Mortgage FAQ's
Mortgage Glossary
Adjustable Rate Mortgage (ARM)
A mortgage loan or deed of trust
which allows
the lender to adjust the interest
rate in
accordance with a specified index
periodically
and as agreed to at the inception
of the
loan.
Adjustment Interval
This is the time between changes
in your
interest rate and monthly payments
on an
Adjustable Rate Mortgage.
Amortization
Repayment of a mortgage debt
with equal periodic
payments of both principal and
interest,
calculated to retire the obligation
at the
end of a fixed period of time.
Amortization Schedule
A table showing the amounts of
principal
and interest due at regular intervals
and
the unpaid balance of the loan
after each
payment is made.
Annual Percentage Rate
The cost of your loan expressed
as a yearly
rate. For mortgages, it includes
interest,
points, origination fees, and
any mortgage
insurance required by the lender.
Appraisal
A written estimate of the current
value of
the home to be purchased prepared
by a licensed,
certified appraiser. Also refers
to the process
by which a value estimate is
obtained.
Arrearages
The amounts which are past due
on a loan
(usually past due payments),
excluding any
amounts which become due through
acceleration.
Assessment
The value placed on property
for the purpose
of taxation. May also refer to
a levy against
property for a special purpose,
such as a
sewer assessment.
Assign
To transfer or make over to another,
to sell
(see 'Assignment of Mortgage').
Assignment of Mortgage
A document which transfers ownership
of a
mortgage from one mortgagee to
another (as
from the originator of the loan
to the permanent
investor).
Assumable Mortgage
A mortgage that lets you transfer
your mortgage
and its terms to the purchaser
of your home.
This can be an advantage if and
when you
sell.
Assumption
The taking over by one party
of an obligation
which was originally incurred
by another,
as in the assumption of an existing
mortgage
by the new owner when a property
is sold.
Balloon Mortgage
A mortgage with periodic installments
of
principal and interest which
do not fully
amortize the loan. The balance
of the mortgage
is due in a lump sum at the end
of the term.
Bankruptcy
A proceeding in a Federal court
in which
a debtor who owes more than his/her
assets
are worth can be relieved of
his/her debts
by transferring the assets to
a trustee.
Affects only the borrower's personal
liability
for the debt; does not affect
the lien of
the mortgage (see 'Personal Liability').
Bi-weekly Mortgage
A payment plan that allows you
to pay on
half of your monthly payment
every two weeks.
In addition to substantial interest
savings
over the life of the loan, most
people like
the way the payment plan smoothes
our their
cash flow.
Blanket Mortgage
A lien on more than one parcel
or unit of
land, frequently incurred by
subdividers
or developers who have purchased
a single
tract of land for the purpose
of dividing
it into smaller parcels for sale
or development.
Also called a blanket trust deed.
Call Option
This allows the lender to require
repayment
of the loan in full before the
term is up.
Caps
Safeguards that limit how much
your ARM interest
rates and payments can go up
or down at any
one time and over the life of
the loan.
Chronic Delinquents
Borrowers who are seriously or
repeatedly
late in making payments and the
lateness
is not caused by circumstances
beyond their
control.
Closing Costs
Money paid by the borrower and/or
seller
when the loan is closed.
Collateral
Any property pledged as security
for a debt
(i.e., the real estate pledged
as security
for a mortgage).
Collection
The servicing procedure followed
to bring
a delinquent mortgage current
to file the
required notices to begin foreclosure
when
necessary.
Conventional Financing
In real estate, mortgage financing
which
is not insured or guaranteed
by a government
agency such as HUD/FHA, VA, or
the Farmer's
Home Administration.
Conveyance
The document, such as a deed,
lease, or mortgage,
used to effect a transfer.
Correspondent
A specialized type of mortgage
banker whose
function is limited to the origination
of
mortgage loans that are sold
to other mortgage
bankers or investment bankers.
Coupon Book
A book of printed tickets furnished
to the
borrower. One coupon is returned
each month
with a check or money order,
enabling the
mortgage servicer to identify
the payment
by name and loan number.
Covenant
A legally enforceable promise,
as the covenant
in a mortgage by which the borrower
agrees
to keep the property in good
repair, adequately
insures against fire and other
casualties,
etc. The breach of a covenant
in the mortgage
usually creates a default as
defined by the
mortgage and can be a basis for
foreclosure.
Credit Instrument
The note or other document evidencing
the
debt (as distinguished from the
mortgage
or other security instrument).
Credit Rating
A rating given to a person or
company to
establish creditworthiness based
upon present
financial condition, experience,
and past
credit history.
Custodial Accounts
Bank account used for deposit
of funds belonging
to others (see 'Escrow Account').
