Probate Glossary

Here you'll find all the terms you need to be informed about the Probate industry.

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A

Acceleration Clause: A provision in a mortgage note that gives a 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, such as the failure to make timely payments or a transfer of the property.

Accrued Interest: Interest that is earned but not paid, adding to the amount owed. Same as negative amortization.

A-Credit: A consumer with the best credit rating, deserving of the lowest prices that lenders offer.Most lenders require a FICO score above 720.There is seldom any payoff for being above the A-credit threshold, but you pay a penalty for being below it.

Additional Principal Payment: An amount paid by a borrower of more than the scheduled principal amount due. This type of payment reduces the remaining balance and shortens the term of the loan. Also called a principal curtailment.

Adjustable-rate Mortgage (ARM): A mortgage that permits the lender to periodically adjust the interest rate on the basis of changes in a specified index. A mortgage on which the interest rate, after an initial period, can be changed by the lender. While ARMs in many countries abroad allow rate changes at the lender’s discretion (discretionary ARMs), in the United States most ARM’s base rate changes are on a pre-selected interest rate index over which the lender has no control. These are indexed ARMs. There is no discretion associated with rate changes on indexed ARMs.

Adjustment Date: The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

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.

Adjustment Period: For an adjustable rate mortgage, the time period between interest rate change dates, as stated in the mortgage note.

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.

Affordability Analysis: An estimation of a borrower’s ability to afford the purchase of a home and/or the payment on a loan. An affordability analysis may consider income, liabilities, the type of mortgage, the loan amount, purchase price, the expected closing costs, and other factors.

Agreement of Sale: A contract signed by buyer and seller stating the terms and conditions under which a property will be sold.

Alt-A: A mortgage risk categorization that falls between prime and sub-prime, but is closer to prime. Also referred to as A minus.

Alternative Documentation: Expedited and simpler documentation requirements designed to speed up the loan-approval process. Instead of verifying employment with the applicant’s employer and bank deposits with the applicant’s bank, the lender will accept paycheck stubs, W-2s, and the borrower's original bank statements.Alternative documentation remains “full documentation,” as opposed to the other documentation options.

Amortization: The gradual reduction of the mortgage debt through regularly scheduled payments over the term of the loan; the repayment of principal from scheduled mortgage payments that exceed the interest due.The scheduled payment less the interest equals amortization.The loan balance declines by the amount of the scheduled payment, plus the amount of any extra payment.If the payment is less than the interest due, the balance rises, which is negative amortization.

Amortization Schedule: A timetable for payment of a mortgage loan. An amortization schedule shows: the amount of each payment, the amount to be applied to principal and interest, and the remaining principal balance after each payment is made. 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.

Amortize: To repay a mortgage with regular payments that cover both principal and interest.

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.

Annual Percentage Rate (APR): The measure of the cost of credit stated as a yearly rate; includes such items as the stated interest rate, plus certain charges. APR 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 10 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.

Annuity: An amount paid yearly or at other regular intervals, often at a guaranteed minimum amount. Also, a type of insurance policy in which the policy holder makes payments for a fixed period or until a stated age, and then receives annuity payments from the insurance company.

Application: A request for a loan that includes the information about the potential borrower, the property, and the requested loan that the solicited lender needs to make a decision.In a narrower sense, the application refers to a standardized application form called the “1003” which the borrower is obliged to fill out.

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 or opinion of a property’s current market value prepared by a qualified appraiser.

Appraisal Fee: A fee charged by an appraiser for the appraisal of a particular property.

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 appraiser is selected by the lender, but the appraisal fee is usually paid by the borrower.

Appreciation: An increase in the value of an item (e.g., the increase in the market value of real estate).

Approval: Acceptance of the borrower’s loan application. Approval means that the borrower meets the lender’s qualification requirements and also its 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.

Assessed Value: Typically the value placed on property for the purpose of taxation.

Assessor: A public official who establishes the value of a property for taxation purposes.

Asset: Anything of monetary value that is owned by a person or company. Assets include real property, personal property, stocks, mutual funds, etc.

Assignment of Mortgage: A document evidencing the transfer of ownership of a mortgage from one person to another.

Assumable Mortgage: A mortgage loan that can be taken over (assumed) by the buyer when a home is sold. An assumption of a mortgage is a transaction in which the buyer of real property takes over the seller’s existing mortgage; the seller remains liable unless released by the lender from the obligation. If the mortgage contains a due-on-sale clause, the loan may not be assumed without the lender’s consent. 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.

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.

Assumption Fee: A fee a lender charges a buyer who will assume the seller’s existing mortgage.

Authorized User: Someone authorized by the original credit card holder to use the holder’s card. The card holder is responsible for the charges of the authorized user, but the authorized user is not responsible for paying any charges, including his own. But sometimes authorized users are pursued for the unpaid bills of the card holder.

Automated Underwriting: An automated process performed by a technology application that streamlines the processing of loan applications and provides a recommendation to the lender to approve the loan or refer it for manual underwriting. A computer-driven process for informing the loan applicant very quickly, sometimes within a few minutes, whether the applicant will be approved, or whether the application will be forwarded to an underwriter. The quick decision is based on information provided by the applicant, which is subject to later verification, and other information retrieved electronically including information about the borrower’s credit history and the subject property.

Automated Underwriting System: A particular computerized system for doing automated underwriting.Mortgage insurers and some large lenders have developed such systems, but the most widely used are Fannie Mae’s “Desktop Underwriter” and Freddie Mac’s “Loan Prospector.”

B

Back-end Fee or Commission: Mortgage broker income paid by the lender, same as yield-spread premium and negative points.

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.

Balance Sheet: A financial statement that shows assets, liabilities, and net worth as of a specific date.

Balloon: The loan balance remaining at the time the loan contract calls for full repayment.

Balloon Mortgage: A mortgage which is payable in full after a period that is shorter than the term.In most cases, the balance is refinanced with the current or another lender. On a seven-year balloon loan, for example, the payment is usually calculated over a 30-year period, and the balance at the end of the seventh year must be repaid or refinanced at that time.Balloon mortgages are similar to ARMs in that the borrower trades off a lower rate in the early years against the risk of a higher rate later.They are riskier than ARMs because there is no limit on the extent of a rate increase at the end of the balloon period.A mortgage in which the borrower’s monthly payments are amortized over a longer period than the actual term of the mortgage. As a result, at the end of the loan term, the borrower must pay off the remaining balance with a single lump sum payment or refinance the loan.

Balloon Payment: The final lump sum payment that is made at the maturity date of a balloon mortgage.

Bankruptcy: A legal proceeding that allows debtors to eliminate or restructure debts when they have financial difficulties.

Before-tax Income: Income before taxes are deducted. Also known as gross income.

Bimonthly 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.

Biweekly Mortgage, also called Biweekly Payment Mortgage: A mortgage with payments due every two weeks (instead of monthly); 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.

Bona Fide: In good faith, without fraud.

Bridge Loan: A short-term loan, usually from a bank, secured by the borrower’s current home (which is usually for sale) that allows the proceeds to be used for building or closing on a new house before the current home is sold. Also known as a swing loan. This loan 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 must have a contract to sell the existing house.

Broker: An individual or firm that acts as an agent between providers and users of products or services, such as a mortgage broker or real estate broker. See also Mortgage Broker.

