12b-1 Fees - A mutual fund fee, named for the SEC rule that permits it, used to pay for distribution costs, such as advertising and sales. If a fund pays a 12b-1 fee, it will be disclosed in the fee table of the fund’s prospectus.
AFL-CIO - The American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) is a voluntary federation of more than 50 national and international unions, representing working women and men since 1955.
Area Median Income (AMI) - The midpoint family income from a metropolitan area or a non-metropolitan county, calculated each year by the U.S. Department of Housing and Urban Development for use in determining eligibility for housing programs. Adjustments are made for family size and areas with usually high or low income-to-housing-cost relationships.
Barclays Capital Aggregate Bond Index - A benchmark index made up of the Barclays Capital (formerly Lehman Brothers) Government/Corporate Bond Index, Mortgage-Backed Securities Index, and Asset-Backed Securities Index, including securities that are of investment-grade quality or better, have at least one year to maturity, and have a coupon that is fixed or steps according to a predetermined schedule.
Basis Point - 1/100th of one percent, or 0.01%.
Benchmark - A standard against which the performance of a security, index or investment can be measured.
Building and Construction Trades Department - The Building and Construction Trades Department, AFL-CIO, coordinates activity and provides resources to affiliated trade unions in the construction industry. It has over 380 state, local and provincial councils in the United States and Canada.
Cash Flow - The actual cash an investor will receive after deduction of operating expenses and debt service (loan payment) from gross income.
Central Labor Council (CLC) - A voluntary organization of local labor unions, chartered by the national AFL-CIO, working together to give working people a voice in their community. There are approximately 540 CLCs across the country.
Collateral Benefits - The additional benefits to investors that are derived from the HIT’s investments, beyond the primary benefits of competitive risk-adjusted returns. Collateral benefits may include the construction or rehabilitation of housing, the creation of union jobs in construction and related industries and the support of community development and revitalization.
Collateral Objectives - Company objectives in addition to the primary objective of providing investors with a competitive risk-adjusted return on their investment. Collateral objectives of the HIT include union job creation and support of affordable housing and community development.
Commercial Mortgage-Backed Security (CMBS) - A security backed by a pool of mortgages. It is similar to a mortgage-backed security, but secured by loans with commercial property in addition to residential property.
Community Development Block Grants (CDBG) - A federal program administered by HUD that provides grant funds to local and state governments to develop viable urban communities by providing decent housing and expanding economic opportunities for low- and moderate-income residents.
Convexity - A mathematical concept relating to the price / yield relationship of fixed income securities that measures the price sensitivity of the bond to changes in interest rate levels. For a given interest rate increase, a positively convex bonds capital loss effect is smaller than the capital gain effect that occurs with an equal interest rate decrease. The opposite is true for a negatively convex bond.
Coupon Rate - The stated interest rate on a fixed-income security that is paid to an investor on a principal amount.
Credit Quality - A measure of a bond issuer's ability to repay interest and principal in a timely manner. Nationally recognized statistical rating organizations assign letter designations such as AAA, AA and so forth. The higher the rating, the lower the probability of default.
Debt Service - The series of interest and principal payments on a debt over a defined period of time.
Debt Service Coverage Ratio - The debt service coverage ratio calculates the amount of cash available to meet debt obligations compared to the amount of debt obligations. For real estate loans, the debt service coverage ratio is Projected Net Operating Income (i.e. rents less operating expenses) divided by Debt Service (principal plus interest).
Department of Housing and Urban Development (HUD) - A U.S. Cabinet department responsible for national policy and programs that address the nation's need for fair and affordable housing for low- and moderate-income people. HUD administers programs, including Community Development Block Grants, Section 8 certificates and vouchers, public housing, homeless assistance, and fair housing education and enforcement. The Federal Housing Administration (FHA) and the Government National Mortgage Association (GNMA) are agencies within HUD.
Duration (Effective) - The change in the value of a fixed-income security that will result from a 1% change in interest rates. Duration is stated in years. For example, a 5 year duration means the bond will decrease in value by 5% if interest rates rise 1% and will increase in value by 5% if interest rates fall 1%. Unlike maturity, duration takes into account interest payments that occur throughout the course of holding the bond. Investors use duration to measure the volatility of a bond. Generally, the higher the duration (the longer an investor needs to wait for the bulk of the payments), the more its price will drop as interest rates go up. Of course, with the added risk comes greater expected returns. If an investor expects interest rates to fall during the course of the time the bond is held, the investor may choose a bond with a long duration because the bond's price would increase more than comparable bonds with shorter durations.
Effective Gross Income - The projected revenues expected to be collected in operating an income property. It consists of gross potential income less allowances for vacancies and collection losses.
Equity Capital - Funds invested by those who share in profits or tax benefits of a property.
