG) is required to 

conduct reviews of failed financial institutions that were regulated by the Office of 

the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS).1 

 

For material loss reviews completed between 2008 and 2010, a glossary of key 

terms and their definitions was included in each report. Going forward, rather than 

include such a glossary of key terms and definitions in each report, we will 

underline key terms where first used in all of our reports on Treasury-regulated 

financial institution failures and direct the reader to this document for definitions. 

Where a term is unique to OCC or OTS, we have indicated that in the definition. It 

should be noted that effective July 21, 2011, pursuant to P.L. 111-203, the 

functions of OTS are being transfer to OCC and other federal banking agencies. We 

plan to assess the impact of the transfer of functions to the terms and definitions 

in this document and will revise and reissue the document as appropriate. 

We shared a draft of this document with OCC and OTS officials and their 

comments were considered in this final version. 

For any questions pertaining to this document, please contact the Treasury OIG, 

Office of Audit, at (202) 927-5400. 

Exhibit 

 

1

 Section 38(k) of the Federal Deposit Insurance Act requires that the Inspector General for the 

primary federal regulator of a failed institution conduct a material loss review when the estimated 

loss to the Deposit Insurance Fund is material. Effective July 21, 2010, section 38(k) defines a loss 

as material if it exceeds $200 million for calendar years 2010 and 2011, $150 million for calendar 

years 2012 and 2013, and $50 million for calendar years 2014 and thereafter (with a provision that 

the threshold can be raised temporarily to $75 million if certain conditions are met). Prior to this 

change, section 38(k) defined a loss as material if it exceeded the greater of $25 million or 2 

percent of the institution’s total assets. For losses that are under the threshold for a material loss 

review, the cognizant Inspector General is required to perform a review of the financial institution 

failure that is limited to (1) ascertaining the grounds identified by the federal banking agency for 

appointing the Federal Deposit Insurance Corporation as receiver and (2) determining whether any 

unusual circumstances exist that might warrant a more in-depth review of the loss. 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 1 

10-K An annual report filed by publicly traded companies 

with the Securities and Exchange Commission 

presenting a financial overview of the company 

during the year. 

10-Q A comprehensive report of a company's 

performance that must be submitted quarterly by 

all public companies to the Securities and 

Exchange Commission. In the 10-Q, firms are 

required to disclose relevant information regarding 

their financial position. 

Acquisition, development, 

 and construction loan A loan that allows the borrower to purchase real 

property, put in the necessary infrastructure 

(streets, lights and utilities), and then build stores 

or other buildings. Acquisition, development and 

construction loans are often used by developers of 

large properties, such as strip malls or shopping 

centers. 

Adversely classified asset Also referred to as a classified asset, an asset that 

is rated as substandard, doubtful, or loss. 

Substandard assets are inadequately protected by 

the current worth and paying capacity of the 

obligor or of the collateral pledged, if any. A 

doubtful asset has all the weaknesses of a 

substandard asset with the added characteristic 

that the weaknesses make collection or liquidation 

in full questionable and improbable. A loss asset is 

considered uncollectible and of such little value, 

that continuation as a recorded asset is not 

warranted. 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 2 

Allowance for loan and 

 Lease losses An estimate of uncollectible amounts used 

to reduce the book value of loans and leases to the 

amount expected to be collected. It is established 

in recognition that some loans in the institution’s 

overall loan and lease portfolio will not be repaid. 

Alt-A loan A mortgage made to a borrower that typically does 

not involve income verification or documentation of 

income, assets, or employment. Instead, the 

approval of the loan is based primarily on an 

individual applicant’s credit score. 

Asset/liability committee A senior management committee in a bank or thrift 

institution responsible for overseeing the 

institution’s actions relating to interest rate risk and 

liquidity risks. The committee may be responsible 

for overseeing controls to manage price and 

compliance risks. Among other activities, the 

committee typically reviews interest rate risk 

exposures and approves management strategies for 

investment securities activities, derivatives 

transactions, deposit programs, and lending 

initiatives. It evaluates the bank’s liquidity position 

and assesses how anticipated changes may affect 

that position. Asset/liability management 

committees in more complex banks may approve 

trading strategies and review trading positions in 

securities, derivatives, or foreign exchange. 

Board resolution (OTS) A document designed to address one or more 

specific concerns identified by OTS and adopted by 

a thrift’s board of directors. A board resolution is 

considered an informal (non-public) enforcement 

action. 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 3 

Brokered deposit Any deposit that is obtained, directly or indirectly, 

from a deposit broker. The financial institution 

solicits deposits by offering rates of interest that 

are significantly higher than the rates offered by 

other insured depository institutions in its normal 

market area. Use of brokered deposits is limited to 

well-capitalized insured depository institutions and, 

with a waiver from the Federal Deposit Insurance 

Corporation, to adequately capitalized institutions. 

Undercapitalized institutions are not permitted to 

accept brokered deposits. (See 12 U.S.C. §1831(f) 

and 12 C.F.R. 337.6.) 