Builder-financed Construction: A situation when a builder finances the construction.

Building Code: Local regulations that set forth the standards and requirements for the construction, maintenance, and occupancy of buildings. The codes are designed to provide for the safety, health, and welfare of the public.

Buy-down: An arrangement whereby the property developer or another third party provides an interest subsidy to reduce the borrower’s monthly payments, typically in the early years of the loan. A permanent buy-down is the payment of points in exchange for a lower interest rate. A temporary buy-down concentrates the rate reduction in the early years.

Buy-down Account: An account in which funds are held so that they can be applied as part of the monthly mortgage payment as each payment comes due during the period that an interest rate buy-down plan is in effect.

Buy-up: Paying a higher interest rate in exchange for a rebate by the lender which reduces upfront costs.

C

Cap: For an adjustable-rate mortgage (ARM), a limitation on the amount the interest rate or mortgage payments may increase or decrease.

Cash Flow Option Loan: The same as a flexible payment adjustable rate mortgage.

Cash-out Refinance: A refinance transaction in which the borrower receives additional funds over and above the amount needed to repay the existing mortgage, closing costs, points, and any subordinate liens. Refinancing for an amount in excess of the balance on the old loan plus settlement costs. The borrower takes cash out of the transaction.This way of raising cash is usually an alternative to taking out a home equity loan.

Certificate of Deposit: A document issued by a bank or other financial institution that is evidence of a deposit, with the issuer’s promise to return the deposit plus earnings at a specified interest rate within a specified time period.

Certificate of Eligibility: A document issued by the U.S. Department of Veterans Affairs (VA) certifying a veteran’s eligibility for a VA-guaranteed mortgage loan.

Chain of Title: The history of all of the documents that have transferred title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

Change Orders: A change in the original construction plans ordered by the property owner or general contractor.

Clear Title: Ownership that is free of liens, defects, or other legal encumbrances.

Closing: The process of completing a financial transaction. For mortgage loans, the process of signing mortgage documents, disbursing funds, and, if applicable, transferring ownership of the property. In some jurisdictions, closing is referred to as escrow, a process by which a buyer and seller deliver legal documents to a third party who completes the transaction in accordance with their instructions. Also see Settlement. On a home purchase, the process of transferring ownership from the seller to the buyer, the disbursement of funds from the buyer and the lender to the seller, 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 Agent: The person or entity who coordinates the various closing activities, including the preparation and recordation of closing documents and the disbursement of funds. (May be referred to as an escrow agent or settlement agent in some jurisdictions.) Typically the closing is conducted by title companies, escrow companies, or attorneys.

Closing Costs: The fees charged in connection with a mortgage loan transaction. Money paid by a buyer (and/or seller or other third party, if applicable) to effect the closing of a mortgage loan, generally including, but not limited to, a loan origination fee, title examination and insurance, survey, attorney’s fee, and prepaid items, such as escrow deposits for taxes and insurance. Also called settlement costs.

Closing Date: The date on which the sale of a property is to be finalized and a loan transaction completed. Often, a real estate sales professional coordinates the setting of this date with the buyer, the seller, the closing agent, and the lender.

CMG plan: A technique for repaying a loan early that involves using the mortgage as a substitute for a checking account.

Co-borrower: Any borrower other than the first borrower whose name appears on the application and mortgage note, even when that person owns the property jointly with the first borrower and shares liability for the note. 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.

Collateral: An asset that is pledged as security for a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan agreement.

Collection: The efforts a lender takes to collect past-due payments.

Commission: The fee charged for services performed, usually based on a percentage of the price of the items sold (such as the fee a real estate agent earns on the sale of a house).

Commitment Letter: A binding offer by a lender to loan money at a future date subject to the borrower’s compliance with stated conditions.

Common Areas: Those portions of a building, land, or improvements and amenities owned by a planned unit development (PUD) or condominium project’s homeowners association (or a cooperative project’s cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

Comparables: An abbreviation for comparable properties, which are used as a comparison in determining the current value of a property that is being appraised. Also called “comps.”

Condominium: A real estate project in which each unit owner holds title to an individual unit in a building, and an undivided interest in the common areas.

Conforming Mortgage: A loan eligible for purchase by the two major federal agencies that buy mortgages: Fannie Mae and Freddie Mac.

Construction Financing: The method of financing used when a borrower contracts to have a house built, as opposed to purchasing a completed house.

Construction Loan: A loan for financing the cost of construction or improvements to a property; the lender disburses payments to the builder at periodic intervals during construction.

Contingency: A condition that must be met before a contract is legally binding. For example, home purchasers often include a home inspection contingency; the sales contract is not binding unless and until the purchaser has the home inspected.

Contract Knavery: Inserting provisions into a loan contract that severely disadvantage the borrower, without the borrower’s knowledge, and sometimes despite oral assurances to the contrary.Prepayment penalties are perhaps the most frequently cited subject of such abuse.

Conventional Mortgage: A mortgage loan that is not insured or guaranteed by the federal government or one of its agencies, such as FHA, VA or RHS. Contrast with Government Mortgage.

Conversion Option: A provision of some adjustable-rate mortgage (ARM) loans that allows the borrower to change the ARM to a fixed-rate mortgage at specified times after loan origination. The option to convert an ARM to an FRM at some point during its life. These loans are likely to carry a higher rate or points than ARMs that do not have the option.

Convertible ARM: An adjustable-rate mortgage (ARM) that allows the borrower to convert the loan to a fixed-rate mortgage under specified conditions.

Cooperative Project or Co-op: A project in which a corporation holds title to a residential property and sells shares to individual buyers, who then receive a proprietary lease as their title.

Correspondent: A lender who delivers loans to a (usually larger) wholesale lender against prior price commitments the wholesaler has made to the correspondent. The commitment protects the correspondent against pipeline risk.

Co-signing a Note: Assuming responsibility for someone else’s loan in the event that that party defaults.

Cost of Funds Index (COFI): An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the weighted monthly average cost of deposits, advances, and other borrowings of members of the Federal Home Loan Bank of San Francisco.One of many interest rate indexes used to determine interest rate adjustments on an adjustable-rate mortgage.

Cost of Savings Index (COSI):One of many interest rate indexes used to determine interest rate adjustments on an adjustable-rate mortgage.

Credit Bureau: An independent agency that gathers and maintains information on the debts and repayment records of individuals and businesses.

Credit History: A record of an individual’s debts and repayment record. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

Credit Life Insurance: A type of insurance that pays off a specific amount of debt or a specified credit account if the borrower dies while the policy is in force.

Credit Report: A document provided by a credit-reporting agency containing detailed information about an individual’s previous mortgage history, bank loans, credit cards, and public records dealing with financial matters. This report has a great bearing on the determination of someone’s creditworthiness.

Credit Score: A numerical value that ranks a borrower’s credit risk at a given point in time based on a statistical evaluation of information in the individual’s credit file that has been proven to be predictive of loan performance. Based on an individual’s credit history, the score is widely used to measure creditworthiness.Credit scores are as good as the algorithm used to derive them.The most widely used credit score is called FICO for the Fair Isaac Company, which developed it.

Creditor: A person to whom money is owed.

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 upfront 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.

