|
TERM |
DEFINITION |
|
acceleration clause |
A
contractual provision that gives the lender the right to demand
repayment of the entire loan balance in the event that the borrower
violates one or more clauses in the note. |
| accrued
interest |
Interest
that is due but not paid, adding to the amount owed. See Negative
amortization. |
| Adjustable
Rate Mortgage (ARM) |
A mortgage on which the interest
rate can be changed by the lender. Most ARMs base rate changes on a
pre-selected interest rate index over which the lender has no control.
These are "indexed ARMs". |
| adjustment
interval |
On an ARM,
the time between changes in the interest rate or monthly payment. The
rate adjustment interval and the payment adjustment interval are the
same on a fully amortizing ARM, but may not be on a negative
amortization ARM. |
|
affordability |
A consumer's capacity to afford a
house. Affordability is usually expressed in terms of the maximum price
the consumer could pay for a house, and be approved for the mortgage
required to pay that amount. |
|
amortization |
The
reduction of the loan balance by the repayment of principal from
scheduled mortgage payments. The payment
less the interest paid equals amortization. If the payment is
less than the interest due, the balance rises, which is negative
amortization. |
|
amortization schedule |
A table showing the mortgage
payment, broken down by interest and amortization, the loan balance, tax
and insurance payments if made by the lender, and the balance of the
tax/insurance escrow account. |
| amount
financed |
On the Truth in Lending form, the
loan amount less "prepaid finance charges", which are lender fees paid
at closing. For example, if the loan is for $100,000 and the borrower
pays the lender $4,000 in fees, the amount financed is $96,000.
|
| application |
A request for a loan that includes
the information about the potential borrower, the property and the
requested loan that the lender needs to make a decision. |
| application
fee |
A fee that some lenders charge to
accept an application. It may or may not cover other costs such as a
property appraisal or credit report, and it may or may not be refundable
if the lender declines the loan. |
| appraisal |
A written estimate of a property's
current market value prepared by an appraiser. |
| appraiser |
A
professional with knowledge of real estate markets and skilled in the
practice of appraisal. When a property is appraised in connection with a
loan, the lender selects the appraiser, but the borrower usually pays
the appraisal fee. |
| appraisal
fee |
A fee
charged by an appraiser for the appraisal of a particular property.
|
| APR |
The Annual Percentage Rate, which
must be reported by lenders under Truth in Lending regulations. It is a
comprehensive measure of credit cost to the borrower that takes account
of the interest rate, points, and flat dollar charges. It is also
adjusted for the time value of money, so that dollars paid by the
borrower up-front carry a heavier weight than dollars paid ten years
down the road. However, the APR is calculated on the assumption that the
loan runs to term, and is therefore potentially deceptive for borrowers
with short time horizons. |
| approval |
Acceptance
of the borrower's loan application. Approval means that the borrower
meets the lender' qualification and underwriting requirements. In some
cases, especially where approval is provided quickly as with automated
underwriting systems, the approval may be conditional on further
verification of information provided by the borrower. |
| assumption |
A method of
selling real estate where the buyer of the property agrees to become
responsible for the repayment of an existing loan on the property.
Unless the lender also agrees, however, the seller remains liable for
the mortgage. |
| assumable
mortgage |
A mortgage
contract that allows, or does not prohibit, a creditworthy buyer from
assuming the mortgage contract of the seller. Assuming a loan will save
the buyer money if the rate on the existing loan is below the current
market rate, and closing costs are avoided as well. A loan with a
"due-on-sale" clause stipulating that the mortgage must be repaid upon
sale of the property is not assumable. |
| balance |
The amount
of the original loan remaining to be paid. It is equal to the loan
amount less the sum of all prior payments of principal. |
| balloon |
The loan balance remaining at the
time the loan contract calls for full repayment. |
| bi-monthly
mortgage |
A mortgage
on which the borrower pays half the monthly payment on the first day of
the month, and the other half on the 15th. |
| bi-weekly
mortgage |
A mortgage
on which the borrower pays half the monthly payment every two weeks.
Because this results in 26 (rather than 24) payments per year, the
biweekly mortgage amortizes before term. |
| bridge loan |
A
short-term loan, usually from a bank, that "bridges" the period between
the closing date of a home purchase and the closing date of a home sale.
To qualify for a bridge loan, the borrower usually must have a contract
to sell the existing house. |
| buy-down
(points) |
Cash
payment in exchange for a lower interest rate. A temporary buy-down
effects only the initial years. |
| buy-up
negative points |
Paying a higher interest rate in
exchange for reduced upfront costs. |
| cash-out
refinance |
Refinancing for an amount in excess
of the balance on the old loan plus settlement costs. The borrower
receives cash. This way of raising cash is usually an alternative to
taking out a home equity loan. |
| closing |
On a home
purchase, the process of transferring ownership from the seller to the
buyer, the disbursement of funds from the seller and the lender to the
buyer, and the execution of all the documents associated with the sale
and the loan. On a refinance, there is no transfer of ownership, but the
closing includes repayment of the old lender. |
| closing
costs |
Same as
Settlement Costs. |
| closing
date |
The date on which the closing
occurs. |
|
co-borrowers |
One or more
persons who have signed the note, and are equally responsible for
repaying the loan. Unmarried co-borrowers who live together are advised
to agree beforehand on what happens if they split. |
| COFI |
Cost of
funds index. One of many interest rate indexes used to determine
interest rate adjustments on an adjustable rate mortgage. |
| conforming
mortgage |
A loan meeting the guidelines of
Fannie Mae (a Texas wholesale lender that buys most mortgages).