Cut-Off Date
The date up to which loan collections
are
included in remittances to investors.
Deed
A written document, signed, delivered,
and
usually recorded, which conveys
title to
property from one owner to another
(see 'Conveyance').
Deed of Trust
A type of security instrument
in which the
borrower conveys a trust to hold
property
to a third party (trustee) as
security for
the lender, with the condition
that the trustee
shall reconvey the title upon
the payment
of the debt, and conversely,
will sell the
land and pay the debt in the
event of a default
by the borrower.
Deed-in-Lieu of Foreclosure
A deed given by an owner/borrower
to a lender
to prevent the lender from bringing
foreclosure
proceedings. The validity of
the deed depends
to some degree on 'fairness'
under the circumstances,
and adequacy of consideration
will be considered.
Default
A breach or non-performance of
the terms
of a note or the covenants under
a mortgage.
Deficiency
The difference between the balance
outstanding
on a loan and proceeds from the
sale of the
loan collateral.
Deficiency Judgment
A court order to pay the balance
owed on
a loan if the proceeds from the
sale of the
security are insufficient to
pay off the
loan.
Delinquency
A loan in which a payment is
overdue but
not yet declared to be in default
by the
lender. A payment is overdue,
and therefore
the loan is delinquent if it
has not been
received by the due date.
Delinquency Ratio
Ratio of the number or dollar
balance of
past due loans to total number
or dollar
balance of loans serviced.
Direct Memory Access (DMA)
Direct Memory Access provides
a way to transfer
data between devices and memory
at very high
speeds.
Equity
Net ownership, the difference
between fair
market value and current indebtedness
sometimes
called owner's interest.
Escrow Account
An account set aside by your
mortgage lender
to pay for annual expenses such
as homeowners
insurance and property taxes.
Part of your
monthly mortgage payment goes
into this account,
so you don't have to make one
lump payment
when these expenses are due.
Escrow Analysis
The periodic examination of escrow
accounts
to determine if current monthly
deposits
will provide sufficient funds
to pay taxes,
insurance, and other bills when
due.
Escrow Overage or Shortage
The difference, determined by
an escrow analysis,
between escrow funds on deposit
and escrow
funds required to make a payment
when it
becomes due.
Escrow Payment
That portion of a mortgagor's
monthly payments
held by a lender or servicer
to pay taxes,
hazard insurance, mortgage insurance,
lease
payments, and other items as
they become
due. Also called impounds or
reserves in
some states.
Executed
Officially signed, as in the
execution of
a deed or other document, with
the intention
that the person signing shall
be bound by
the contents.
Extending the Term
Lengthening the term of a loan
beyond its
original maturity.
FHA Insurance
An undertaking by FHA to insure
the lender
against loss arising from a default
by the
borrower.
Fannie Mae
Another name for the Federal
National Mortgage
Association (FNMA), the nation's
largest
mortgage investor. A quasi-governmental
secondary
market organization, which offers
various
mortgage purchase and securitization
programs.
Federal Home Loan Mortgage Corporation
(FHLMC)
See 'Freddie Mac'.
Federal Housing Administration
(FHA)
A federal agency within the Department
of
Housing and Urban Development
(HUD) that
provides mortgage insurance for
residential
mortgages and sets standards
for construction
and underwriting. The FHA does
not lend money,
nor does it plan or construct
housing.
Federal National Mortgage Association
(FNMA)
See 'Fannie Mae'.
Fixed Rate Loan
A mortgage with an interest rate
that does
not change.
Flood Insurance
Protection against flood loss
through the
1973 Flood Disaster Protection
Act.
Forbearance
The act of refraining from taking
legal action
despite the fact that the mortgage
is in
arrears. It is usually granted
only when
a mortgagor makes satisfactory
arrangements
to pay the amount owed at a future
date.
Foreclosure Complaint
In a judicial foreclosure, the
initial petition
or pleading filed with the court
outlining
the terms of the mortgage and
the nature
and extent of the default, and
asking that
the property be sold to satisfy
the debt.
Foreclosure Expenses
Attorney's fees, title charges,
court costs,
and other necessary expenses
incurred by
the mortgagee in connection with
foreclosure.
Foreclosure Sale
A forced sale of mortgaged property
at public
auction conducted either by the
court or
in some other prescribed fashion,
with the
proceeds of the sale going to
satisfy the
debt. The lender is usually the
successful
bidder at the foreclosure sale.
Freddie Mac
Another name for the Federal
Home Loan Mortgage
Corporation (FHLMC), a quasi-governmental
secondary market organization,
which offers
various mortgage purchase and
securitization
programs.