Expense Ratio - The percentage of total fund assets that is used to cover expenses associated with the operation of a mutual fund. This amount is taken out of the fund's assets and lowers the return that fund holders achieve. These expenses include management fees and operating expenses. The management fee is the fee that is charged to the fund by the portfolio manager, and it is often a fixed percentage. The operating expenses are the expenses that the fund incurs in its operation and can include brokerage fees, taxes, investor services and interest expenses. The HIT does not assess a management fee or any fee on the sale or redemption of Units. All income earned by the Trust through its investments, less the actual costs for administration (operating expenses), is distributed to participants.
Expenses - Funds spent for ongoing operations.
Fair Market Rent (FMR) - Rent guidelines determined by HUD to be the cost of a modest, non-luxury rental unit in a specific market area for various size units (1 bedroom, 2 bedroom, etc.). With certain exceptions, it is the highest rent allowable for that market under the Section 8 program. FMR's are revised annually and are different for each community.
Fannie Mae - A congressionally chartered corporation that buys multifamily and single family mortgages on the secondary market, pools them and sells them as mortgage-backed securities to investors on the open market. Fannie Mae guarantees the monthly principal and interest payments on the mortgage-backed securities it issues. The securities are not backed by the U.S. government.
FHA (Federal Housing Administration) - The Federal Housing Administration is a government agency within the U.S. Department of Housing and Urban Development that provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. FHA insures mortgages on single family and multifamily homes including manufactured homes and hospitals.
Fixed-Income Security - A security that pays a specific interest rate, such as a bond, money market instrument or preferred stock.
Freddie Mac - Federal Home Loan Mortgage Corporation - A congressionally chartered corporation that buys multifamily and single family mortgages on the secondary market, pools them and sells them as mortgage-backed securities to investors on the open market. Freddie Mac guarantees the monthly principal and interest payments on the mortgage-backed securities it issues. The securities are not backed by the U.S. government.
Ginnie Mae - Government National Mortgage Association (GNMA) - A government agency within the U.S. Department of Housing and Urban Development that buys mortgages from lending institutions, securitizes them, and then sells them to investors. Because GNMA is an agency of the United States government, its payments are guaranteed by the full faith and credit of the U.S.
Government-Sponsored Enterprises (GSEs) - Privately owned, publicly chartered entities, such as Fannie Mae or Freddie Mac, created by Congress to reduce the cost of capital for certain borrowing sectors of the economy.
Gross Returns - The total return on investments before the deduction of management fees and expenses.
Historic Rehabilitation Tax Credit - Section 47 of the Internal Revenue Code that encourages private investment in the rehabilitation of historic properties such as offices, rental housing and retail stores. The tax credit is available for buildings that are individually listed in the National Register or contribute to a National Register Historic District and certain registered local historic districts. Properties must be income producing and must be rehabilitated according to standards set by the Secretary of the Interior.
HOPE VI - A program of the U.S. Department of Housing and Urban Development that provides grants to improve severely distressed public housing projects.
HUD - See Department of Housing and Urban Development.
HUD Income Guidelines - Income levels used for determining eligibility for HUD assistance programs, typically expressed as a percentage of the area median income.
Loan to Value Ratio - The ratio of the debt on a property to its appraised value.
Low Income - A term used to describe household income that does not exceed 80% of the area median income.
Low Income Housing Tax Credit (LIHTC) - A provision of section 42 of the Internal Revenue Code that offers property owners and investors a credit or reduction in their tax liability, each year for 10 years. LIHTCs are based on the cost of development and the number of qualified low-income units in a newly constructed or rehabilitated development. The owners must offer quality units to very-low or low-income tenants at fixed, below-market-rate rents that are set at 30% of the applicable Area Median Income. Tenants must meet income eligibility requirements to qualify for residency.
Moderate Income - A term used to describe household incomes that range between 80% and 120% of the area median income.
Mortgage Banker - An individual or company who originates, sells and services mortgages.
Mortgage Broker - An individual or company who brings borrowers and lenders together for the purpose of loan origination, but does not originate or service mortgages. A mortgage broker might also negotiate financing on behalf of the borrower.
Mortgage-Backed Security (MBS) - A security backed by a pool of mortgages, such as those issued by Ginnie Mae, Fannie Mae or Freddie Mac.
Mutual Fund - See Open-End Investment Company.
Net Assets - The difference between a fund or institution's total assets and total liabilities at a given point in time. Net asset value represents the value of equity shareholders' stake in the entity.
Net Operating Income (NOI) - For rental properties, the gross income from rent and other sources minus the vacancy allowance and operating expenses. Net operating income is the amount available for making loan payments (debt service) and paying investors (cash flow).
Net Returns - The returns to an investor after deducting management fees and expenses.
New Markets Tax Credit (NMTC) Program - The program was enacted in 2000 as part of the Community Renewal Tax Relief Act to stimulate economic growth in areas often overlooked by conventional investors by providing tax incentives to businesses and individuals that invest in low-income communities. Tax credits are allocated by the Community Development Financial Institution Fund (CDFI Fund) of the U.S. Treasury Department to certified CDEs for qualified low-income investment projects.