Call report (OCC) A quarterly report of income and financial condition 

that banks file with their regulatory agency. The 

contents of a call report include consolidated 

detailed financial information on assets, liabilities, 

capital, and loans to executive officers, as well as 

income, expenses, and changes in capital 

accounts. On February 3, 2011, the federal 

banking agencies announced a change from 

quarterly thrift financial reports to quarterly call 

reports. Savings associations are required to file 

quarterly call reports, beginning with the March 31, 

2012, report date. Effective on that date, all 

schedules of the thrift financial report will be 

eliminated. 

CAMELS Federal banking agencies use the Uniform Financial 

Institutions Rating System, or “CAMELS,” to 

assign composite and component ratings to 

financial institutions. An institution’s composite 

CAMELS rating integrates ratings from six 

component areas—capital adequacy, asset quality, 

management, earnings, liquidity, and sensitivity to 

market risk. The ratings range from 1 to 5 with 1 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 4 

being the highest rating and least supervisory 

concern. 

Capital restoration plan A plan submitted to the appropriate federal banking 

agency by an undercapitalized insured depository 

institution. A capital restoration plan specifies the 

steps the institution is to take to be adequately 

capitalized and the levels of capital to be attained 

during each year in which the plan is in effect. It 

also specifies how the institution is to comply with 

the restrictions or requirements then in effect, the 

types and levels of activities in which the 

institution is to engage, and any other information 

that the federal banking agency may require. 

Cease and desist order (OTS) An order issued by OTS that requires the thrift to 

correct a violation of a law or regulation, or an 

unsafe or unsound practice. OTS may issue a 

cease and desist order in response to violations of 

federal banking, securities, or other laws by thrifts 

or individuals or if it believes that an unsafe and 

unsound practice or violation is about to occur. A 

cease and desist order is a formal (public) 

enforcement action. 

Cease and desist order (OCC) An order issued by OCC that sets out in article-byarticle form restrictions and remedial measures 

necessary to correct unsafe or unsound practices 

or violations in the bank in order to return it to a 

safe and sound condition. There is no legal 

distinction between a consent order and a cease 

and desist order: a consent order is a cease and 

desist order issued by consent. A cease and desist 

order is a formal (public) enforcement action. 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 5 

Classified asset Also referred to as an adversely classified asset, an 

asset that is rated as substandard, doubtful, or 

loss. Substandard assets are inadequately 

protected by the current worth and paying capacity 

of the obligor or of the collateral pledged, if any. A 

doubtful asset has all the weaknesses of a 

substandard asset with the added characteristic 

that the weaknesses make collection or liquidation 

in full questionable and improbable. A loss asset is 

considered uncollectible and of such little value, 

that continuation as a recorded asset is not 

warranted. 

Collateralized mortgage 

 obligation Bonds that are a type of mortgage-backed security 

representing claims to specific cash flows from 

large pools of home mortgages. The streams of 

principal and interest payments on the mortgages 

are distributed to the different classes of the 

collateralized mortgage obligation interests, known 

as tranches, according to a complicated deal 

structure. Each tranche may have different 

principal balances, coupon rates, prepayment risks, 

and maturity dates (ranging from a few months to 

20 years). Collateralized mortgage obligations are 

often highly sensitive to changes in interest rates 

and any resulting change in the rate at which 

homeowners sell their properties, refinance, or 

otherwise pre-pay their loans. Investors in these 

securities may not only be subjected to this 

prepayment risk, but also exposed to significant 

market and liquidity risks. 

Commercial real estate loan A loan for real property where the primary or 

significant source of repayment is from rental 

income associated with the property or the 

proceeds of the sale, refinancing, or permanent 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 6 

financing of the property. Commercial real estate 

loans include construction and real estate 

development loans, land development loans, and 

commercial property loans (such as for office 

buildings and shopping centers). 

Community Reinvestment Act Enacted by Congress in 1977, the act encourages 

insured depository institutions to help meet the 

credit needs of their communities for housing and 

other purposes, particularly in neighborhoods with 

low or moderate incomes, while maintaining safe 

and sound operations. 

Compliance examination The part of an insured depository institution 

examination that includes an assessment of how 

well the institution manages compliance with 

consumer protection and public interest laws and 

regulations, including the Bank Secrecy Act. 

Comprehensive examination A combined examination of an insured depository 

institution’s safety and soundness and its 

compliance with applicable rules and regulations. 

Concentration (of credit) (OTS) A group of similar types of assets or liabilities that, 

when aggregated, exceed 25 percent of a thrift’s 

core capital plus allowance for loan and lease 

losses. Concentrations may include direct, indirect, 

and contingent obligations or large purchases of 

loans from a single counterparty. 

Concentration (of credit) (OCC) A situation where direct, indirect, or contingent 

obligations exceed 25 percent of a bank's capital 

structure. 

Concentration risk Risk in a loan portfolio that arises when a 

disproportionate number of an insured depository 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 7 

institution’s loans are concentrated in one or a 

small number of financial sectors, geographical 

areas, or borrowers. 