D

Deadbeat: A derogatory term for a borrower who doesn’t pay his or her obligations.

Debt: An amount owed to another.

Debt Consolidation: Rolling short-term debt into a home mortgage loan, either at the time of home purchase or later.

Debt-to-Income Ratio: The relationship between a borrower’s total monthly debt payments (including proposed housing expenses) and his or her gross monthly income; this calculation is used in determining the mortgage amount that a borrower qualifies for.

Deed: The legal document conveying title to a property (i.e., transferring the ownership of real property from one party to another.)

Deed-in-Lieu of Foreclosure: The transfer of title or “deeding” of the property from a borrower to the lender to satisfy the mortgage debt and avoid foreclosure. An alternative to having the lender foreclose on the property.Also called a voluntary conveyance.

Deed of Trust: A legal document that conveys title to real estate to a disinterested third party (a trustee) who holds the title until the borrower has repaid the debt. In some states, this document is used in place of a mortgage.

Default: The failure of the borrower to honor the terms of the loan agreement and to make a scheduled payment or otherwise comply with the terms of a mortgage loan or other contract. Lenders (and the law) usually view borrowers delinquent 90 days or more as in default.

Deferred Interest: The same as negative amortization.

Delinquency: Failure to make a payment when it is due. The condition of a loan when a scheduled payment has not been received by the due date, but generally used to refer to a loan for which payment is 30 or more days past due. Not the same as a late payment.

Demand Clause: A clause in the note that allows the lender to demand repayment at any time for any reason.

Discount Mortgage Broker: A mortgage broker who claims to be compensated entirely by the lender rather than by the borrower.

Discount Point: A fee paid by the borrower at closing to reduce the interest rate. A point equals 1 percent of the loan amount. Also simply called 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.Seldom found in the United States.

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 amount of cash a buyer puts toward a purchase. Can also be expressed as 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 percent.

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 or mortgage that stipulates that if the property is sold the loan balance must be repaid. This clause allows the lender to demand repayment in full of the outstanding balance and 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 assumable.

E

Earnest Money Deposit: A deposit submitted with a purchase offer to show that the buyer’s offer is being made in good faith.

Easement: A right to the use of, or access to, land owned by another.

Effective Rate: Can refer 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. More commonly, however, effective rate is the quoted rate adjusted for intrayear compounding. For example, a quoted 6 percent mortgage rate is actually a rate of .5 percent per month, and if interest received in the early months is invested for the balance of the year at .5 percent, it results in a return of 6.17 percent over the year. The 6.17 percent is called the effective rate and 6 percent is the nominal rate.

Employer-assisted Housing: A program in which companies assist their employees in purchasing homes by providing assistance with the down payment, closing costs, or monthly payments.

Encroachment: The intrusion onto another’s property without right or permission.

Encumbrance: Any claim on a property, such as a lien, mortgage, or easement.

Equal Credit Opportunity Act (ECOA): A federal law that requires lenders to make credit equally available without regard to the applicant’s race, color, religion, national origin, age, sex, or marital status; the fact that all or part of the applicant’s income is derived from a public assistance program; or the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act.

Equity: The owner’s interest in a property, calculated as the current fair market value of the property less the amount of existing liens. The difference between the value of the home and the balance of outstanding mortgage loans on the home. May be called homeowner’s equity.

Equity Grabbing: A type of predatory lending where the lender intends for the borrower to default so the lender can grab the borrower’s equity.

Escrow: An agreement that an item of value, money, or documents be deposited with a third party for safekeeping, pending the performance of some promised act by one of the parties to the agreement. The item(s) in escrow are then delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate. 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. May be called impounds.

Escrow Abuse: The practice of using escrow accounts inappropriately to generate more income from borrowers.

Escrow Account: An account that a mortgage servicer establishes on behalf of a borrower to pay taxes, insurance premiums, or other charges when they are due. Sometimes referred to as an impound or reserve account.

Escrow Analysis: The accounting that a mortgage servicer performs to determine the appropriate balances for the escrow account, compute the borrower’s monthly escrow payments, and determine whether any shortages, surpluses, or deficiencies exist in the account.

Eviction: The legal act of removing someone from real property.

Exclusive Listing: A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time.

Executor: A person named in a will and approved by a probate court to administer the deposition of an estate in accordance with the instructions of the will.

F

Fair Credit Reporting Act: A consumer protection law that regulates the disclosure of consumer credit reports by credit reporting agencies and specifies procedures for challenging errors on a credit record.

Fair Market Value: The price at which property would be transferred between a willing buyer and willing seller, each of whom has a reasonable knowledge of all pertinent facts and is not under any compulsion to buy or sell.

Fallout: Loan applications that are withdrawn by borrowers, sometimes because they have found a better deal.

Fannie Mae: A New York stock exchange company. One of two federal agencies that purchase home loans from lenders. (The other is Freddie Mac.)It is a public company that operates under a federal charter and is the nation’s largest source of financing for home mortgages. Fannie Mae does not lend money directly to consumers, but instead works to ensure that mortgage funds are available and affordable by purchasing mortgage loans from institutions that lend directly to consumers. Both Fannie Mae and Freddie Mac finance their purchases primarily by packaging mortgages into pools, then issuing securities against the pools.The securities are guaranteed by the agencies.They also raise funds by selling notes and other liabilities.

Fannie Mae Seller/Servicer: A lender that Fannie Mae has approved to sell loans to and to service loans on Fannie Mae’s behalf.

Fannie Mae/Freddie Mac Loan Limit: Limits set for maximum loan amount. These amounts apply to all conventional mortgages delivered to Fannie Mae for cash purchase or MBS pool issuance on or after January 1, 2007 — including mortgages originated prior to that date, provided the original unpaid principal balance (UPB) was equal to or less than the new maximum. Lenders may deliver mortgages with these amounts under any outstanding contracts or commitments. See below for 2007 first-mortgage loan limits.

Number of Units	Maximum Original Principal Balance	Alaska, Guam, Hawaii, and U.S. Virgin Islands Only
1	$417,000	$625,500
2	$533,850	$800,775
3	$645,300	$967,950
4	$801,950	$1,202,925

Federal Housing Administration (FHA): An agency within the U.S. Department of Housing and Urban Development (HUD) that insures mortgages and loans made by private lenders.

Fees: The sum of all upfront cash payments required by the lender as part of the charge for the loan. Origination fees and points are expressed as a percent of the loan.Junk fees are expressed in dollars.

FHA-insured Loan: A loan that is insured by the Federal Housing Administration (FHA) of the U.S. Department of Housing and Urban Development (HUD).

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.

Final Prices: The prices paid by the borrower, as opposed to posted prices.

Financing Points: The practice of including points in the loan amount.

First Mortgage: A mortgage that is the primary lien against a property. This mortgage has a first-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.

First-time Home Buyer: A person with no ownership interest in a principal residence during the three-year period preceding the purchase of the security property.

Fixed-markup UML: An upfront mortgage lender who discloses his wholesale price and markup.

Fixed-period, Adjustable-rate Mortgage: An adjustable-rate mortgage (ARM) that offers a fixed rate for an initial period, typically three to 10 years, and then adjusts every six months, annually, or at another specified period, for the remainder of the term.