North America's Building Trades Unions (formerly Building and Construction Trades Department) - North America's Building Trades Unions Department, AFL-CIO, coordinates activity and provides resources to affiliated trade unions in the construction industry. It has over 380 state, local and provincial councils in the United States and Canada.
Open-End Investment Company - A corporation, trust or partnership registered under the Investment Company Act of 1940 that invests pooled shareholder dollars in securities appropriate to the organization’s objective. Also, referred to as a mutual fund, the open-end investment company stands ready to buy back its shares at their current net asset value. Most open-end investment companies continuously offer new shares to investors.
Parallel Shift - An increase or decrease in the level of interest rates where all maturities across the yield curve shift by the same amount.
Participant - An investor in the HIT.
Participation Certificate - A certificate that represents an undivided beneficial ownership interest in one or more mortgage loans and is issued by the mortgagee of record for such mortgage loan or loans.
Prospectus - The primary legal document offering securities or mutual fund shares for sale, required by the Securities Act of 1933. It must explain the offer, including the terms, issuer, investment objectives (if mutual fund) or planned use of the money (if securities), historical financial statements, and other information that could help investors decide whether the investment is appropriate for them.
Proxy - A written authorization given by a shareholder for someone else, usually the company's management, to cast his/her vote at a shareholder meeting or at another time.
Risk-Adjusted Return - A measure of investment return in relation to the amount of risk. Often used to compare a high-risk, potentially high-return investment with a low-risk, lower-return investment.
Section 8 - A federal housing assistance program in which participants pay a portion of their adjusted gross income (i.e. income after standard deductions) for rent and the remainder of the rent is paid by HUD. Section 8 is either project-based or tenant-based.
Section 8 Project-Based Assistance - This form of assistance is linked to a particular property so that tenants moving into the building pay 30% of their adjusted gross income in rent and the remainder is subsidized. Tenants receive the rental assistance as long as they live in the building and remain income eligible.
Section 8 Tenant-Based Assistance - This form of assistance is linked to a particular tenant. The tenant receives a voucher for the fair market rent in the area based on family size and income level. This voucher can be used to rent any apartment. If the rent is more than the voucher value, the additional rent is the responsibility of the tenant.
Securities and Exchange Commission (SEC) - The primary U.S. government agency responsible for the regulation and oversight of the securities industry and markets. The SEC’s mission is to protect investors, maintain fair, orderly and efficient markets, and facilitate capital formation.
State Housing Finance Agencies - State-chartered authorities established to help meet the affordable housing needs of the residents of their states. Although they vary widely in characteristics such as their relationship to state government, most HFAs are independent entities that operate under the direction of a board of directors appointed by the state's governor. They administer a wide range of affordable housing and community development programs.
Subsidy - Generally any funds provided from a source (generally a unit of local, state or the federal government) that reduces the amount of financing a borrower needs to obtain from a conventional lender, or that provides support payments, low-interest loans or grants that allow low-income people to afford to live in housing that would otherwise be unaffordable or unavailable.
Syndication - The sale of equity interests (shares) in real-estate projects to investors other than the original developers. The concept extends generally to any group of investors who have contributed funds for the common purpose of carrying out a real-estate project requiring concentration of capital. It can take several business forms, but the most common is the limited partnership.
Tax Credit - A dollar-for-dollar reduction against income tax payments that would otherwise be due. Contrasted with tax deductions that reduce taxable income.
Tax Increment Financing (TIF) - A public financing tool used to assist economic development projects by capturing the projected property tax revenue stream to be created by the development or development area and investing those funds in improvements associated with the project.
Taxable Bonds - An obligation to which the income on an interest-bearing bond is taxable by the federal, state and/or local governments.
Tax-Exempt Bonds - An obligation to which the interest income is exempt from the taxation of either federal or state governments. Municipal bonds issued by state or local governments are an example of these.
Total Development Cost (TDC) - The cost to acquire the land or building plus the hard and soft construction costs to carry out a construction or rehabilitation project.
Total Return - Return equal to income plus the change in value or market price of an asset.
Transitional Housing - Shelter for homeless individuals and families for six months to two years in an environment of security and support designed to help residents progress toward self-sufficiency. A middle point between emergency shelter and permanent housing.
Union - An organization of working people united in the common cause of building stronger workplaces and giving working people a voice on their jobs and in their communities.
Vacancy Rate - The ratio between the number of vacant units and the total number of units in a multi-tenant building or development.
Very Low Income - A term used to describe household incomes that do not exceed 50% of the area median income.
Yield (Current) - For bonds and notes, the coupon rate divided by the market price. This is not an accurate measure of total return, since it does not factor in capital gains or losses.
Yield Curve - The term structure of rates that depicts the relationship between yields and maturity dates at a specific point in time for a similar set of bonds. This term usually refers to U.S. Treasury bonds.