Consent order (OCC) The title given by OCC to a cease and desist order 

that is entered into and becomes final through the 

board of directors’ execution, on behalf of the 

bank, of a stipulation and consent document. Its 

provisions are set out in article-by-article form and 

prescribe restrictions and remedial measures 

necessary to correct deficiencies or violations in 

the bank in order to return it to a safe and sound 

condition. A consent order is a formal (public) 

enforcement action. 

Construction permanent loan Construction permanent loans finance the building 

of a new property. This type of financing carries a 

regular amortization schedule, and does not require 

any refinancing after completion of the building 

work. 

Conventional mortgage A residential mortgage not backed by federal 

insurance or guarantee. In the secondary mortgage 

market, Fannie Mae and Freddie Mac are the major 

purchasers of conventional loans. 

Core capital A component of Tier 1 capital, core capital 

primarily consists of stockholder’s equity. 

Correspondent channel An arrangement through which a correspondent 

lender both processes and funds loans, then sells 

them to a wholesale lender, usually under a 

previous commitment by the wholesaler to 

purchase a certain amount of loans at an agreedupon interest rate. 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 8 

Criticized Assets A term that is generally recognized as including 

both special mention assets and classified assets. 

A special mention asset is an asset with potential 

weaknesses that deserve management's close 

attention. If left uncorrected, these potential 

weaknesses may result in deterioration of the 

repayment prospects for the asset or in the 

institution's credit position at some future date. 

Special mention assets are not adversely classified 

and do not expose an institution to sufficient risk 

to warrant adverse classification. A classified asset

is an asset that is rated as substandard, doubtful, 

or loss. Substandard assets are inadequately 

protected by the current worth and paying capacity 

of the obligor or of the collateral pledged, if any. A 

doubtful asset has all the weaknesses of a 

substandard asset with the added characteristic 

that the weaknesses make collection or liquidation 

in full questionable and improbable. A loss asset is 

considered uncollectible and of such little value, 

that continuation as a recorded asset is not 

warranted. 

De novo bank (OCC) A newly chartered bank that has been open for 

less than 3 years. 

Debt-to-income Ratio of the borrower’s monthly obligations 

compared with the borrower’s gross income. An 

insured depository institution’s board of directors 

should establish underwriting standards that 

include prudent ratios appropriate for products in 

the institution’s lending area that do not expose 

the institution to inordinate levels of credit risk. 

Deposit Insurance Fund A fund that is devoted to insuring the deposits of 

individuals by the Federal Deposit Insurance 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 9 

Corporation. The Deposit Insurance Fund is set 

aside to pay back the money lost due to the failure 

of an insured depository institution. The Deposit 

Insurance Fund is funded by insurance payments 

from insured depository institutions. 

District Supervisory 

 Review Committee (OCC) A committee in each OCC district that ensures 

OCC bank supervision and enforcement policies are 

applied effectively and consistently. Each 

committee advises the OCC deputy comptroller for 

the district on bank supervision and enforcement 

cases by providing recommendations on 

supervisory strategies and enforcement actions. 

Division of Resolutions 

 and Receiverships A division within the Federal Deposit Insurance 

Corporation charged with resolving failing and 

failed insured depository institutions, including 

ensuring that depositors have prompt access to 

their insured funds. 

Early payment default In the mortgage industry, the term refers to a 

mortgage that becomes 90 or more days 

delinquent or goes into default during its first year. 

Equity capital Invested money that, in contrast to debt capital, is 

not repaid to the investors in the normal course of 

business. It represents risk capital staked by the 

owners through purchase of an insured depository 

institution’s common stock. Its value is computed 

by estimating the current market value of 

everything owned by the institution, from which 

the total liabilities are subtracted. On the balance 

sheet, equity capital is listed as stockholders’ 

equity or owners’ equity. Equity capital is the initial 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 10 

funding (called contributed capital or paid-in 

capital) needed to charter a bank or thrift; a 

cushion against operating losses, such as bad debt; 

and a source of protection for depositors’ money. 

Federal Home Loan Bank 

 System A system of 12 regional cooperative banks created 

by Congress from which member institutions 

borrow funds to finance housing, economic 

development, infrastructure, and jobs. The system 

provides liquidity to member institutions that hold 

mortgages in their portfolios and facilitates the 

financing of mortgages by making low-cost loans, 

called advances, to members. Advances with a 

wide variety of terms to maturity, from overnight 

to long-term, are available to members and are 

collateralized. Advances are designed to prevent 

any possible loss to Federal Home Loan Banks, 

which also have a super lien (a lien senior or 

superior to all current and future liens on a property 

or asset) when insured depository institutions fail. 

To protect their position, Federal Home Loan Banks 

have a claim on any of the additional eligible 

collateral in a failed institution. In addition, the 

Federal Deposit Insurance Corporation has a 

regulation that reaffirms the priority of Federal 

Home Loan Banks, which can demand prepayment 

of advances when institutions fail. 