Fixed-rate Mortgage (FRM): A mortgage loan in which the interest rate and monthly mortgage payment remains unchanged throughout the term of the mortgage.

Float: The practice of 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, and also to the risk of being taken advantage of by the loan provider.

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 is more costly to the lender.Float-downs vary widely in terms of how often the borrower can exercise (usually only once), and exactly when the borrower can exercise. Not the same as interest rate increase caps or payment increase caps.

Flood Certification Fee: A fee charged by independent mapping firms to identify properties located in areas designated as flood zones.

Flood Insurance: Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood hazard zones.

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.

Foreclosure: The legal process by which a property that is mortgaged as security for a loan may be sold and the proceeds of the sale applied to the mortgage debt. A foreclosure occurs when the loan becomes delinquent because payments have not been made or when the borrower is in default for a reason other than the failure to make timely mortgage payments. The lender may then acquire possession of the property securing the mortgage loan when the borrower defaults.

Forfeiture: The loss of money, property, rights, or privileges due to a breach of a legal obligation.

Freddie Mac: One of two federal agencies that purchase home loans from lenders. The other is Fannie Mae.

Front-end Fee: Mortgage broker income paid by the borrower, as distinguished from the fee paid by the lender, which is back-end.

Fully Amortized Mortgage: A mortgage in which the monthly payments are designed to retire the obligation at the end of the mortgage term.

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 value plus the margin on an ARM.Usually, initial interest rates on ARMs are below the fully indexed rate.If the index does not change from its initial level, after the initial rate period ends the interest rate will rise to the fully indexed rate after a period determined by the interest rate increase cap. For example, if the initial rate is 4 percent for 1 year, the fully indexed rate 7 percent, and the rate adjusts every year subject to a 1 percent rate increase cap, the 7 percent rate will be reached at the end of the third year.

G

General Contractor: A person who oversees a home improvement or construction project and handles various aspects such as scheduling workers and ordering supplies.

Generic Prices: Prices that assume a more or less standardized set of transaction characteristics that generally command the lowest prices.Generic prices are distinguished from transaction-specific prices, which pertain to the characteristics of a specific transaction.

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 a down payment.

Good Faith Estimate (GFE): A form required by the Real Estate Settlement and Procedures Act (RESPA) that discloses an estimate of the amount or range of charges, for specific settlement services the borrower is likely to incur in connection with the mortgage transaction. The form 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 Mortgage: A mortgage loan that is insured or guaranteed by a federal government entity, such as the Federal Housing Administration (FHA), or guaranteed by the U.S. Department of Veterans Affairs (VA), or the Rural Housing Service (RHS).

Government National Mortgage Association (Ginnie Mae): A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD) that guarantees securities backed by mortgages that are insured or guaranteed by other government agencies. This federal agency guarantees mortgage securities that are 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. For example, the payment might increase by 7.5 percent every 12 months for 60 months, after which it is constant for the remaining term at a fully amortizing level.

Graduation Period: The interval at which the payment rises on a GPM.

Graduation Rate: The percentage increase in the payment on a GPM.

Ground Rent: Payment for the use of land when title to a property is held as a leasehold estate (that is, the borrower does not actually own the property, but has a long-term lease on it).

Growing-equity Mortgage (GEM): A fixed-rate mortgage in which the monthly payments increase according to an agreed-upon schedule, with the extra funds applied to reduce the loan balance and loan term.

H

Hazard Insurance: Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other covered hazards or natural disasters. This insurance is purchased by the borrower, and required by the lender, to protect the property against loss from fire and other hazards. Also known as homeowner’s insurance, it is the second “I” in PITI.

Historical Scenario: The assumption that the index value to which the rate on an ARM is tied follows the same pattern as in some prior historical period. In meeting their disclosure obligations in connection with ARMs, some lenders show how the mortgage payment would have changed on a mortgage originated some time in the past, which is not very useful.Showing how a mortgage originated now would change if the index followed a historical pattern would be more useful.

Homebuyer Protection Plan: A plan purporting to protect FHA home buyers against property defects.

Home Equity Conversion Mortgage (HECM): A special type of mortgage developed and insured by the Federal Housing Administration (FHA) that enables older home wners to convert the equity they have in their homes into cash, using a variety of payment options to address their specific financial needs. Sometimes called a reverse mortgage.

Home Equity Line of Credit (HELOC): A type of revolving loan, that enables a home owner to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower’s equity in the property. This 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 instead, 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. Sometimes just called home equity line.

Home Equity Loan: The same as a second mortgage.

Home Inspection: An examination of the construction, condition, and internal systems of a home prior to purchase; satisfactory home inspection may be a condition of purchase.

Home Keeper: A reverse mortgage program administered by Fannie Mae.

Homeowners’ Association: An organization of homeowners residing within a particular area whose principal purpose is to ensure the provision and maintenance of community facilities and services for the common benefit of the residents.

Homeowner’s Insurance: A broad form of insurance coverage that combines hazard insurance with personal liability protection and other coverage.

Homeowners Loan Corporation: A federal government agency established by Congress in 1933 to help families avoid having their homes foreclosed.

Homeowner’s Warranty (HOW): Insurance offered by a seller that covers certain home repairs and fixtures for a specified period of time.

Housing Bank: A government-owned or affiliated housing lender.With minor exceptions, government in the United States 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 (along with the total expense ratio and other factors) in qualifying borrowers. The percentage of a borrower’s gross monthly income that is devoted to housing costs.

Housing Investment: The amount invested in a house, equal to the sale price less the loan amount.

HUD-1 Settlement Statement: A document that lists all closing costs on a real estate purchase or refinance transaction. The borrower receives this form at closing and may review all the payments and receipts among the parties in a real estate transaction, including borrower, lender, home seller, mortgage broker, and various other service providers. Also known as the closing statement or settlement sheet.

Hybrid ARM: An ARM on which the initial rate holds for some period, during which it is fixed-rate, after which it becomes adjustable rate. Generally, the term is applied to ARMs with initial rate periods of three years or longer.

I

Income Property: Real estate developed or purchased to produce income, such as a rental unit.

Index: A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on U.S. Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM. This interest rate is subject to any caps on the maximum or minimum interest rate that may be charged on the mortgage, stated in the note.

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 United States are indexed.

Initial Interest Rate: The original interest rate for an adjustable-rate mortgage (ARM). The interest rate is fixed for some specified number of months at the beginning of the life of an ARM.The initial rate is sometimes referred to as a teaser when it is below the fully indexed interest rate. Sometimes known as the start rate.

Initial Rate Period: The number of months for which the initial rate holds, ranging from one month to 10 years.

Installment: The regular periodic payment that a borrower agrees to make to a lender.

Installment Debt: A loan that is repaid in accordance with a schedule of payments for a specified term (such as an automobile loan).

Interest: The fee charged for borrowing money, usually expressed as an annual percentage of the principal.

Interest Accrual Period: The period over which the interest due the lender is calculated. If the interest accrual period on a 6 percentmortgage for $100,000 is a year, as it is on some loans in the United Kingdom 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 United States, the monthly interest is .06/12($100,000) = $500.If interest accrues biweekly, as on a few programs in the United States, the biweekly interest is .06/26($100,000) = $230.77.And if interest accrues daily, as HELOCs and some other mortgages in the United States do, the daily interest is .06/365($100,000) = $16.44.