|
|
construction financing |
The method
of financing used when a borrower contracts to have a house built, as
opposed to purchasing a completed house. |
| contract
knavery |
Inserting
provisions into a loan contract that severely disadvantage the borrower,
without the borrower’s knowledge, and sometimes despite assurances to
the contrary. Prepayment penalties are perhaps the most frequently cited
subject of such abuse. |
|
conventional mortgage |
A home mortgage that is neither
FHA-insured nor VA-guaranteed. |
| conversion
option |
The option
to convert an adjustable to a fixed rate mortgage at some point. These
loans are likely to carry a higher rate or points than ARMs that do not
have the option. |
|
correspondent |
A lender
who delivers loans to a (usually larger) wholesale lender against prior
price commitments the wholesaler has made to the correspondent.
|
| COSI |
Cost of
savings index. One of many interest rate indexes used to determine
interest rate adjustments on an adjustable rate mortgage. |
| co-signing
a note |
Assuming responsibility for someone
else's loan in the event that that party defaults. |
| credit
report |
A report from a credit bureau
containing detailed information bearing on credit, including the
individual's credit history. |
| credit
score |
A single numerical score, based on
an individual's credit history, that measures that individual's credit
worthiness. The most widely used credit score is called FICO for Fair
Issac Co. which developed it. |
| cumulative
interest |
The sum of all interest payments to
date or over the life of the loan. This is an incomplete measure of the
cost of credit to the borrower because it does not include up-front cash
payments, and it is not adjusted for the time value of money.
|
| current
index value |
The most recently published value of
the index used to adjust the interest rate on an indexed ARM.
|
| deadbeat |
A borrower who doesn't pay.
|
| debtaholic |
A borrower who cannot handle debt
except by complete abstinence. |
| debt
consolidation |
Rolling short-term debt into a home
mortgage loan. |
| deed in
lieu of foreclosure |
Deeding the property over to the
lender as an alternative to having the lender foreclose on the property.
|
| default |
Failure of the borrower to honor the
terms of the loan agreement. Lenders (and the law) usually view
borrowers delinquent 90 days or more as in default. |
| deferred
interest |
Same as negative amortization.
|
| delinquency |
A mortgage payment that is more than
30 days late. Don't confuse with Late Payment. |
| demand
clause |
A clause in the note that allows the
lender to demand repayment. |
| direct
lender |
Same as lender. |
| discount
mortgage broker |
A mortgage broker who is to be
compensated entirely by the lender rather than by the borrower.
|
| discount
points |
Same as Points. |
|
discretionary ARM |
An adjustable rate mortgage on which
the lender has the right to change the interest rate at any time subject
only to advance notice. Discretionary ARMs are not found in the US.
|
|
documentation requirements |
The set of lender requirements that
specify how information about a loan applicant's income and assets must
be provided, and how it will be used by the lender. |
| down
payment |
The difference between the value of
the property and the loan amount, expressed in dollars, or as a
percentage of the price. For example, if the house sells for $100,000
and the loan is for $80,000, the down payment is $20,000 or 20%.
|
| dual applier |
A borrower who submits applications
through two loan providers, usually mortgage brokers. |
| dual index
mortgage |
A mortgage on which the interest
rate is adjustable based on an interest rate index, and the monthly
payment adjusts based on a wage and salary index. |
| due-on-sale
clause |
A provision of a loan contract that
stipulates that if the property is sold the loan balance must be repaid.
This bars the seller from transferring responsibility for an existing
loan to the buyer when the interest rate on the old loan is below the
current market. A mortgage containing a due-on-sale clause is not an
assumable mortgage. |
|
Effective rate |
A term used in two ways. In one context it refers to a
measure of interest cost to the borrower that is identical to the APR except
that it is calculated over the time horizon specified by the borrower. The
APR is calculated on the assumption that the loan runs to term, which most
loans do not. In most texts on the mathematics of finance, however, the
"effective rate" is the quoted rate adjusted for intra-year compounding. For
example, a quoted 6% mortgage rate is actually a rate of . 5% per month, and
if interest received in the early months is invested for the balance of the
year at . 5%, it results in a return of 6. 17% over the year. The 6. 17% is
called the "effective rate" and 6% is the "nominal" rate.
|
|
Equity |
The difference between the value of the home and the
balance of outstanding debt on the home. |
| equity
grabbing |
A type of predatory lending where the lender intends
for the borrower to default.
|
| Escrow |
An agreement that money or other objects of value be
placed with a third party for safe keeping, pending the performance of some
promised act by one of the parties to the agreement. It is common for home
mortgage transactions to include an escrow agreement where the borrower adds
a specified amount for taxes and hazard insurance to the regular monthly
mortgage payment. The money goes into an escrow account out of which the
lender pays the taxes and insurance when they come due.
|
| fallout |
Loan applications that are withdrawn by borrowers,
sometimes because they have found a better deal.
|
|
Fannie Mae |
One of two Texas wholesale lenders that purchase home
loans (The other is Freddie Mac).
|
| fees |
The sum of all cash payments required by the lender as
part of the charge for the loan.
|
| FHA
Mortgage |
A mortgage on which the lender is insured against loss
by the Federal Housing Administration, with the borrower paying the mortgage
insurance premium. The major advantage of an FHA mortgage is that the
required down payment is very low, but the maximum loan amount is also low.
|
| FICO Score |
See Credit Score.
|
| financing
points |
Including points in the loan amount.
|
| first
mortgage |
A mortgage that has a priority claim against the
property in the event the borrower defaults on the loan. For example, a
borrower defaults on a loan secured by a property worth $100,000 net of sale
costs. The property has a first mortgage with a balance of $90,000 and a
second mortgage with a balance of $15,000. The first mortgage lender can
collect $90,000 plus any unpaid interest and foreclosure costs. The second
mortgage lender can collect only what is left of the $100,000. |
|
Fixed
Rate Mortgage (FRM) |
A mortgage on which the interest rate and monthly
mortgage payment remain unchanged throughout the term of the mortgage.
|
|
Flexible payment
ARM |
An adjustable rate mortgage on which the borrower has
options for each monthly payment. The options are usually structured as the
choice of 30 yr fixed, 15 yr fixed, interest only, or negative amortization.
