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Glossary For BDC And Mortgage REIT Terms

We have a few terms that we frequently use when discussing mortgage REITs and BDCs. We used to get several questions about terms when we published to Seeking Alpha Premium without including the definitions.

Glossary

  • NAV = Net Asset Value
  • BV = Book Value. Generally equals NAV for mREITs and BDCs.
  • MBS = Mortgage-Backed Security. A type of asset securitization which is secured by a pool of underlying mortgages. The mortgages are aggregated and sold to a group of individuals that securitize/package the loans together into a security that investors can buy.
  • TBA = To-Be-Announced. A contract to buy (or sell) a MBS on specified forward date.
  • CPR = Constant/Conditional Prepayment Rate. A monthly/quarterly/annual/lifetime estimate of the percentage of a loan pool's principal that is likely to be paid off prematurely.
  • NDR = Net Dollar Roll Income (Expense). The difference in price between the current delivery month of a MBS and the next delivery month (the “price drop”). The equivalent of accrued interest income (expense) of an on-balance sheet MBS investment.
  • MSR = Mortgage Servicing Right
  • Interest Rate Payer Swaps = The company pays a fixed interest rate and receives a variable interest rate. These are used to hedge interest rate exposure.
  • Interest Rate Receiver Swaps = The company receives a fixed rate and pays a variable rate. Can offset payer swaps.
  • Interest Rate Swaptions = Option contracts to enter into underlying payer/receiver interest rate swaps.
  • EAD = Earnings Available for Distribution. Interchangeable with Core Earnings.
  • FMV = Fair Market Value. Interchangeable with Fair Value/FV.
  • CECL = Current Expected Credit Loss. A recently-enacted accounting impairment model whereas management estimates expected credit losses over the life of all underlying investments not recorded at FMV (and books a reserve) as opposed to strictly actual/realized losses that have occurred.
  • ASC = Accounting Standards Codification
  • REO = Real Estate Owned. When pertaining to this sector, typically a procedure where a mREIT assumes legal title/possession of the underlying collateral/property through a foreclosure (or deed-in-lieu) process.
  • LTV = Loan-to-Value
  • ERTI = Estimated REIT Taxable Income
  • IRC = Internal Revenue Code
  • QM = Qualified Mortgage
  • Net Spread Less Operational Expenses = Currently considered the closest comparable metric to ORC’s sub-sector peers regarding core earnings/EAD.