Accrual Bond (or "Zero Coupon Bond" or "Capital Appreciation Bond") - A type of bond in which the Issuer pays no interest to the investor until the bond's redemption. Interest accrues at the agreed-upon rate and the total dollars which an investor receives upon redemption is based on how long the bond remains outstanding.

Accrual Period - Period over which bond interest payments or swap payments are calculated. The accrual period is typically 6 months, 3 months or 1 month. For bonds the accrual period can be as short as a day for daily variable rate debt to as long as the entire life of the bond for certain types of zero coupon bonds. For swaps the accrual period does not have to be the same for each leg of the swap; the fixed leg can use one accrual period length while the floating leg uses another.

Accrued Interest - Interest on bonds from the dated date or the previous interest payment to the date the investor purchases them. The interest is paid by the investor at the time of purchase and is returned to the investor on the next interest payment date.

Acquisition Fund - The fund created pursuant to a typical single family Trust Indenture into which bond proceeds are deposited and from which whole loans or mortgage-backed securities are purchased.

Acquisition Fund Investment Agreement - For a single family issue, prior to the time that bond proceeds are utilized to purchase whole loans or mortgage-backed securities, funds are typically invested in the Acquisition Fund Investment Agreement.

Additional Bonds Test - Refers to a legal test found in a resolution, ordinance or trust indenture securing bonds governing the ability to issue additional bonds having the same lien on pledged revenues. Usually expressed as a ratio in which historic earnings meet certain levels of future debt service coverage.

Adjustable Rate Mortgage or ARM - A single family mortgage that features predetermined adjustments of the loan interest rate at regular agreed upon intervals based on an established relationship to an agreed upon index. Subject to agreed upon interest rate caps and interest rate floors, on each adjustment date the mortgage rate becomes a rate equal to the index rate plus the agreed upon margin.

Advance Payment - A method for calculating and paying a period obligation in which the payment is made at the beginning of the payment period for the period of time between the beginning of the current payment period to the end of the current payment period. Trustee's fees are often calculated utilizing the advance payment method.

Advanced Refunding - A type of refunding done when it is not possible to redeem all of the refunded bonds within 90 days of the issuance of the refunding bonds. The proceeds of the refunding bonds are used to purchase treasury securities. The principal and interest on the treasury securities provide for the debt service requirements on the refunded bonds. The issuer then pays the debt service on the refunding bonds instead of the debt service on the refunded bonds. Pursuant to federal tax law, private activity bonds can not be advanced refunded with tax exempt refunding bonds.

After Acquired Clause - A contractual clause in a multi-family mortgage stating that any pledge able property acquired by the borrower after the mortgage is closed will be regarded as additional security for the mortgage.

Agreement Among Underwriters - An agreement between the members of an underwriting group which spells out the method which will be used to offer bonds to investors and spells out the rights of each of the underwriters. The primary information which is contained in the Agreement Among Underwriters is the priority in which orders will be filled and the manner in which liability will be assigned between the underwriters.

All or None Underwriting - An arrangement between the issuer and the underwriters in which the issue is cancelled if less than all of the bonds are sold to investors.

Alternative Minimum Tax (AMT) - One of the federal tax law provisions which was added as a result of the Tax Reform Act of 1986 which creates a second method of calculating income and taxes for those individuals and corporations which historically had been able to take advantage of more than the average amount of tax deductions.

Amortization - The process of paying the principal amount of an issue of bonds by periodic payments either through a sinking fund or scheduled maturity for the benefit of bondholders. Payments are usually calculated to include interest in addition to a partial payment of the original principal amount.

Arbitrage - Generally; transactions by which securities are bought and sold in different markets at the same time for the sake of the profit arising from a difference in prices in the two markets. With respect to the issuance of municipal bonds; the difference between the interest paid on the bonds issued and the interest earned by investing the bond proceeds in other securities. Arbitrage profits are permitted on some bond proceeds for various temporary periods after the issuance of municipal bonds. Internal Revenue Service regulations govern the arbitrage treatment of municipal bond proceeds.

Arbitrage Rebate - In single family and multifamily mortgage revenue bond transactions, the Issuer is only allowed to keep investment earnings calculated at a rate equal to the bond yield. If their overall return on an issue's investments is greater than the bond yield, the excess investment earnings have to be rebated to the U.S. Treasury Department. Such excesses are called Arbitrage Rebate.

Arrears Payment - A method for calculating and paying a period obligation in which the payment is made at the end of the payment period for the period of time from the end of the last payment period until the end of the current payment period. Interest on bonds and mortgages is always calculated utilizing the arrears payment method.

Ask (or Offer Price) - The lowest price an investor who wants to sell a security will accept for its purchase.

Assessed Valuation - The value of a piece of property determined by the tax assessor for a municipal entity that is the basis for determining the amount of property tax which will be owed to the municipal entity.