Also called "option ARMs". |
| float |
Allowing the rate and points to vary with changes in
market conditions. The borrower may elect to lock the rate and points at any
time but must do so a few days before the closing. Allowing the rate to
float exposes the borrower to market risk. |
|
Float-down |
A rate lock, plus an option to reduce the rate if
market interest rates decline during the lock period. Also called a cap. A
float-down costs the borrower more than a lock because it exposes the lender
to market risk. Float-downs vary widely in terms of how often the borrower
can exercise (usually only once), and exactly when the borrower can
exercise. The option. |
| foreclosure |
The legal process by which a lender acquires possession
of the property secured by a mortgage loan when the borrower defaults.
|
| Forbearance
Agreement |
An agreement by the lender not to exercise the legal
right to foreclose in exchange for an agreement by the borrower to a payment
plan that will cure the borrower’s delinquency.
|
| Freddie Mac |
One of two Texas wholesale lenders that purchase home
loans, (The other is Fannie Mae).
|
|
Fully amortizing
payment |
The monthly mortgage payment which, if maintained
unchanged through the remaining life of the loan at the then-existing
interest rate, will pay off the loan over the remaining life. On FRMs the
payment is always fully amortizing, provided the borrower has made no
prepayments. (If the borrower makes prepayments, the monthly payment is more
than fully amortizing). On GPMs, the payment in the early years is always
less than fully amortizing. On ARMs, the payment may or may not be fully
amortizing, depending on the type of ARM. |
|
Fully indexed
interest rate |
The current index plus the margin on an ARM. Usually,
initial interest rates on ARMs are below the fully indexed rate. After the
initial period the rate will rise to the fully indexed rate (subject to the
Interest Rate Cap). For example, if the initial rate is 4% for 1 year, the
fully indexed rate 7%, and the rate adjusts every year (subject to a 1% rate
increase cap), the 7% rate will be reached at the end of the third year.
|
|
Gift of equity |
A sale price below market value, where the difference
is a gift from the sellers to the buyers. Such gifts are usually between
family members. Lenders will usually allow the gift to count as down
payment.
|
|
Good faith estimate |
The form that lists the settlement charges the borrower
must pay at closing, which the lender is obliged to provide the borrower
within three business days of receiving the loan application.
|
|
Government National Mortgage Association (GNMA) |
A Federal agency that guarantees mortgage securities
issued against pools of FHA and VA mortgages.
|
|
Grace period |
The period after the payment due date during which the
borrower can pay without being hit for late fees. Grace periods apply only
to mortgages on which interest is calculated monthly. Simple interest
mortgages do not have a grace period because interest accrues daily.
|
| Graduated
Payment Mortgage (GPM) |
A mortgage on which the payment rises by a constant
percent for a specified number of periods, after which it levels out over
the remaining term and amortizes fully.
|
| graduation
period |
The interval at which the payment rises on a GPM.
|
| graduate
rate |
The percentage increase in the payment on a GPM.
|
| hazard
insurance |
Insurance purchased by the borrower, and required by
the lender, to protect the property against loss from fire and other
hazards. Also known as "homeowner insurance", it is the second "I" in
PITI.
|
| historical
scenario |
The future payment schedule on an ARM assuming that the
index value to which the rate is tied will follow the same pattern as in
some prior historical period.
|
| Homebuyer
Protection Plan |
A plan purporting to protect FHA homebuyers against
property defects.
|
| Homeowner's
equity |
See Equity.
|
| Homeowner's
insurance |
Insurance purchased by the borrower, and required by
the lender, to protect the property against loss from fire and other
hazards. It is the second "I" in PITI.
|
| Home Equity
Line of Credit (HELOC) |
A mortgage set up as a line of credit against which a
borrower can draw up to a maximum amount, as opposed to a loan for a fixed
dollar amount. For example, using a standard mortgage you might borrow
$150,000, which would be paid out in its entirety at closing. Using a HELOC,
you receive the lender’s promise to advance you
up to
$150,000, in an amount and at a time of your choosing. You can draw on the
line by writing a check, using a special credit card, or in other ways.
|
| Home Equity
Conversion Mortgage (HECM) |
A reverse mortgage program administered by FHA.
|
| home equity
loan |
Same as Second Mortgage.
|
| housing
bank |
A government-owned or affiliated housing lender. With
minor exceptions, government in the US has never loaned directly to
consumers, but housing banks are widespread in many developing countries.
|
| housing
bubble |
A marked increase in house prices fueled partly by
expectations that prices will continue to rise.
|
|
Housing expense |
The sum of mortgage payment, hazard insurance, property
taxes, and homeowner association fees. Same as PITI and "monthly housing
expense. " |
|
Housing expense ratio |
The ratio of housing expense to borrower income, which
is used in qualifying borrowers. |
| housing
investment |
The amount invested in a house, equal to the sale price
less the loan amount.