FICO score A credit score provided to lenders by credit 

reporting agencies to reflect information that each 

credit bureau keeps on file about the borrower. The 

scores are produced from software developed by 

the Fair Isaac Corporation. The scores take into 

consideration borrower information such as 

(1) timeliness of payments; (2) the length of time 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 11 

credit has been established; (3) the amount of 

credit used versus the amount of credit available; 

(4) the length of time at present residence; and 

(5) negative credit information such as 

bankruptcies, charge-offs, and collections. The 

higher the credit score is, the lower the risk to the 

lender. 

Field visit (OTS) A visit conducted to review specific areas of 

concern that OTS has about an insured depository 

institution. 

Formal agreement (OCC) A bilateral document signed by the board of 

directors on behalf of the bank and an authorized 

OCC official. It is a formal (public) enforcement 

action and legally recognized document issued 

pursuant to the OCC’s enforcement authority under 

12 USC 1818(b). Violations of a formal agreement 

can provide the legal basis for assessing civil 

money penalties against directors, officers, and 

other institution-affiliated parties. However, unlike 

a consent order, formal agreements are not 

enforceable through the federal court system. 

Full-scope examination Examination activities performed during the 

supervisory cycle that (1) are sufficient in scope to 

assign or confirm an insured depository 

institution’s CAMELS composite and component 

ratings, (2) satisfy core assessment requirements, 

(3) result in conclusions about an institution’s risk 

profile, (4) include onsite supervisory activities, and 

(5) generally conclude with the issuance of a report 

of examination. 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 12 

Generally accepted 

 accounting principles A widely accepted set of rules, standards, and 

procedures established by the Financial Accounting 

Standards Board for reporting financial information. 

Government-sponsored 

 enterprises Financial services corporations that are federally 

sponsored to enhance the flow of credit to the 

agriculture and home finance sectors of the 

economy. The Federal Home Loan Mortgage 

Corporation (Freddie Mac), Federal National 

Mortgage Association (Fannie Mae), Government 

National Mortgage Association, Federal Farm Credit 

Banks, Agriculture Credit Bank, Federal Agriculture 

Mortgage Corporation, and the 12 Federal Home 

Loan Banks are collectively referred to as 

government-sponsored enterprises. 

Home equity line of credit A home equity line of credit is a form of revolving 

credit in which one’s home serves as collateral. 

Individual minimum 

 capital ratio (OCC) Established under OCC authority, a minimum level 

of capital for a banking institution that OCC 

considers necessary or appropriate in light of the 

particular circumstances of the institution. When a 

bank’s capital is impaired, OCC may require the 

bank to establish this ratio requiring the bank to 

achieve and maintain capital levels higher than 

regulatory minimums. Appropriate minimum capital 

ratios for an individual bank cannot be determined 

solely through the application of a rigid 

mathematical formula or wholly objective criteria. 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 13 

The decision is based in part on subjective 

judgment grounded in agency expertise. 

Interest carry The portion of a construction line of credit that is 

set aside to advance interest expense until the 

construction project is completed. Interest carry is 

considered part of the cost of the construction 

project until it is completed. 

Interest rate risk The possibility that the value of an asset will 

change adversely as interest rates change. Interest 

rate risk results from the differences in the way 

interest rate changes affect the values of assets, 

liabilities, and off-balance sheet instruments. 

Interest reserve An account established by the lender to 

periodically advance funding to pay interest 

charges on the outstanding balance of a loan. 

Internet Certificates of 

 Deposits or Internet CD Certain deposits are attracted over the Internet, 

through CD listing services, or through special 

advertising programs offering premium rates to 

customers with little or no other banking 

relationship. Although these deposits may not fall 

within the technical definition of brokered deposits, 

they are similar to brokered deposits. That is, they 

are high-yielding products attractive to rate 

sensitive customers who do not have any other 

significant relationship with the bank. 

Line sheet A working paper document used by examiners to 

review a bank loan. The line sheet initially contains 

basic information about a loan, including the 

original amount, the current balance, and the 

monthly payment. Examiners then use the line 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 14 

sheet as they review the loan file, documenting 

their analysis, the disposition of the loan, and the 

reasons for that disposition. 

Loan exception Conditions applicable to a loan that are contrary to 

an insured depository institution’s written loan 

policy, procedures or underwriting guidelines or 

where documentation needed to legally enforce the 

loan agreement is missing. 

Loan participation The sharing of a loan by a group of insured 

depository institutions that join together to make a 

loan too large for any one of the institutions to 

handle. Also known as participation financing, loan 

participations are arranged through correspondent 

banking networks in which smaller institutions buy 

a portion of the overall financing packages. Loan 

participation is a convenient way for smaller 

institutions to acquire an interest in loans that 

would otherwise exceed their legal lending limits. 

Loan presentation 

 memorandum A document that a loan officer prepares for the 

loan committee of a financial institution 

when a loan is initially approved, extended, or 

renewed. A loan presentation memorandum 

typically includes the purpose of the credit, the 

sources of repayment, the terms of the note, a 

description of the project, the strength and 

weaknesses of the credit, and other analyses of 

the project. 

Loan production office An office of an insured depository institution that 

takes loan applications and arranges financing for 

corporations and small businesses but does not 

accept deposits. Loan applications taken by loan 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 15 

production offices are subject to approval by the 

lending institution. 