Asset Test - The typical resolution, ordinance or trust indenture contains a provision which allows surplus cash flow to be released from the revenue pledge as long as the Asset Test is met. The Asset Test is met when the total amount of assets in the program exceeds the principal amount of the liabilities by more than a certain percentage. The amount that the assets need to exceed the liabilities to pass the Asset Test is determined by the rating agencies or investors.

AMT Bond - A Tax-exempt bond which is subject to the Alternative Minimum Tax. Generally, all non-refunding, private activity tax-exempt bonds which were issued after 1986 are AMT Bonds.

ARM Margin - The Margin on an adjustable rate mortgage is the agreed upon amount which is added to the index rate on each rate reset date to determine the new mortgage rate.

Balloon Maturity - A term maturity within an issue of bonds which contains a disproportionately large percentage of the principal amount of the original issue and which contains no provision for periodic payments to a sinking fund for the mandatory redemption of specified amounts prior to their stated maturity.

Bank Qualified - The 1986 Tax Code generally denies institutions which we borrowed funds to purchase tax exempt bonds from using the interest expense on their loan as an income tax deduction. Bonds which (1) are not private activity bonds, and (2) are issued by a qualified small issuer, may be exempted from this restriction. These bonds are commonly referred to as "Bank Qualified".

Basis Point - A measure of interest rates equal to 0.01% (or .0001). Basis Points are typically used to describe the difference between two interest rate indices or to express the change in any one index from one point in time to another (e.g. interest rates on 30-year Treasury Bonds exceed the interest rate on 10-year Treasury Bonds by 20 basis points).

Basis Risk - Used in swap transactions to describe the risk that the historical relationship between two different markets may change. Clients who use a fixed rate swap based on 67% of LIBOR to hedge tax-exempt variable rate debt are exposed to basis risk between 67% of one month LIBOR and the rate that the issuer pays on its tax-exempt variable rate demand notes. If the BMA Index (as a proxy for tax-exempt Variable Rate Demand Notes) averages greater than 67% of LIBOR (its historical average), the floating rate payment that the client receives in the swap (67% of LIBOR) will be less than the floating rate payment it must make on its bonds (the BMA Index).

Bearer Bond (or "Coupon Bond") - A bond carrying coupons as evidence of future interest payments. Traditionally, most municipal bonds had been issued in coupon or bearer form. The Tax Equity and Fiscal Responsibility Act of 1982 requires that all municipal securities with maturities longer than one year be issued in fully registered form.

Best Efforts Underwriting - An arrangement between the issuer and the underwriters in which the ultimate size of the issue is determined by the lessor of the amount of bonds the issuer wants to issue or the amount of bonds which have been sold by the underwriters.

Bid - (1) A proposal to purchase an issue of bonds offered for sale either in a competitive offering or on a negotiated basis, specifying the interest rate(s) for each maturity and the purchase price which is usually stated in terms of par, par plus a premium, or par minus a discount. (2) A proposal to receive invested funds and pay the bid rate of interest on the invested funds. (3) The highest price an investor who wants to purchase a security will agree to pay for the purchase of that security.

Blue List - A daily publication listing municipal bonds being offered by dealers in the secondary bond market.

Blue Sky Laws - Common term for State Securities Laws, which vary from state to state. Generally refers to provisions related to prohibitions against fraud, dealer and broker regulations, and securities registration.

Bond - An instrument which evidences a debt obligation between the issuer (borrower) and investor (lender).

Bond Counsel - A firm of lawyers which give a legal opinion which speaks to the fact that the Issuer is authorized to issue bonds, that the bonds are validly issued under the applicable State Law, and if the bonds are tax-exempt bonds, that the interest on them is exempt from Federal and/or State Tax.

Bond Covenant (or "Covenant") - The issuer's enforceable promise to do or refrain from doing some act. With respect to municipal bonds, covenants are generally stated in the bond, resolution, ordinance or indenture. Covenants commonly made in connection with a bond issue include covenants to collect principal and interest payments on invested funds; to enforce the terms of the program's mortgage loans; not to sell or encumber the mortgage loan; not to issue parity bonds unless certain earnings tests are met (additional bonds covenant); and not to take actions which would cause the bonds to be arbitrage bonds (i.e., violate IRS regulations concerning levels of permitted investment earnings).

Bond Fund - A portfolio of bonds administered by a manager who offers shares in such fund to investors. Open-end bond funds offer shares continuously to the investing public, while closed-end bond funds contain a limited number of shares, and new investors must purchase shares from previous investors in such funds. Bond pools of these types are also known as "Managed Funds", because the manager, at his discretion, may buy and sell bonds for the portfolio.

Bond Indenture - See "Indenture".

Bond Insurance - An insurance policy provided by a third party to a transaction which guarantees that the investor will receive the agreed-upon payments of principal and interest on the bonds.

Bond Proceeds - The amount of funds that an issuer receives from the underwriters in a public offering, or from an investor in a private placement, in exchange for the issuer's bonds.