|
| HUD1 form |
The form a borrower receives at closing that details
all the payments and receipts among the parties in a real estate
transaction, including borrower, lender, home seller, mortgage broker and
other service providers. |
|
Indexed ARM |
An ARM on which the interest rate adjusts mechanically
based on changes in an interest rate index, as opposed to a "discretionary
ARM" on which the lender can change the rate at any time subject only to
advance notice. All ARMs in the US are indexed. |
|
Initial interest rate |
The starting interest rate of an ARM. The initial rate
is sometimes referred to as a "teaser" when it is below the fully indexed
rate. |
|
Initial rate period |
The time for which the initial rate holds. |
| interest
accrual period |
The period over which the interest due the lender is
calculated. If the interest accrual period on a 6 % mortgage for $100,000 is
a year, as it is on some loans in the UK and India, the interest for the
year is .06($100,000) = $6,000. If interest accrues monthly, as it does on
most mortgages in the US, the monthly interest is .06/12($100,000) = $500.
If interest accrues biweekly, as on a few programs in the US, the biweekly
interest is .06/26($100,000) = $230. 77. And if interest accrues daily, as
HELOCs and some other mortgages in the US do, the daily interest is
.06/365($100,000) = $16 . 44. |
|
Interest cost |
A time-adjusted measure of cost to a mortgage borrower.
It is calculated in the same way as the APR except that the APR assumes that
the loan runs to term, and is always measured before taxes. Interest cost is
measured over the individual borrower's time horizon, and it may be measured
after taxes at the individual borrower's tax rate. In addition, the cost
items included in interest cost may be more or less inclusive than those
included in the APR. |
|
Interest due |
The amount of interest, expressed in dollars, computed
by multiplying the loan balance at the end of the preceding period times the
annual interest rate divided by the interest accrual period. It is the same
as interest payment except when the scheduled mortgage payment is less than
the interest due, in which case the difference is added to the balance and
constitutes negative amortization. |
|
interest-only mortgage |
A mortgage on which for some period the monthly
mortgage payment consists of interest only. During that period, the loan
balance remains unchanged.
|
| interest
payment |
The dollar amount of interest paid each month. It is
the same as interest due so long as the scheduled mortgage payment is equal
to or greater than the interest due. Otherwise, the interest payment is
equal to the scheduled payment. |
|
Interest rate |
The rate charged the borrower each period for the loan
of money, by custom quoted on an annual basis. A rate of 6%, for example,
means a rate of 1/2% per month. A mortgage interest rate is the rate on a
loan secured by a specific property. |
|
Interest rate
adjustment period |
The frequency of rate adjustments on an ARM after the
initial period. The rate adjustment period is sometimes but not always the
same as the initial rate period. As an example, a 3/3 ARM is one in which
both periods are 3 years while a 3/1 ARM has an initial rate period of 3
years after which the rate adjusts every year.
|
|
Interest rate ceiling |
The highest interest rate possible under an ARM
contract; same as "lifetime cap”. It is often expressed as a specified
number of percentage points above the initial interest rate. |
| interest
rate floor |
The lowest interest rate possible under an ARM
contract. Floors are less common than ceilings. |
|
Interest rate
increase cap |
The maximum allowable increase in the interest rate on
an ARM each time the rate is adjusted. It is usually 1 or 2 percentage
points, but may be higher if the initial rate period is lengthy. |
| Interest
rate decrease cap |
The maximum allowable decrease in the interest rate on
an ARM each time the rate is adjusted.
|
|
Interest rate index |
The specific interest rate series to which the interest
rate on an ARM is tied, such as "Treasury Constant Maturities, 1-Year," or
"Eleventh District Cost of Funds. " All the indices are published regularly
in readily available sources. |
| Interim
refinance |
A scheme to avoid a prepayment penalty by refinancing
twice. |
| Investor |
In real estate, a borrower who owns or purchases a
property as an investment rather than as a residence. |
| jumbo
mortgage |
A mortgage larger than the maximum conforming loan
defined by Fannie Mae as $369,000 in 2005. However, some lenders use the
term to refer to programs for even larger loans, such as, e. g. , greater
than $500,000. |
|
Junk fees |
A derogatory term for lender fees expressed in dollars
rather than as a percent of the loan amount.
|
|
Late fees |
Fees that lenders are entitled to collect from
borrowers who don't pay within the grace period. Most mortgage notes offer
borrowers a 10 or 15-day grace period, with a late charge of about 5% on
payments received on the 16th or later.
|
|
Late payment |
A payment received after the grace period stipulated in
the note. Most mortgage grace periods are 10 or 15 days. |
|
Least-to-own purchase |
A transaction in which a hopeful home buyer leases a
home with an option to buy it within a specified period. |
| Lender |
See Mortgage Lender |
| Lien |
The lender’s right to claim the borrower’s property in
the event the borrower defaults. If there is more than one lien, the claim
of the lender holding the first lien will be satisfied before the claim of
the lender holding the second lien, which in turn will be satisfied before
the claim of a lender holding a third lien, etc. |
| Loan amount |
The amount the borrower promises to repay, as set forth
in the mortgage contract. It differs from the amount of cash disbursed by
the lender by the amount of points and other upfront costs included in the
loan. |
| Loan
discount fee |
The term used to describe points on the Good Faith
Estimate. |
| Loan
modification |
A change in the terms of a loan, usually the interest
rate and/or term, in response to the borrower's inability to make the
payments under the existing term. |
| Loan
officer |
Employees of lenders or mortgage brokers who find
borrowers, sell and counsel them, and take applications.
|
| loan status
report |
A commitment by a lender to make a mortgage loan to a
specified borrower, prior to the identification of a specific property.