Loans to one borrower 

 regulation A regulation that imposes lending limitations on an 

insured depository institution to avoid the risk of 

concentrating too great a portion of its assets in 

any single borrower or in borrowers related in a 

common enterprise. It limits the aggregate dollar 

amount of an institution’s loans to each borrower 

but does not limit the number of loans within that 

aggregate dollar amount. (See 12 C.F.R. 560.93.) 

Loan-to-value ratio A ratio for a single loan and property calculated by 

dividing the total loan amount at origination by the 

market value of the property securing the credit 

plus any readily marketable collateral or other 

acceptable collateral. In accordance with 

Interagency Guidelines for Real Estate Lending 

Policies established by the federal banking 

supervisory agencies, institutions’ internal loan-tovalue limits should not exceed the legal lending 

limit: (1) 65 percent for raw land; (2) 75 percent 

for land development; (3) 80 percent for 

commercial, multifamily, and other nonresidential 

loans; and (4) 85 percent for one-family to fourfamily residential loans. The guidelines do not 

specify a limit for owner-occupied one-family to 

four-family properties and home equity loans. 

However, when the loan-to-value ratio on such a 

loan equals or exceeds 90 percent at the time of 

origination, the guidelines state that the institution 

should require mortgage insurance or readily 

marketable collateral. 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 16 

Matter requiring 

 attention (OCC) A bank practice noted during an examination that 

deviates from sound governance, internal control, 

and risk management principles, which may 

adversely affect the bank’s earnings or capital, risk 

profile, or reputation if not addressed. It may also 

result in substantive noncompliance with laws and 

regulations, internal policies or processes, OCC 

supervisory guidance, or conditions imposed in 

writing in connection with the approval of any 

application or other request by a bank. In some 

circumstances, a matter requiring attention could 

also be an unsafe or unsound practice. 

Mortgage-backed security A debt obligation that represents claims to the 

cash flows from pools of mortgage loans, most 

commonly on residential property. There are two 

primary forms of mortgage-backed securities. 

Agency mortgage-backed securities are guaranteed 

by a government agency or government-sponsored 

enterprise such as Fannie Mae or Freddie Mac, 

while non-agency mortgage-backed securities are 

issued by banks and financial companies not 

associated with a government agency. 

Mortgage banking A term that refers to the origination, sale and 

servicing of mortgages. A mortgage banker takes 

an application from the borrower and issues a loan 

to the borrower. The mortgage banker then sells 

the loan to an investor and may retain or sell the 

servicing of the loan that includes collecting 

monthly payments, forwarding the proceeds to the 

investors who purchased the loan, and acting as 

the investor’s representative for other issues and 

problems with the loan. 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 17 

Mortgage broker An intermediary that brings mortgage borrowers 

and mortgage lenders together but does not use its 

own funds to originate mortgages. 

Mortgage servicing asset An asset net of any valuation allowances that 

result from contracts to service loans secured by 

real estate (that have been securitized or are 

owned by others). 

 

Mortgage servicing rights A contractual agreement where the rights to 

service an existing mortgage are sold by the 

original lender to another party who specializes in 

servicing mortgages. Common services rights 

include the right to collect mortgage payments 

monthly, set aside taxes and insurance premiums 

in escrow, and forward interest and principal to the 

mortgage lender. 

Multi-variable stress testing Testing designed to determine whether an insured 

depository institution has enough capital to 

weather the impact of adverse developments. 

Negative amortization Negative amortization occurs when the monthly 

payments on a loan do not cover all of the interest 

owed. The interest not paid is added to the 

principal loan balance and is referred to as 

capitalized interest. With negative amortization, 

borrowers may owe more than they did at the 

beginning of the loan even after they have made 

many payments. Additionally, the borrower’s 

equity in the property will decrease over time 

unless the property value increases at a higher rate 

than negative amortization. 

No-doc loan Short for "no-documentation loan,” this term 

typically refers to a residential mortgage loan for 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 18 

which the applicant provides a minimum amount of 

information – name, address, Social Security 

number, and contact information for an employer, 

if there is one. The underwriter decides on the loan 

based on the applicant's credit history, the 

appraised value of the house, and size of down 

payment. 

Nonaccrual loan A loan in which interest accruals have been 

suspended because full collection of principal is in 

doubt or interest payments have not been made for 

a sustained period of time. 

Nonconforming loan Unlike a conforming loan, a nonconforming loan 

does not have terms and conditions that follow the 

guidelines set forth by Fannie Mae and Freddie 

Mac. These two government-sponsored enterprises 

purchase mortgage loans (conforming loans) within 

the guidelines from mortgage lending institutions, 

package the mortgages into securities, and sell the 

securities to investors. Fannie Mae and Freddie 

Mac guidelines establish the maximum loan 

amount, borrower credit and income requirements, 

down payment, and suitable properties. 

Nonperforming loan A loan that is not earning income and for which 

either (1) payment of principal and interest is no 

longer anticipated, (2) principal or interest is 90 

days or more delinquent, or (3) the maturity date 

has passed and payment in full has not been made. 