Bond Purchase Agreement - The legal document which explains the underwriters' (in a public offering) or the investors' (in a private placement) obligation to purchase the bonds and the issuer's obligation to deliver the bonds on the agreed-upon closing date.

Bond Yield - The interest rate which causes the present value of the principal and interest that the issuer pays on the bonds to be equal to the amount of proceeds received for the bonds.

Bondholder - The owner of a municipal bond, to whom payments of principal and interest are made. The owner of a bearer bond is the person having possession of the bond, while the owner of a registered bond is the person whose name is noted on the bond register.

Book Entry Bond - A registered bond with ownership recorded with a central registrar and bond depository. Physical delivery of a bond certificate is not available to bondholders.

Book Running Senior Manager - The member of the underwriting group which is primarily responsible for structuring the bond issue and coordinating the marketing of the issue to investors. The Book Running Senior Manager typically does the most work and typically earns the highest fee of any firm in the underwriting group.

Bridge Financing - For single family programs: the balance of the total mortgage financing which is provided with a conventional first mortgage sized at 80% of the purchase price to avoid having to make monthly primary mortgage insurance payments. For multi-family programs: a temporary financing put in place to secure ownership in a project until permanent financing can be secured.

BMA Index - Index of seven-day, tax-exempt, non-AMT, variable rate demand notes that are rated in the highest short-term ratings category for transactions that are greater than ten million. It is published each Wednesday by Municipal Market Data and is effective Thursday through the following Wednesday. The BMA Index is frequently used by tax-exempt issuers as the floating rate index in both fixed rate swaps and floating rate swaps.

Call Premium - An amount of money typically described as a certain percentage which an issuer has to pay to an investor if the issuer executes an optional redemption of the bonds.

Call Provisions - The terms under which bonds are redeemable by the issuer prior to the specified maturity date. The Call Provisions will be included in the indenture, resolution or ordinance and will probably be printed on the bonds.

Callable Bond - A bond which permits or requires the issuer to redeem the obligation before the state maturity date at a specified price (usually at or above par) by giving notice of redemption in a manner specified in the indenture.

Cap Rate - For a multifamily transaction the Cap Rate describes the ratio of a property's net operating income (NOI) to its purchase price.

Capital Appreciation Bond ("Accrual Bond" or "Zero Coupon Bond") - A type of bond in which the issuer pays no interest to the investor until the bond's redemption. Interest accrues at the agreed-upon rate and the total dollars which an investor receives upon redemption is based on how long the bond remains outstanding.

Capitalized Interest - In a single-family transaction the rate of return on acquisition fund investment agreements is less than the average coupon rate on the bonds. When the invested funds will not produce sufficient funds to pay the interest on the bonds, additional funds need to be invested at closing to pay the portion of the interest on the bonds which will not be paid from the acquisition fund investment agreement. This deficiency as well as the lag payment are capitalized interest. In a multi-family transaction where long term financing is obtained before the project is put into service there is no revenue with which to pay the periodic interest on the debt. Additional funds are often put on deposit to pay the deficiency, or capitalized interest.

Cash Flow Analysis - A quantitative analysis which demonstrates that the invested funds, mortgage loans, or mortgage-backed securities will provide sufficient cash flow to pay the principal and interest on the bonds and all expenses. Typically a Cash Flow Analysis will consist of several different cash flow projections utilizing several different sets of assumptions.

Closing - The meeting of concerned parties on the date of delivery to sign the requisite legal documents and for a bond transaction to physically deliver the bonds in exchange for payment of the purchase price. The parties at closing usually include representatives of the issuer, bond counsel and the purchaser (underwriters). Sometimes a pre-closing meeting is held the day before delivery to review the adequacy of the closing procedures and documents.

Closing Date - See "Delivery Date".

Co-Manager - A member of the underwriting group which is given less responsibility than a senior manager, who typically earns less of the underwriter's fees than a senior manager and who takes less liability than a senior manager.

Co-Senior Manager - A member of the underwriting group which is given more responsibility and liability than a co-manager but less than the book running senior manager. A co-senior typically receives a greater portion of the underwriter's fee than a co-manager, but less than the book running senior manager.

Coinsurance - For single family and multifamily loans Coinsurance is a type of mortgage insurance in which the loan originator agrees to insure part of the mortgage in return for a part of the premium. A stop-loss provision with respect to a pool of mortgage is usually involved. The term is often used in a less generic sense to refer to a now terminated FHA multifamily program. For bond issues and interest rate swaps, coinsurance involves the process of the insurance provider or swap provider participating the risk of the associated policy or contract with other market participants.

Collateralized Mortgage Obligations (CMO's) - A security backed by a pool of mortgages or mortgage backed securities. CMO's are issued with varying classes (tranches), all of which receive interest payment on each interest payment date. Principal payments on the mortgages in the pool are applied to the trenches in order of their maturity date. The tranche with the shortest maturity date will be completely retired before any other tranches receive any principal payments.