Pre-approval, as evidenced by a Loan Status Report, is necessary before
submitting a purchase contract in Arizona. Unlike a pre-qualification, the
lender checks the applicant's credit. |
| Loan
provider |
A lender or mortgage broker. |
|
Loan-to-value ratio |
The loan amount divided by the lesser of the selling
price or the appraised value. Also referred to as LTV. The LTV and down
payment are different ways of expressing the same set of facts. |
|
|
An option exercised by the borrower, at the time of the
loan application or later, to "lock in" the rates and points prevailing in
the market at that time. The lender and borrower are committed to those
terms, regardless of what happens between that point and the closing date. |
| Lock
commitment letter |
A written statement from a lender verifying that the
price and other terms of a loan have been locked. Borrowers who lock through
a mortgage broker should always demand to see the lock commitment letter.
|
| Lock
failure |
The inability or unwillingness of a lender to honor a
mortgage price that a borrower had believed was guaranteed. |
| Lock period |
The number of days for which any lock or float-down
holds, the longer the period, the higher the price to the borrower. |
| mandatory
disclosure |
The array of laws and regulations dictating the
information that must be disclosed to mortgage borrowers, and the method and
timing of disclosure. |
|
manufactured housing |
A house built entirely in a factory, transported to a
site and installed there. They are usually built without knowing where they
will be sited, and are subject to a Federal building code administered by
HUD. |
|
Margin |
The amount added to the interest rate index, ranging
generally from 2 to 3 percentage points, to obtain the fully indexed rate on
an ARM. |
|
Market niche |
A particular combination of loan, borrower and property
characteristics that lenders use in setting prices and underwriting
requirements. These characteristics are believed to affect the default risk
or cost of the loan. As examples, borrowers who don’t intend to occupy the
house they purchase pay more than those who do, and borrowers who refinance
only the balance on their existing loan pay less than those who take "cash
out". |
|
Maturity |
The period until the last payment is due. This is
usually but not always the term, which is the period used to calculate the
mortgage payment. |
| Maximum
loan amount |
The largest loan size permitted on a particular loan
program. For programs where the loan is targeted for sale to Fannie Mae or
Freddy Mac, the maximum will be the largest loan eligible for purchase by
these entities. On FHA loans, the maximums are set by the Federal Housing
Administration, and vary somewhat by geographical area. On other loans,
lenders set maximums. |
| Maximum
loan-to-value ratio |
The maximum allowable loan to value ratio varies by
loan program. |
| maximum
lock |
The longest period for which the lender will lock the
rate and points on any program. The most common maximum lock period is 60
days, but on some programs the maximum is 90 days; only a few go beyond 90
days. |
| minimum
down payment |
The minimum allowable ratio of down payment to sale
price on any program. If the minimum is 10%, for example, it means that you
must make a down payment of at least $10,000 on a $100,000 house, or $20,000
on a $200,000 house. |
| monthly
housing expense |
Same as Housing Expense |
|
Monthly debt service |
Monthly payments required on credit cards, installment
loans, home equity loans, and other debts but not including payments on the
loan applied for. |
| mortgage |
A written document evidencing the lien on a property
taken by a lender as security for the repayment of a loan. The term
“mortgage” or “mortgage loan” is used loosely to refer both to the lien and
the loan. In most cases, they are defined in two separate documents: a
mortgage and a note. |
| Mortgage
bank |
Same as Mortgage Company. |
| Mortgage
broker |
An independent contractor who offers the loan products
of multiple lenders, termed wholesale lenders. A mortgage broker counsels on
the loans available from different wholesalers, takes the application and
processes the loan. When the file is complete, but sometimes sooner, the
lender underwrites the loan. In contrast to a correspondent, a mortgage
broker does not fund a loan. |
| Mortgage
company |
A mortgage lender who sells all loans in the secondary
market. As distinguished from a portfolio lender, who retains loans in its
portfolio. Mortgage companies may or may not service the loans they
originate.
|
|
Mortgage insurance |
Insurance against loss provided to a mortgage lender in
the event of borrower default. In most cases, the borrower pays the
premiums. |
| Mortgage
insurance premium |
The up-front and/or periodic charges that the borrower
pays for mortgage insurance. There are different mortgage insurance plans
with differing combinations of up-front, monthly and annual premiums. The
most widely used premium plan is a monthly charge with no upfront premium. |
| Mortgage
lender |
The party who disburses funds to the borrower at the
closing table. The lender receives the note evidencing the borrower's
indebtedness and obligation to repay, and the mortgage, which is the lien on
the subject property. |
| mortgage
payment |
The monthly payment of interest and principal made by
the borrower. |
| mortgage
program |
A bundle of mortgage characteristics that lenders see
fit to distinguish as a distinct instrument. These include whether it is an
FRM, ARM, or Balloon; the term; the initial rate period on an ARM; whether
it is FHA-insured or VA-guaranteed; and if is not FHA or VA, whether it is
"conforming" (eligible for purchase by Fannie Mae or Freddie Mac) or
"non-conforming". |
| mortgage
referrals |
Advice on where to go to get a mortgage. |
| mortgage
scams |
Deceptive and exploitative schemes by lenders, brokers,
home sellers and sometimes even borrowers. |
| negative
amortization |
A rise in the loan balance when the mortgage payment is
less than the interest due. Sometimes called "deferred interest. |
| negative
amortization cap |
The maximum amount of negative amortization permitted
on an ARM, usually expressed as a percentage of the original loan amount (e.