Interest Accrual Rate: The percentage rate at which interest accumulates or increases on a mortgage loan.

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 as 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 percent, for example, means a rate of .5 percent per month.A mortgage interest rate is a rate on a loan secured by a specific property.Also called “rate.”

Interest Rate Adjustment Period: The frequency of rate adjustments on an ARM after the initial rate period is over. 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 three years while a 3/1 ARM has an initial rate period of three years after which the rate adjusts every year.

Interest Rate Cap: For an adjustable-rate mortgage, a limitation on the amount the interest rate can change per adjustment or over the lifetime of the loan, as stated in the note.

Interest Rate Ceiling: For an adjustable-rate mortgage (ARM) contract, the maximum or highest interest rate possible, as specified in the mortgage note. Same as a lifetime cap. It is often expressed as a specified number of percentage points above the initial interest rate.

Interest Rate Decrease Cap: The maximum allowable decrease in the interest rate on an ARM each time the rate is adjusted. It is usually one or two percentage points.

Interest Rate Floor: For an adjustable-rate mortgage (ARM) contract, the minimum or lowest possible interest rate, as specified in the mortgage note. 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 one or two percentage points, but may be five points if the initial rate period is five years or longer.

Interest Rate Index: The specific interest rate series to which the interest rate on an ARM is tied, such as treasury constant maturities, one-year, or eleventh district cost of funds. All the indexes are published regularly in readily available sources.

Interim Refinance: An ill-advised scheme to avoid a prepayment penalty by refinancing twice instead of once.

Internet Mortgage: Mortgages delivered using the Internet as a major part of the communication process between the borrower and the lender.

Investment Property: A property purchased to generate rental income, tax benefits, or profitable resale rather than to serve as the borrower's primary residence. Contrast with second home.

Investor: In real estate, a borrower who owns or purchases a property as an investment rather than as a residence.

J

Judgment Lien: A lien on the property of a debtor resulting from the decree of a court.

Jumbo Loan: A loan that exceeds the maximum mortgage amount eligible for purchase by the two federal agencies, Fannie Mae or Freddie Mac. However, some lenders use the term to refer to programs for even larger loans such as for loans greater than $500,000. Also called nonconforming loan.

Junior Mortgage: A loan that is subordinate to the primary loan or first-lien mortgage loan, such as a second or third mortgage.

Junk Fees: A derogatory term for lender fees expressed in dollars rather than as a percent of the loan amount.

L

Late Charge: A penalty imposed by the lender when a borrower fails to make a scheduled payment on time.

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 percent 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.

Lead-generation Site: A mortgage Web site designed to provide leads (potential customers) to lenders. Where a referral site provides information about lenders to consumers, with consumers contacting the lenders, a lead-generation site provides information about the consumers to the lenders, and the lenders contact the consumers.They are sometimes called auction sites or mortgage auction sites because lenders post their prices directly to the consumer.

Lease-purchase Option: An option sometimes used by sellers to rent a property to a consumer, who has the option to buy the home within a specified period of time. Typically, part of each rental payment is put aside for the purpose of accumulating funds to pay the down payment and closing costs.

Lease-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: Organization providing funds. Also called direct lender, mortgage lender, or loan provider.

Liabilities: A person’s debts and other financial obligations.

Liability Insurance: Insurance coverage that protects property owners against claims of negligence, personal injury, or property damage to another party.

LIBOR-Index: An index used to determine interest rate changes for certain ARM plans, based on the average interest rate at which international banks lend to or borrow funds from the London Interbank Market.

Lien: A legal encumbrance or claim on property as security for a debt. 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.

Lifetime Cap: For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate or monthly payment can increase or decrease over the life of the loan.

Liquid Asset: A cash asset or an asset that is easily converted into cash.

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 Churning: The process of raising cash periodically through successive cash-out refinancings.

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 Origination: The process by which a lender makes a loan which may include taking a loan application, processing and underwriting the application, and closing the loan.

Loan Origination Fee: A fee to cover some of the administrative costs of processing a loan. It is often expressed in points. One point is equal to 1 percent of the loan amount.

Loan-to-Value (LTV) Ratio: The relationship between the loan amount and the value of the property (the lower of appraised value or sales price), expressed as a percentage of the property’s value. 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.For example, a $100,000 home with an $80,000 mortgage has an LTV of 80 percent.

Lock-in: An agreement in which the lender agrees to lock-in the borrower’s interest rate for a set period of time before closing. This option may be 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.Also called “lock.”

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 Jumper: A borrower, usually refinancing rather than purchasing a home, who allows a lock to expire when interest rates go down in order to lock again at the lower rate.

Lock Period: The number of days for which any lock or float-down holds.Ordinarily, the longer the period, the higher the price to the borrower.

M

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: Homes that are built entirely in a factory in accordance with a federal building code administered by the U.S. Department of Housing and Urban Development (HUD). Manufactured homes may be single- or multi-section and are transported from the factory to a site and installed. Homes that are permanently affixed to a foundation often may be classified as real property under applicable state law, and may be financed with a mortgage. Homes that are not permanently affixed to a foundation generally are classified as personal property, and are financed with a retail installment sales agreement. Manufactured homes are usually built without knowing where they will be sited, and are subject to a federal building code administered by HUD.

Margin: For an adjustable-rate mortgage (ARM), the amount that is added to the interest rate index to determine the interest rate on each adjustment date, as stated in the note. The amount generally ranges from two to three percentage points, to obtain the fully indexed interest rate on an ARM.

Market Niche: A particular combination ofloan, 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.May be called niche.

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.

Maturity Date: The date on which a mortgage loan is scheduled to be paid in full, as stated in the note.

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 Freddie Mac, the maximum will be the largest loan eligible for purchase by these agencies. On FHA loans, the maximums are set by the Federal Housing Administration, and vary somewhat by geographical area.On other loans, maximums are set by lenders.

Maximum Loan to Value Ratio: The maximum allowable LTV ratio on the selected 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.

Merged Credit Report: A credit report issued by a credit reporting company that combines information from the three major credit repositories.

Minimum Down Payment: The minimum allowable ratio of down payment to sale price on any program. If the minimum is 10 percent, 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.

Modification: Any change to the terms of a mortgage loan, including changes to the interest rate, loan balance, or loan term.

Money Market Account: A type of investment in which funds are invested in short-term securities.

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. A loan to finance the purchase of real estate, for which the borrower pledges the real property as security for the repayment of the loan. The borrower gives the lender a lien on the property as collateral for the loan.

Mortgage Banker: A company that specializes in originating real estate loans, and typically uses its own funds or warehouse line of credit to close loans.

Mortgage Broker: An individual or firm that brings borrowers and lenders together for the purpose of loan origination. A mortgage broker typically takes loan applications and may process loans, but generally does not use its own funds to close the loan. Mortgage brokers often act as independent contractors and not as an agent of the borrower or lender. An independent contractor who offers the loan products of multiple lenders, termed wholesalers. A mortgage broker counsels on the loans available from different wholesalers, takes the loan application and usually 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. Same as mortgage bank.

Mortgage Formulas: Equations used to derive common measures used in the mortgage market, such as monthly payment, balance, and APR.