Nonrecourse loan A loan that is secured by collateral (e.g., a home or 

building), but for which the borrower is not held 

personally liable. If the lender seizes the property 

and the sale does not cover the loan, the borrower 

is not responsible for the shortfall. 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 19 

Nontraditional mortgage A broad term describing mortgages that do not 

take the traditional form. Traditional mortgage 

loans, both fixed and adjustable rate, typically 

require that the borrower’s monthly payment cover 

both interest and a reduction in principal, allowing 

for a reasonably predictable amortization over the 

life of the mortgage. Nontraditional mortgages 

include, but are not limited to, interest-only 

mortgages, payment option adjustable rate 

mortgages, and subprime mortgages. 

Notice of charges (OTS) A notice issued by OTS initiating a proceeding to 

obtain a permanent cease and desist order when 

OTS has determined that there is a violation, an 

unsafe or unsound practice, or a threatened 

violation or practice that is likely to result in 

significant dissipation of assets, weakening of the 

thrift’s condition, or prejudice to the interests of 

the depositors before completion of the cease and 

desist order. 

Option adjustable rate 

 mortgage A form of adjustable rate mortgage (ARM) that 

allows the borrower to select from various loan 

payment options each month. These mortgages are 

typically structured with a low introductory interest 

rate and as many as four major types of payment 

options: a fully amortizing 30-year payment, a fully 

amortizing 15-year payment, an interest-only 

payment, and a minimum payment option that 

adjusts after the first 12 months. Option ARM(s) 

are also called flexible payment ARMs. 

Order of Investigation An administrative action initiating an investigation 

of a bank or thrift for possible insider abuse, 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 20 

mortgage fraud, manipulation of records, violation 

of laws, and unsafe and unsound banking 

practices. The action grants OCC and OTS 

personnel authority to issue subpoenas and take 

sworn statements. 

Other real estate owned Real properties that an insured depository 

institution has acquired that do not constitute its 

facilities. Such properties include real estate 

acquired in full or partial satisfaction of a debt 

previously contracted and are subject to specific 

holding periods, disposition requirements, and 

appraisal requirements. 

Other-than-temporary 

 impairment charge A loss that must be recognized when it is 

determined that an impairment is other than 

temporary. The amount recognized equals the 

difference between the cost of an investment and 

its fair value. 

Part 30 safety and 

 soundness plan (OCC) Refers to 12 CFR part 30, an informal (nonpublic) 

enforcement action in which OCC informs a bank 

that it failed to meet established safety and 

soundness standards and requires it to submit a 

compliance plan with planned corrective actions 

and completion dates. 

Past-due loan A loan where payments are 30 to 90 days 

delinquent. 

Payment shock A very large increase in the payment on an 

adjustable rate mortgage, resulting in potential 

inability of the borrower to afford the payment. 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 21 

Prompt corrective action A framework of supervisory actions for insured 

depository institutions that are not adequately 

capitalized. It was intended to ensure that action is 

taken when an institution becomes financially 

troubled in order to prevent a failure or minimize 

resulting losses. These actions become increasingly 

severe as an institution falls into lower capital 

categories. The capital categories are well 

capitalized, adequately capitalized, 

undercapitalized, significantly undercapitalized, and 

critically undercapitalized. (See 12 U.S.C. § 

1831o.) The prompt corrective action minimum 

requirements are as follows: 

Capital Category 

Total 

RiskBased 

Tier 1/

RiskBased Tier 1/ 

Leverage 

Well-capitalizeda 10% or 

greater 

and 6% or 

greater 

and 5% or greater 

Adequately 

capitalized 

8% or 

greater 

and 4% or 

greater 

and 4% or greater 

(3% for 1-rated) 

Undercapitalized 

Less 

than 8% 

or Less 

than 4% 

or Less than 4% 

(except for 1-

rated) 

Significantly 

undercapitalized 

Less 

than 6% 

or Less 

than 3% 

or Less than 3% 

Critically 

undercapitalized 

Has a ratio of tangible equity to total assets that is 

equal to or less than 2 percent. Tangible equity is 

defined in 12 C.F.R. § 565.2(f). 

a To be well-capitalized, an institution also cannot be subject to a 

higher capital requirement imposed by the Office of Thrift Supervision 

and Office of the Comptroller of the Currency. 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 22 

Recourse With respect to financial assets, the legal ability of 

the purchaser of an asset to make a claim against 

the seller of the asset if the debtor defaults. With 

respect to real estate, it is the ability of a lender to 

claim money from a borrower in default in addition 

to the property pledged as collateral. With respect 

to full recourse, the term refers to the clause in an 

asset sales agreement whereby a bank selling a 

loans or loan participation to an investor agrees to 

fully reimburse the investor for losses resulting 

from the purchased loan. 

Regulation W A Federal Reserve System regulation that 

establishes certain restrictions on and requirements 

for transactions between federally insured 

depository institutions and their affiliates. 

Regulation W requires that transactions between 

member banks meet certain stipulations, such 

as: (1) the credit extended to an affiliate bank must 

be secured; (2) transactions with any one affiliate 

total no more than 10 percent of an institution's 

capital; and (3) transactions to all affiliates total no 

more than 20 percent of an institution's capital. 