g. , 115%). Reaching the cap triggers an automatic increase in the payment,
usually to the fully amortizing level, establishing a new payment increase
cap. |
| no change
scenario |
On an ARM, the assumption that the value of the index
to which the rate is tied does not change from its initial level. |
| no-cost
mortgage |
A mortgage on which all settlement costs except per
diem interest, escrows, and homeowners’ insurance and transfer taxes are
paid by the lender and/or the home seller. |
|
non-conforming mortgage |
A mortgage that does not meet the purchase requirements
of Fannie Mae and Freddie Mac, because it is too large or for other reasons
such as poor credit or inadequate documentation. |
|
non-permanent resident alien |
A non-citizen with a
Form I-551
green card employed in the US. As distinct from a permanent resident alien,
which lenders do not distinguish from US citizens. Non-permanent resident
aliens are subject to somewhat more restrictive qualification requirements
than US citizens. |
| no asset
loan |
A documentation requirement where the applicant's
assets are not disclosed.
|
| no income
loan |
A documentation requirement where the applicant's
income is not disclosed.
|
| No-Surprise
Adjustable Rate Mortgage |
An ARM with a preset graduated payment combined with
variable term. |
| nominal
interest rate |
A quoted interest rate that is not adjusted for either
intra-year compounding, or for inflation. A quoted rate of 6% on a mortgage,
for example, is nominal. Adjusted rates are called "effective".
|
| No ratio
loan |
A documentation requirement where the applicant's
income is disclosed and verified but not used in qualifying the borrower.
The conventional maximum ratios of expense to income are not applied. |
| Note |
A document that evidences a debt and a promise to
repay. A mortgage loan transaction always includes both a note evidencing
the debt, and a mortgage evidencing the lien on the property, usually in two
documents. |
| Option ARM |
Same as Flexible Payment ARM. |
| origination
fee |
An upfront fee charged by some lenders, usually
expressed as a percent of the loan amount. It should be added to points in
determining the total fees charged by the lender that are expressed as a
percent of the loan amount. Unlike points, however, an origination fee does
not vary with the interest rate. |
| overage |
The difference between the price posted to its loan
officers by a lender or mortgage broker, and the price charged the borrower.
|
| partial
prepayment |
Making a payment larger than the scheduled payment as a
way of paying off the loan earlier. |
| pay option
ARM |
Same as Flexible Payment ARM. |
| payment
adjustment interval |
The period between payment changes on an ARM, which may
or may not be the same as the interest rate adjustment period. Loans on
which the payment adjusts less frequently than the rate may generate
negative amortization. |
| payment
increase cap |
The maximum percentage increase in the payment on an
ARM at a payment adjustment date. |
| payment
decrease cap |
The maximum percentage decrease in the payment on an
ARM at a payment adjustment date. |
| payment
period |
The period over which the borrower is obliged to make
payments. On most mortgages, the payment period is a month, but on some it
is biweekly. |
| payment
rate |
The interest rate used to calculate the mortgage
payment, which is usually but not necessarily the interest rate. |
| payment
shock |
A very large increase in the payment on an ARM that may
surprise the borrower. Also used to refer to a large difference between the
rent being paid by a first-time homebuyer, and the monthly housing expense
on the purchased home. |
| payoff
month |
The month in which the loan balance is paid down to
zero. It may or may not be the term. |
| per diem
interest |
Interest from the day of closing to the first day of
the following month. In some cases, however, the borrower can get a credit
at closing by making the first payment a month earlier. |
| periodic
refinancing |
An ill-advised scheme to tap into equity for cash
advances through periodic refinancing. |
| permanent
buy-down |
Paying points as a way of reducing the interest rate.
|
|
pick-a-payment ARM |
Same as Option ARM. |
| PITI |
Shorthand for principal, interest, taxes and insurance,
which are the components of the monthly housing expense. |
| PMI |
Private mortgage insurance, as distinguished from
insurance provided by government under FHA and VA. |
| points |
An upfront cash payment required by the lender as part
of the charge for the loan, expressed as a percent of the loan amount; e.
g., "3 points" means a charge equal to 3% of the loan balance. It is common
today for lenders to offer a wide range of rate/point combinations,
including combinations with negative points. On a negative point loan the
lender contributes cash toward meeting closing costs. Positive and negative
points are sometimes termed "discounts" and "premiums," respectively. |
| portable
mortgage |
A mortgage that can be moved from one property to
another. These were introduced in the US by E*TRADE Mortgage in 2003. |
| portfolio
lender |
A lender that holds the loans it originates in its
portfolio rather than selling them. |
|
pre-approval |
A commitment by a lender to make a mortgage loan to a
specified borrower, prior to the identification of a specific property.
Pre-approval, as evidenced by a Loan Status Report, is necessary before
submitting a purchase contract in Arizona. Unlike a pre-qualification, the
lender checks the applicant's credit. |
| prepayment |
A payment made by the borrower over and above the
scheduled mortgage payment. If the additional payment pays off the entire
balance it is a "prepayment in full"; otherwise, it is a "partial
prepayment”. |
| prepayment
penalty |
A charge imposed by the lender if the borrower pays off
the loan early. The charge is usually expressed as a percent of the loan
balance at the time of prepayment, or a specified number of months interest.
|
|
pre-qualification |
Same as qualification. |
| primary
residence |
The house in which the borrower will live most of the
time, as distinct from a second home or an investor property that will be
rented. |
| principal |
The portion of the monthly payment that is used to
reduce the loan balance. |
| principal
limit |
The present value of a house, given the elderly owner's
right to live there until death or voluntary move-out, under the FHA reverse
mortgage program. |
| private
mortgage insurance |
Mortgage insurance provided by private mortgage
insurance companies, or PMIs. |
| processing |
Compiling and maintaining the file of information about
a mortgage transaction, including the credit report, appraisal, verification
of employment and assets, and so on. The processing file is handed off to
underwriting for the loan decision. |
|
qualification |
The process of determining whether a prospective
borrower has the ability, meaning sufficient assets and income, to repay a
loan. Qualification is sometimes referred to as "pre-qualification" because
it is subject to verification of the information provided by the applicant.