Mortgage Insurance (MI): Insurance that protects lenders against losses caused by a borrower’s default on a mortgage loan. Mortgage Insurance typically is required if the borrower’s down payment is less than 20 percent of the purchase price. Mortgage insurance against loss is provided to a mortgage lender in the event of borrower default.In most cases, the borrower pays the premiums.

Mortgage Insurance Cancellation: The act of cancelling a mortgage insurance policy.

Mortgage Insurance Premium (MIP): The amount paid by a borrower for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (PMI) company. The upfront and/or periodic charges that the borrower pays for mortgage insurance. There are different mortgage insurance plans with differing combinations of upfront, monthly, and annual premiums.The most widely used premium plan is a monthly charge with no upfront premium.

Mortgage Lead: A packet of information about a consumer who a loan provider might be able to convert into a borrower. A person becomes a lead when he fills out an online mortgage questionnaire.

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 Life Insurance: A type of insurance that will pay off a mortgage if the borrower dies while the loan is outstanding; a form of credit life insurance.

Mortgage Payment: The monthly payment of interest and principal made by the borrower.

Mortgage Price: The interest rate, points, and fees paid to the lender and/or mortgage broker.On ARMs, the price also includes the fully indexed rate and the maximum rate.

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.

Mortgage Shopping: Trying to find the best deal on a mortgage.

Mortgage Spam: Unsolicited mortgage offers sent by e-mail.

Mortgagee: The institution or individual to whom a mortgage is given; the lender.

Mortgagor: The owner of real estate who pledges property as security for the repayment of a debt; the borrower.

Multifamily Mortgage: A mortgage loan on a building with more than four dwelling units.

Multifamily Properties: Typically, buildings with five or more dwelling units.

N

Negative Amortization: An increase in the balance of a loan caused by adding unpaid interest to the loan balance; this occurs when the payment does not cover the interest due. A rise in the loan balance when the mortgage payment is less than the interest due. Sometimes called deferred interest.Negative amortization arises most frequently on ARMs.

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., 110 percent). Reaching the cap triggers an automatic increase in the payment, usually to the fully amortizing payment level, overriding any payment increase cap.

Negative Homeowners Equity: The condition of owing more on the house than the house is worth. May be called “upside down.”

Negative Points: Points paid by a lender for a loan with a rate above the rate on a zero-point loan. For example, a wholesaler quotes the following prices to a mortgage broker: 8 percent/0 points, 7.5 percent/3 points, 8.75 percent/-3 points.On mortgage Web sites, negative points are usually referred to as rebates because they are used to reduce a borrower’s settlement costs.When negative points are retained by a mortgage broker, they are called a yield spread premium.

Net Jumping: Using a broker’s time and expertise to become informed and creditworthy, then jumping to the Internet to get the loan.

Net Worth: The value of a company or individual’s assets, including cash, less total liabilities.

Nichification: Proliferation in the number of loan, borrower, and property characteristics used by lenders to set mortgage prices and underwriting requirements.

No-asset Loan: A documentation requirement where the applicant’s assets are not disclosed.

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, homeowners insurance, and transfer taxes are paid by the lender and/or the home seller.

No-income Loan: A documentation requirement where the applicant’s income is not disclosed.

Nominal Interest Rate: A quoted interest rate that is not adjusted for either intrayear compounding, or for inflation. A quoted rate of 6 percent on a mortgage, for example, is nominal. Adjusted rates are called effective.

Nonconforming Mortgage: A mortgage that does not meet the purchase requirements of the two federal agencies, Fannie Mae and Freddie Mac, because it is too large or for other reasons such as poor credit or inadequate documentation.

Nonliquid Asset: An asset that cannot easily be converted into cash.

Nonpermanent resident alien: A noncitizen without a green card who is employed in the United States. As distinct from a permanent resident alien, who has a green card and who lenders do not distinguish from U.S. citizens. Nonpermanent resident aliens are subject to somewhat more restrictive qualification requirements than U.S. citizens.

Nonwarrantable condo: A condominium that does not meet lender requirements.

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.

No-surprise Adjustable Rate Mortgage: An ARM with a preset graduated payment combined with variable term.

Note: A written promise to pay a specified amount under the agreed-upon conditions. 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.

Note Rate: The interest rate stated on a mortgage note, or other loan agreement.

O

Option ARM: An adjustable-rate mortgage with flexible payment options, monthly interest rate adjustments, and very low minimum payments in the early years. They carry a risk of very large payments in later years. May be called a “pick a payment ARM,” “flexible-payment ARM,” “one-month option ARM,” or “12 MTA pay option ARM.”

Original Principal Balance: The total amount of principal owed on a mortgage before any payments are made.

Origination Fee: A fee paid to a lender to cover the administrative costs of processing a loan application. The origination fee typically is stated in the form of points. One point is 1 percent of the mortgage amount. 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 Mortgage Planners by a lender or mortgage broker, and the price charged the borrower.

Owner Financing: A transaction in which the property seller provides all or part of the financing for the buyer’s purchase of the property.

Owner-occupied Property: A property that serves as the borrower’s primary residence.

P

Partial Payment: A payment that is less than the scheduled monthly payment on a mortgage loan.

Partial Prepayment:Making a payment larger than the scheduled payment as a way of paying off the loan earlier.

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 Cap: For an adjustable-rate mortgage (ARM) or other variable rate loan, a limit on the amount that payments can increase or decrease during any one adjustment period. May be called a payment increase cap (the maximum percentage increase in the payment on an ARM at a payment adjustment date; a 7.5 percent cap is common) or a payment decrease cap (the maximum percentage decrease in the payment on an ARM at a payment adjustment date).

Payment Change Date: The date on which a new monthly payment amount takes effect, for example, on an adjustable-rate mortgage (ARM) loan.

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 Power: A program begun by Fannie Mae that allows a borrower to skip up to two mortgage payments in any 12 month period, and up to 10 over the life of a loan.

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 home buyer, 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: A scheme to tap into equity for cash advances through periodic refinancings.

Permanent Buydown: Paying points as a way of reducing the interest rate.

Personal Property: Any property that is not real property.

Piggyback Mortgage: A combination of a first mortgage for 80 percent of property value, and a second for 5 percent, 10 percent, 15 percent, or 20 percent of value. These combinations are designated as 80/5/15, 80/10/10, 80/15/5, and 80/20/0, respectively. Piggybacks are a substitute for mortgage insurance for borrowers who cannot put 20 percent down.

Pipeline Risk: The lender’s risk that between the time a lock commitment is given to the borrower and the time the loan is closed, interest rates will rise and the lender will take a loss on selling the loan.

PITI: An acronym for the four primary components of a monthly mortgage payment/housing expense: principal, interest, taxes, and insurance (PITI).

PITI Reserves: A cash amount that a borrower has available after making a down payment and paying closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

Planned Unit Development (PUD): A real estate project in which individuals hold title to a residential lot and home while the common facilities are owned and maintained by a homeowners’ association for the benefit and use of the individual PUD unit owners.

Points: An amount equal to 1 percent of the loan amount. This 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., three points means a charge equal to 3 percent of the loan balance. It is common today for lenders to offer a wide range of rate/point combinations, especially on fixed-rate mortgages (FRMs), 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.