Risk-based capital A measure of an insured depository institution’s

financial strength, taking into account capital 

reserves for loans, investments, and certain other 

items that are off the balance sheet. In general, 

assets with higher credit risk require more capital 

in reserve than low-risk assets. The aim of riskbased capital is to (1) encourage institutions to 

keep a sufficient cushion of equity capital, 

including common stock, to support balance sheet 

assets; (2) include off-balance sheet items in the 

computation of capital adequacy; (3) eliminate 

disincentives to holding low-risk, liquid assets; and 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 23 

(4) set uniform international guidelines for bank 

capital adequacy. Risk-based capital can be 

measured as the sum of Tier 1 capital plus Tier 2 

capital. 

 

Risk-weighted asset An asset calculation used in determining the capital 

requirement for an insured depository institution. 

Risk-weighted assets are computed by adjusting 

each asset class for risk in order to determine an 

insured depository institution’s real world exposure 

to potential losses. Regulators then use the riskweighted total to calculate how much lossabsorbing capital an institution needs to sustain it 

through difficult markets. 

Special mention An asset with potential weaknesses that deserve 

management's close attention. If left uncorrected, 

these potential weaknesses may result in 

deterioration of the repayment prospects for the 

asset or in the institution's credit position at some 

future date. Special mention assets are not 

adversely classified and do not expose an 

institution to sufficient risk to warrant adverse 

classification. 

Special Supervision 

 Division (OCC) A headquarters division of OCC that supervises 

critical problem national banks through 

rehabilitation or other resolution processes such as 

orderly failure management or the sale, merger, or 

liquidation of such institutions. 

Stated income loan A non-traditional loan for which the lender does not 

verify the income stated on the loan application. 

Typically, however, the lender does verify 

employment and a 2-year consistent employment 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 24 

history (same employer and/or same business) 

must exist.

Structured investment 

 securities A term used to refer to many of the products that 

are part of the securitization market. In an assetbacked security, cash flows from the underlying 

assets (collateral) can be allocated to investors in 

different ways. For example, they can be passed 

through directly to investors or divided up 

according to specific rules and investor demand, 

thereby creating “structured” securities that allow 

investors to invest in products that meet their 

specific risk appetites and collateral and earnings 

requirements. 

Subprime loan (OTS) A loan to a borrower with (1) a credit bureau score 

of 660 or below; (2) two or more 30-day 

delinquencies in the last 12 months, or one or 

more 60-day delinquencies in the last 24 months; 

(3) bankruptcy in the last 5 years, and/or (4) a 

judgment, foreclosure, repossession, or charge-off 

in the last 24 months. 

Substandard asset An asset that is inadequately protected by the 

current sound worth and paying capacity of the 

obligor or by the collateral pledged, if any. Assets 

classified as substandard must have a well-defined 

weakness, or weaknesses that jeopardize the 

liquidation of the debt. A substandard asset 

presents the distinct possibility that the institution 

holding it will sustain some loss if the asset’s 

deficiencies are not corrected. 

Supervisory directive (OTS) An informal (non-public) enforcement action by 

OTS that directs a thrift to cease an activity or 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 25 

take an affirmative action to remedy or prevent an 

unsafe or unsound practice. 

Tangible equity The tangible equity of an insured depository 

institution is the institution’s total assets minus 

intangible assets minus total liabilities. Examples of 

an intangible asset include goodwill, bank card 

service marks, and patents. 

Targeted examination (OCC) A bank examination that does not fulfill all of the 

requirements of a statutory full-scope examination. 

Targeted examinations may focus on one particular 

product, function, or risk, or they may cover 

specialty areas. 

Thrift financial report (OTS) A financial report that thrifts are required to file 

quarterly with OTS. The report includes detailed 

information about the institution's operations and 

financial condition and must be prepared in 

accordance with generally accepted accounting 

principles. The thrift financial report is similar to 

the call report required of commercial banks. On 

February 3, 2011, the federal banking agencies 

announced a change from quarterly thrift financial 

reports to quarterly call reports. Savings 

associations are required to file quarterly call 

reports, beginning with the March 31, 2012, report 

date. Effective on that date, all schedules of the 

thrift financial report would be eliminated. 

Tier 1 capital The portion of an insured depository institution’s 

capital that is common shareholder’s equity 

(common stock, surplus, and retained earnings), 

noncumulative perpetual preferred stock, and 

minority interests in the equity accounts of 

consolidated subsidiaries. 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 26 

Tier 2 capital The portion of an insured depository institution’s 

capital that is subordinated debt, intermediate-term 

preferred stock, cumulative and long-term preferred 

stock, and a portion of the allowance for loan and 

lease losses. The portion of the allowance for loan 

and lease losses includes amounts reflecting lower 

valuations of asset or latent but unidentified losses 

present on the balance sheet. The amount of such 

provisions or reserves will be limited to a maximum 

of 1.25 percent. 