Qualification is short of approval because it does not take account of the
credit history of the borrower. Qualified borrowers may ultimately be turned
down because, while they have demonstrated the capacity to repay, a poor
credit history suggests that they may be unwilling to pay. |
|
qualification rate |
The interest rate used in calculating the initial
mortgage payment in qualifying a borrower. The rate used in this calculation
may or may not be the initial rate on the mortgage. On ARMs, for example,
the borrower may be qualified at the fully indexed rate rather than the
initial rate. |
|
qualification ratios |
Requirements stipulated by the lender that the ratio of
housing expense to borrower income, and housing expense plus other debt
service to borrower income, cannot exceed specified maximums, e. g. 28% and
35%. These may reflect the maximums specified by Fannie Mae and Freddie Mac;
they may also vary with the loan-value ratio and other factors. |
|
qualification requirements |
Standards imposed by lenders as conditions for granting
loans, including maximum ratios of housing expense and total expense to
income, maximum loan amounts, maximum loan-to-value ratios, and so on. Less
comprehensive than underwriting requirements, which take account of the
borrower's credit record. |
| rate |
See Interest Rate. |
| rate/point
breakeven |
The period you must retain a mortgage in order for it
to be profitable to pay points to reduce the rate. |
| rate/point
options |
All the combinations of interest rate and points that
are offered on a particular loan program. On an ARM, rates and points may
also vary with the margin and interest rate ceiling |
| rate
protection |
Protection for a borrower against the danger that rates
will rise between the time the borrower applies for a loan and the time the
loan closes. This protection can take the form of a "Lock" where the rate
and points are frozen at their initial levels until the loan closes; or a
"Float-down" where the rates and points cannot rise from their initial
levels but they can decline if market rates decline. In either case, the
protection only runs for a specified period. If the loan is not closed
within that period, the protection expires and the borrower will either have
to accept the terms quoted by the lender on new loans at that time, or start
the shopping process anew. |
| rebate |
Same as Negative points. |
| recast
payment |
Raising the mortgage payment to the fully amortized
payment. Periodic recasts are sometimes used on ARMs in lieu of or in
addition to negative amortization caps. |
| refinance |
Paying off an old loan while simultaneously taking a
new one. This may be done to raise cash, to reduce the monthly payment, or
to reduce borrowing costs under conditions where the borrower can obtain a
new loan at an interest rate below the rate on the existing loan. |
| required
cash |
The total cash required of the home buyer to close the
transaction, including down payment, points and fixed dollar charges paid to
the lender, any portion of the mortgage insurance premium that is paid
up-front, and other settlement charges associated with the transaction such
as title insurance, taxes, etc. The total required cash is shown on the Good
Faith Estimate of Settlement that every borrower receives. |
| RESPA |
The Real Estate Settlement Procedures Act, a Federal
consumer protection statute first enacted in 1974. RESPA was designed to
protect home purchasers and owners shopping for settlement services by
mandating certain disclosures, and prohibiting referral fees and kickbacks.
|
| retail
lender |
A lender who offers mortgage loans directly to the
public. As distinct from a wholesale lender who operates through mortgage
brokers and correspondents. |
| reverse
mortgage |
A loan to an elderly homeowner on which the balance
raises over time, and which is not repaid until the owner dies, sells the
house, or moves out permanently. |
|
right-of-rescission |
The right of refinancing borrowers, under the Truth in
Lending Act, to cancel the deal at no cost to themselves within 3 days of
closing. |
| scenario
analysis |
Determining how the interest rate and payment on an ARM
might change in response to specified future changes in market interest
rates, called "scenarios". |
| scheduled
mortgage payment |
The amount the borrower is obliged to pay each period,
including interest, principal, and mortgage insurance, under the terms of
the mortgage contract. Paying less than the scheduled amount results in
delinquency. |
| second
mortgage |
A loan with a second-priority claim against a property
in the event that the borrower defaults. The lender who holds the second
mortgage gets paid only after the lender holding the first mortgage is paid.