Portfolio Lender: A lender that holds the loans it originates in its portfolio rather than selling them, as a temporary lender does.

Posted Prices: Mortgage prices delivered by lenders to Mortgage Planners and mortgage brokers, as opposed to final prices paid by borrowers.

Power of Attorney: A legal document that authorizes another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

Pre-approval: A process by which a lender provides a prospective borrower with an indication of how much money he or she will be eligible to borrow when applying for a mortgage loan. This process typically includes a review of the applicant’s credit history and may involve the review and verification of income and assets to close. A commitment by a lender to make a mortgage loan to a specified borrower, prior to the identification of a specific property.It is designed to make it easier to shop for a house. Unlike a pre-qualification, the lender checks the applicant’s credit.

Predatory Lending: Various unsavory lender practices designed to take advantage of unwary borrowers.

Prepayment: Any amount paid to reduce the principal balance of a loan before the scheduled due date. 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 or fee imposed by the lender if the borrower pays off the loan early. The borrower may be required to pay the lender in the early years of a mortgage loan for repaying the loan in full or prepaying a substantial amount to reduce the unpaid principal balance. 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: A preliminary assessment by a lender of the amount it will lend to a potential home buyer. The process of determining how much money a prospective home buyer may be eligible to borrow before he or she applies for a loan. May be called qualification.

Price Gouging: Charging interest rates and/or fees that are excessive relative to what the same borrowers could have found had they shopped the market.

Primary residence: The house in which the borrower will live most of the time, as distinct from a second home or an investment property that will be rented.

Principal: The amount of money owed on a loan, excluding interest. Also, the part of the monthly payment that reduces the remaining balance of a mortgage.

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 (PMI): Insurance for conventional mortgage loans that protects the lender from loss in the event of default by the borrower. PMI is distinguished from insurance provided by government under FHA and VA.PMI is provided by private mortgage insurance companies.

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.

Promissory Note: A written promise to repay a specified amount over a specified period of time.

Purchase and Sale Agreement: A document that details the price and conditions for a transaction. In connection with the sale of a residential property, the agreement typically would include: information about the property to be sold, sale price, down payment, earnest money deposit, financing, closing date, occupancy date, length of time the offer is valid, and any special contingencies.

Purchase Money Mortgage: A mortgage loan that enables a borrower to acquire a property. A mortgage offered by a house buyer as partial payment for the house. From the seller’s point of view, it is seller financing.

Q

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 percent and 35 percent. 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 the borrower’s credit record into account.

Qualifying Guidelines: Criteria used to determine eligibility for a loan.

Qualifying Ratios: Calculations that are used in determining the loan amount that a borrower qualifies for, typically a comparison of the borrower’s total monthly income to monthly debt payments and other recurring monthly obligations.

Quality Control: A system of safeguards to ensure that loans are originated, underwritten, and serviced according to the lender’s standards and, if applicable, the standards of the investor, governmental agency, or mortgage insurer.

R

Rate Caps: For an adjustable rate mortgage loan, the maximum interest rate that may be charged, either at the time of each adjustment date or over the life of the loan.

Rate Lock or Lock-in: An agreement in which a lender locks in or guarantees an interest rate for a specified period of time prior to closing.

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.

Rate Sheets: Tables of interest rates and points that lenders distribute daily to their Mortgage Planner employees or mortgage brokers.

Real Estate Settlement Procedures Act (RESPA): A federal consumer protection law enacted in 1974 that requires lenders to provide home mortgage borrowers with information about transaction-related costs prior to settlement, as well as information during the life of the loan regarding servicing and escrow accounts. RESPA also was designed to protect home purchasers and owners shopping for settlement services by mandating certain disclosures and prohibiting kickbacks and unearned fees in the mortgage loan business.

Real Property: Land and anything permanently affixed thereto — including buildings, fences, trees, and minerals.

Recast Payment: Raising the mortgage payment to the fully amortizing payment. Periodic recasts are sometimes used on ARMs in lieu of or in addition to negative amortization caps.

Recorder: The public official who keeps records of transactions that affect real property in the area. Sometimes known as a registrar of deeds or county clerk.

Recording: The filing of a lien or other legal documents in the appropriate public record.

Referral Fees: Payments made by service providers to other parties as quid pro quo for referring customers. For example, a title company provides something of value to a real estate agent or lender for sending a customer who requires title insurance.

Referral Power: The ability to direct a client to a specific vendor. Referral power is based on information and authority of the referrer, and ignorance of the client.

Referral Site: A mortgage Web site that introduces potential borrowers to participating lenders, in some cases to hundreds of them. The principal lure to the consumer is information on generic prices posted by the lenders.

Refinance: The simultaneous process of paying off an old loan with the proceeds from a new loan using the same property as security. This may be done 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.It may be done to raise cash, as an alternative to a home equity loan.Or it may be done to reduce the monthly payment. Also called a refinance transaction.

Rehabilitation Mortgage: A mortgage loan made to cover the costs of repairing, improving, and sometimes acquiring an existing property.

Remaining Term: The original number of payments due on the loan minus the number of payments that have been applied.

Repayment Plan: An arrangement by which a borrower agrees to make additional payments to pay down past due amounts while still making regularly scheduled payments.

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 upfront, 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 that every borrower receives.

Rescission: The cancellation or annulment of a transaction or contract by operation of law or by mutual consent.

Retail Lender: A lender who offers mortgage loans directly to the public.Different from a wholesale lender who operates through mortgage brokers and correspondents.

Reverse mortgage: A loan to an elderly homeowner on which the balance rises over time, and which is not repaid until the owner dies, sells the house, or moves out permanently.

Revolving Debt: Credit that is extended by a creditor under a plan in which (1) the creditor contemplates repeated transactions; (2) the creditor may impose a finance charge from time to time on an outstanding unpaid balance; and (3) the amount of credit that may be extended to the consumer during the term of the plan is generally made available to the extent that any outstanding balance is repaid.

Right of First Refusal: A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

Right of Rescission: The right of refinancing borrowers, under the Truth in Lending Act, to cancel the deal at no cost to themselves within three days of closing. Borrowers may have a right to cancel certain mortgage refinance transactions within three business days after closing, or for up to three years in certain instances.

Rural Housing Service (RHS): An agency within the U.S. Department of Agriculture (USDA), which operates a range of programs to help rural communities and individuals by providing loan and grants for housing and community facilities. The agency also works with private lenders to guarantee loans for the purchase or construction of single-family housing.

S

Sale-Leaseback: A transaction in which the buyer leases the property back to the seller for a specified period of time.

Scenario Analysis: Determining how the interest rate and payment on an ARM will 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. On most mortgages, the scheduled payment is the fully amortizing payment throughout the life of the loan. On some mortgages, however, the scheduled payment for the first five or 10 years is the interest payment. And on option (flexible payment) ARMs, it can be the minimum payment as defined by the program.

Second Mortgage: A mortgage that has a lien position subordinate to the first 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 Mortgage Market: The market in which mortgage loan and mortgage-backed securities are bought and sold.

Secured Loan: A loan that is backed by property such as a house, car, jewelry, etc.

Security: The property that will be given or pledged as collateral for a loan.

Self-employed Borrower: A borrower who must document income using tax returns rather than information provided by an employer, which may complicate the loan process.

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.