Transaction Account 

 Guarantee Program A component of the Federal Deposit Insurance 

Corporation’s Temporary Liquidity Guarantee 

Program. The Temporary Liquidity Guarantee 

Program was established in October 2008 as part 

of a coordinated effort by the Federal Deposit 

Insurance Corporation, the Department of the 

Treasury, and the Federal Reserve System to 

address unprecedented disruptions in credit 

markets and the resultant inability of financial 

institutions to fund themselves and make loans to 

creditworthy borrowers. The Temporary Liquidity 

Guarantee Program has two distinct components: 

(1) the Debt Guarantee Program and (2) the 

Transaction Account Guarantee Program. The 

Federal Deposit Insurance Corporation guarantees 

certain senior unsecured debt issued by 

participating entities under the Debt Guarantee 

Program and all funds held in qualifying 

noninterest-bearing transaction accounts at 

participating insured depository institutions under 

the Transaction Account Guarantee Program. 

Originally scheduled to expire on December 31, 

2009, FDIC extended the Transaction Account 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 27 

Guarantee Program until December 31, 2010. The 

Dodd-Frank Wall Street Reform and Consumer 

Protection Act of 2010, P.L. 111-203, extended 

the Transaction Account Guarantee Program until 

December 31, 2012, and made participation in this 

program mandatory for all insured depository 

institutions. 

Troubled condition A condition in which an insured depository 

institution meets any of the following criteria: 

(1) the regulator has notified the institution in 

writing that it has been assigned a CAMELS 

composite rating of 4 or 5; (2) the institution is 

subject to a capital directive, cease and desist 

order, a consent order, a formal written agreement, 

or a prompt corrective action directive relating to 

its safety and soundness or financial viability; or 

(3) the regulator based on information available to 

it, had informed the institution in writing of its 

troubled condition. Such information may include 

current financial statements and reports of 

examination. 

Troubled Condition and 

 Directive Letter (OTS) An informal enforcement action issued to an 

institution that it has one or more of the following 

conditions that put it into a troubled condition: 

(1) self-dealings or other conflicts of interest, 

(2) unsafe and unsound practices, (3) management 

incompetence, (4) lack of director participation, or 

(5) disregard for the regulatory process. 

Troubled Asset Relief Program A program established under the Emergency 

Economic Stabilization Act of 2008 with the goal 

of stabilizing the U.S. financial system and 

preventing a systemic collapse. The act gave the 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 28 

Troubled Asset Relief Program the authority to 

purchase and make fund commitments to purchase 

troubled assets from financial institutions. 

Trust preferred securities Trust preferred securities are long-term debt 

instruments, typically with 30-year interest-only 

payments. Trust preferred securities are accounted 

for as minority interest and are positioned between 

debt and equity on the balance sheet. 

Uniform Bank Performance 

 Report An analytical tool created by the Federal Financial 

Institutions Examinations Council to help supervise 

and examine financial institutions. A Uniform Bank 

Performance Report is produced quarterly for each 

commercial bank that is supervised by the Board of 

Governors of the Federal Reserve System, FDIC, or 

OCC. The performance and composition data in the 

report are presented in the form of ratios, 

percentages, and dollar amounts and are computed 

mainly from call reports submitted by the bank. 

The Uniform Bank Performance Report also 

compares a bank’s performance and balance sheet 

structure with similarly sized banks. 

Uniform Standard of 

 Professional Appraisal 

 Practice The generally accepted standards for the 

professional appraisal practice in North America. 

The Uniform Standard of Professional Appraisal 

Practice (USPAP) contains standards for all types 

of appraisal services. Standards are included for 

real estate, personal property, business and mass 

appraisal. The Financial Institutions Reform, 
OIG-11-065 

Exhibit 

Glossary of Terms Used by the Office of Inspector General in 

Reports on Treasury-Regulated Financial Intuition Failures 

Page 29 

Recovery and Enforcement Act of 1989 recognizes 

USPAP as the general accepted appraisal standards 

and requires USPAP compliance for appraisers in 

federally related transactions. State Appraiser 

Certification and Licensing Boards; federal, state, 

and local agencies, appraisal services; and 

appraisal trade associations require compliance 

with USPAP. 

Washington Supervision 

 Review Committee (OCC) A committee that advises OCC senior deputy 

comptrollers on bank supervision and enforcement 

cases by providing recommendations on 

supervisory strategies and enforcement actions. 

The committee is chaired by the Deputy 

Comptroller for Special Supervision. 

Wholesale channel An arrangement through which an intermediary, 

such as a mortgage broker, offers loans directly to 

the consumer. 

Wholesale funding Funding obtained by insured depository institutions 

through such sources as federal funds, public 

funds, Federal Home Loan Bank advances, the 

Federal Reserve System’s primary credit program, 

foreign deposits, and brokered deposits. 
Appendix 1 

Report Distribution 

Department of the Treasury

 Office of Strategic Planning and Performance Management 

 Office of Accounting and Internal Control 

 

Office of the Comptroller of the Currency 

 Liaison Officer 

 

Office of the Thrift Supervision

 Liaison Officer 

Office of Management and Budget

 OIG Budget Examiner