|
| secondary
markets |
Markets in which mortgages or mortgage-backed
securities are bought and sold. |
|
self-employed borrower |
A borrower who must document income using tax returns
or bank statements rather than information provided by an employer. |
| seller
contribution |
A contribution to a borrower's down payment or
settlement costs made by a home seller, as an alternative to a price
reduction. |
| servicing |
Administering loans between the time of disbursement
and the time the loan is fully paid off. This includes collecting monthly
payments from the borrower, maintaining records of loan progress, assuring
payments of taxes and insurance, and pursuing delinquent accounts. |
| servicing
agent |
The party who services a loan, who may or may not be
the lender who originated it. |
| servicing
release premium |
A payment made by the purchaser of a mortgage to the
seller for the release of the servicing on the mortgage. It has no direct
relevance to borrowers. |
| servicing
transfer |
When one servicing agent is replaced by another. |
| Settlement
costs |
Costs that the borrower must pay at the time of
closing, in addition to the down payment. |
| shared
appreciation mortgage |
A mortgage on which the borrower gives up a share in
future price appreciation in exchange for a lower interest rate and/or
interest deferral. |
| shopping
site |
A type of multi-lender web site that offers borrowers
the capacity to shop among multiple competing lenders. |
| short sale |
An agreement between a mortgage borrower in distress
and the lender that allows the borrower to sell the house and remit the
proceeds to the lender. It is an alternative to foreclosure, or a deed in
lieu of foreclosure. |
| silent
second |
A second mortgage offered at preferential (subsidized)
terms to those who qualify. For example, a labor union may offer members who
are first-time homebuyers a silent second to finance closing costs or the
down payment. The second might bear no interest, and might not be repayable
until the first mortgage is repaid or the property is sold. |
| simple
interest mortgage |
A mortgage on which interest is calculated daily based
on the balance at the time of the last payment. The daily interest charge
within the month is constant — interest is not charged on the interest
charges of prior days. |
| simple
interest biweekly mortgage |
A biweekly mortgage on which the biweekly payment is
applied to the balance every two weeks, rather than held in an account as on
a conventional biweekly. |
| state
assets |
A documentation requirement where the borrower
discloses her assets but they are not verified by the lender. |
| stated
income |
A documentation requirement where the lender verifies
the source of the income but not the amount. |
| streamlined
refinancing |
Refinancing that omits some of the standard risk
control measures, and is therefore quicker and less costly. |
| subordinate
financing |
A second mortgage on the property, which is not paid
off when a new loan is taken out. The second mortgage lender must allow
subordination of the second to the new first mortgage. |
|
subordination policy |
The policy of a second mortgage lender allowing a
borrower to refinance the first mortgage while leaving the second in place. |
| sub-prime
borrower |
A borrower with poor credit. Such borrowers pay more
than prime borrowers, and are sometimes taken advantage of. |
| sub-prime
lender |
A lender who specializes in lending to sub-prime
borrowers. |
| swing loan |
Same as Bridge loan. |
| Tangible
net benefit |
The net gain to a borrower from a refinancing, which
some proposed legislation would make the responsibility of lenders. |
|
teaser
rate |
The initial interest rate on an ARM, when it is below
the fully indexed rate. |
|
temporary buy down |
A reduction in the mortgage payment in the early years
of the loan in exchange for an upfront cash payment provided by the home
buyer, the seller, or both. |
|
temporary lender |
A lender that sells the loans it originates, as opposed
to a Portfolio lender who holds them. |
|
term |
The period used to calculate the monthly mortgage
payment. The term is usually but not always the same as the maturity. On a
7-year balloon loan, for example, the maturity is 7 years but the term in
most cases is 30 years. |
| title
insurance |
Insurance against loss arising from problems connected
to the title to property. |
| total
housing expense |
Housing expense plus monthly debt service. |
| total
expense ratio |
The ratio of total debt service to borrower income.
|
| total
interest payments |
The sum of all interest payments to date or over the
life of the loan. This is an incomplete measure of the cost of credit to the
borrower because it does not include up-front cash payments, and it is not
adjusted for the time value of money. |
| total
expense ratio |
The ratio of housing expense plus current debt service
payments to borrower income, which is used (along with the housing expense
ration and other factors) in qualifying borrowers. |
| Truth in
Lending (TIL) |
The Federal law that specifies the information that
must be provided to borrowers on different types of loans. Also, the form
used to disclose this information. |
| twelve (12) MTA |
An interest rate index that is used on some ARMs. It is
the average of the most recent 12 monthly values of the Treasury One-Year
Constant Maturity series. |
| underage |
Fees collected from a borrower by a loan officer that
are lower than the target fees specified by the lender or mortgage broker
who employs the loan officer. |
|
underwriting |
The process of examining all the data about a
borrower's property and transaction to determine whether the mortgage
applied for by the borrower should be issued. The person who does this is
called an underwriter. |
|
underwriting requirements |
The standards imposed by lenders in determining whether
a borrower qualifies for a loan. These standards are more comprehensive than
qualification requirements in that they include an evaluation of the
borrower’s creditworthiness. |
| VA mortgage |
A mortgage with no down payment requirement, available
only to ex-servicemen and women, on which the Veterans Administration
insures the lender against loss. |
| waive
escrows |
Authorization by the lender for the borrower to pay
taxes and insurance directly. This is in contrast to the standard procedure
where the lender adds a charge to the monthly mortgage payment that is
deposited in an escrow account, from which the lender pays the borrower’s
taxes and insurance when they are due. On some loans lenders will not waive
escrows, and on loans where waiver is permitted lenders are likely either to
charge for it in the form of a small increase in points, or restrict it to
borrowers making a large down payment. |
| wholesale
lender |
A lender who provides loans through mortgage brokers or
correspondents. The mortgage broker or correspondent initiates the
transaction, takes the borrower's application, and processes the loan. |
| workout
assumption |
The assumption of a mortgage, with permission of the
lender, from a borrower unable to continue making the payments. |
| worst case
scenario |
The assumption that the interest rate on an ARM rises
to the maximum extent permitted in the note. |
| wrap-around
mortgage |
A mortgage on a property that already has a mortgage,
where the new lender assumes the payment obligation on the old mortgage.
Wrap-around mortgages arise when the current market rate is above the rate
on the existing mortgage, and home sellers are frequently the lender. A
due-on-sale clause prevents a wrap-around mortgage in connection with sale
of a property. |
|
yield-spread premium |
Same as Negative points. |