Seller Financing: Provision of a mortgage by the seller of a house, often a second mortgage, as a condition of the sale.

Seller Take-back: An agreement in which the seller of a property provides financing to the buyer for the home purchase. Also called owner financing.

Servicer: A firm that performs servicing functions, including collecting mortgage payments, paying the borrower’s taxes and insurance and generally managing borrower escrow accounts.

Servicing: The tasks a lender performs to protect the mortgage investment, including the collection of mortgage payments, escrow administration, and delinquency management. How loans are administered 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: The process of completing a loan transaction at which time the mortgage documents are signed and then recorded, funds are disbursed, and the property is transferred to the buyer (if applicable). Also called closing or escrow in different jurisdictions.

Settlement Costs: Costs that the borrower must pay at the time of closing, in addition to the down payment.

Settlement Statement: A document that lists all closing costs on a real estate purchase or refinance transaction.

Shared Appreciation Mortgage: A mortgage on which the borrower gives up a share infuture 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 home buyers 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 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.

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.

Single-family Properties: One- to four-unit properties including detached homes, townhouses, condominiums, and cooperatives, and manufactured homes attached to a permanent foundation and classified as real property under applicable state law.

Single-file Mortgage Insurance: A type of mortgage insurance on which the lender pays the premium and prices it in the interest rate.

Single-lender Web Site: A Web site of an individual lender or mortgage broker who wants users to select a loan from them. They are easy to identify because the name of the lender or broker will be prominently displayed on the screens. Single-lender sites account for the majority of all mortgage Web sites.

Soft Second Loan: A second mortgage whose payment is forgiven or is deferred until resale of the property.

Soldiers and Sailors Civil Relief Act: A federal law that restricts the enforcement of civilian debts against military personnel who may not be able to pay because of active military service.

Stated Assets: A documentation requirement where the borrower discloses 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: Any mortgage or other lien with lower priority than the first mortgage. Can be 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 for allowing a borrower to refinance the first mortgage while leaving the second in place.

Sub-prime Borrower: A borrower with poor credit, who can borrow only from sub-prime lenders who specialize in dealing with borrowers who have poor credit. Such borrowers pay more than prime borrowers, and are sometimes taken advantage of.Not all borrowers who deal with sub-prime lenders, however, are sub-prime borrowers. Some could obtain loans from mainstream lenders if they properly shop the market.

Sub-prime Lender: A lender who specializes in lending to sub-prime borrowers.

Survey: A precise measurement of a property by a licensed surveyor, showing legal boundaries of a property and the dimensions and location of improvements.

Sweat Equity: A borrower’s contribution to the down payment for the purchase of a property in the form of labor or services rather than cash.

T

Tangible Net Benefit: The net gain to a borrower from a refinancing.

Taxes and Insurance: Funds collected as part of the borrower’s monthly payment and held in escrow for the payment of the borrower’s state and local property taxes and insurance premiums.

Teaser Rate: The initial interest rate on an ARM, when it is below the fully indexed rate.

Temporary Buydown: 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 seven-year balloon loan, for example, the maturity is seven years but the term in most cases is 30 years.

Termite Inspection: An inspection to determine whether a property has termite infestation or termite damage. In many parts of the country, a home must be inspected for termites before it can be sold.

Third-party Origination: A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package a mortgage loan.

Title: A legal document evidencing a person’s right to or ownership of a property.

Title Insurance: Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against losses arising from defects in the title not listed in the title report or abstract.

Title Search: A check of the public records to ensure that the seller is the legal owner of the property and to identify any liens or claims against the property.

Total Expense Ratio: The ratio of total housing expense to borrower income.

Total Housing Expense: Housing expense, plus monthly debt service. Same as monthly total expenses.

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 upfront 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 ratio and other factors) in qualifying borrowers.

Trade Equity: Real estate or assets given to the seller as part of the down payment for the property.

Transfer Tax: State or local tax payable when title to property passes from one owner to another.

Treasury Index: An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions by the U.S. Treasury of Treasury bills and securities.

Truth-in-Lending: A federal law intended to promote the informed use of consumer credit by requiring disclosure about its terms and costs. It specifies the information that must be provided to borrowers on different types of loans. Creditors are required to disclose the cost of credit as a dollar amount (the finance charge) and as an annual percentage rate (APR). Also, the form used to disclose this information.

Two- to Four-family Property: A residential property that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed; a loan secured by such a property is considered to be a single-family mortgage.

U

Underage: Fees collected from a borrower by a Mortgage Planner that are lower than the target fees specified by the lender or mortgage broker who employs the Mortgage Planner.

Underwriting: In mortgage lending, the process of evaluating a loan application and examining all the data about a borrower’s property and transaction to determine the risk involved for the lender and whether the mortgage applied for should be issued. Underwriting involves an analysis of the borrower’s creditworthiness, ability to repay the loan, and the value of the property securing the loan. The person who performs this function 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.

Unsecured Loan: A loan that is not backed by collateral.

Upfront Mortgage Broker (UMB): A mortgage broker who charges a set fee for services provided, established in writing at the outset of the transaction, and acts as the borrower’s agent in shopping for the best deal.

Upfront Mortgage Lender: A lender offering loans on the Internet who provides mortgage shoppers with the information they need to make an informed decision before applying for a mortgage; and guarantees them fair treatment during the period after they apply through to closing.

V

VA-guaranteed Loan: A mortgage loan that is guaranteed by the U.S. Department of Veterans Affairs (VA). This mortgage with no down payment requirement, available only to ex-servicemen and servicewomen, as well as those on active duty, on which the lender is insured against loss by the Veterans Administration.

Veterans Affairs (U.S. Department of Veterans Affairs), also called VA: A federal government agency that provides benefits to veterans and their dependents, including health care, educational assistance, financial assistance, and guaranteed home loans.

W

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.

Warrantable Condos: A condominium project with features that lenders view as protections against hazards that would threaten the value of condo units. These features include the project being completed with most units sold rather than rented, no one party owning more than 10 percent of them, adequate insurance coverage of common structures, and an ownership association independent of the developer.

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.As opposed to a retail lender.

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. On a one-month ARM with no rate adjustment caps, for example, the rate would jump to the maximum rate stipulated in the note in month two.

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 except by violating the clause.

Y

Yield Curve: A graph that shows, at any given time, how the yield varies with the period to maturity. Usually, the curve slopes upward but occasionally it slopes down or is flat. A flat yield curve means that yields on long-term bonds are not much higher than those on short-term notes.

Numbers

3/2 Down Payment: Programs offered by some lenders under which a borrower who is able to secure a grant or gift equal to 2 percent of the down payment will only have to provide a 3 percent down payment from their own funds. This can be a good deal for a cash-short borrower.

3.95 percent ARM: A monthly ARM on which the initial rate is 3.95 percent.

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.

40-year Mortgage: A mortgage with a term of 40 years. 80/10/10, 80/15/5, and 80/20/0

Loan Plans: Combination first mortgages for 80 percent of sale price or value and second mortgages for 10 percent, 15 percent, or 20 percent.The purpose is to avoid mortgage insurance, which is required on first mortgages that exceed 80 percent of value.

100 percent Loan: A loan with no down payment.The loan amount equals the property value.

125 percent Loan: A loan for 125 percent of property value.