Ginnie Mae
Another name for the Government
National
Mortgage Association (GNMA),
a federal agency
within the Department of Housing
and Urban
Development (HUD) who guarantees
the timely
payment of principal and interest
for mortgage-backed
securities backed by FHA-insured
and VA-guaranteed
mortgages.
Government National Mortgage
Association
(GNMA)
See Ginnie Mae.
Graduated Payment Mortgage (GPM)
A type of flexible payment mortgage
where
the payments increase for a specified
period
of time and then level off. Usually
results
in negative amortization.
Guaranteed Loans
A loan guaranteed by VA, the
Farmer's Home
Administration, or any other
interested party.
Index
A published rate used by lenders
to calculate
the interest adjustments on ARMs.
This index
can vary from lender to lender.
Initial Rate
The rate charged to the first
interval of
an ARM. It is often lower than
current fixed
rates.
Investor
Any person or institution who
invests in
mortgages or mortgage-backed
securities.
Junior Liens
Liens or claims against a property
which
are secondary or inferior to
the lien of
the first mortgage (i.e, a second
mortgage).
Late Charge
An additional charge that a borrower
is required
to pay as a penalty for failure
to pay a
regular installment when due.
Lien
A legal hold or claim of a creditor
on the
property of another as security
for a debt.
Liens are always against property,
usually
real property.
Liquidation
Conversion of a debt or asset
to cash through
negotiated settlement or legal
proceedings,
as the liquidation of a mortgage
debt through
foreclosure and sale of the foreclosed
property.
Loan Administration
A mortgage banking function which
includes
the receipt of payments, customer
service,
escrow administration, investor
accounting,
collections, and foreclosure.
Also called
'servicing'.
Loan Documents
The legal documents evidencing
or supporting
the debt and legal status of
the mortgage
(i.e., note, mortgage or trust
deed, assignment(s)
of mortgage, and mortgage title
policy).
Loan-to-Value Ratio (LTV)
The percent of the appraised
value of the
property that the lender is willing
to lend.
For example, if a home is appraised
at $45,000
and the lender has an 80% loan-to-value
ratio,
the most you could borrow would
be $36,000
(45,000 x .80).
Loss Draft
A bank draft from an insurer
in settlement
of a loss covered by hazard insurance.
Margin (spread)
The amount added to an index
to determine
the interest rate on an ARM.
Market Value
The highest price that a buyer
and the lowest
price that a seller would accept,
neither
one being compelled to buy or
sell.
Modification
The act of changing the terms
of a note,
such as by reducing payments.
Mortgage
A formal document executed by
an owner of
property pledging that property
as security
for payment of a debt or performance
of some
other obligation; the security
instrument.
Mortgage Banker
A firm which conducts mortgage
lending activities
from its own funds. Newly formed
mortgages
are sold to investors in the
secondary market,
providing funds for subsequent
lending. The
mortgage banker generally continues
to service
the loans.
Mortgage Insurance Certificate
(MIC)
Certificate issued by HUD/FHA
as evidence
that a mortgage has been insured,
and that
a contract of mortgage insurance
exists between
HUD/FHA and the lender incorporating
the
HUD/FHA regulations identified
in the certificate.
Mortgage Title Policy
A policy issued by a title insurance
company
insuring the mortgagee against
loss due to
any existing defect in the title
to the mortgaged
property or to any claim against
the property
having legal priority over the
mortgage existing
prior to the issuance of the
policy (see
'Owner's Title Insurance Policy').
Mortgagee
The lender in a mortgage transaction.
Mortgagee Clause
A clause within a hazard insurance
policy
naming the mortgagee as a beneficiary
of
the policy.
Mortgagor
The borrower in a mortgage transaction
who
pledges property as a security
for a debt.
Note
A general term for any kind of
paper or document
signed by a borrower which is
an acknowledgement
of the debt, and is, by inference,
a promise
to pay. When the note is secured
by a mortgage,
it is called a mortgage note
and the mortgagee
is named as the payee.
Notice of Default
(1) A notice recorded after the
occurrence
of a default under a deed of
trust or mortgage;
(2) A notice required by an interested
third
party who has insured or guaranteed
a loan
(i.e., FHA, VA, or a private
mortgage insurer).
Origination
The process of creating both
commercial and
residential mortgages.
Origination Fee
The lender's fee charged to a
borrower to
prepare documents, make credit
checks, inspect
and sometimes appraise a property.
Usually
stated as a percentage of the
face value
of the loan.
Owner's Title Insurance Policy
A policy issued by a title insurance
company
insuring the owner against loss
due to any
defect in his title to real property
existing
prior to the issuance of the
policy.
PITI
Acronym for the items included
in a monthly
payment principal, interest,
taxes, and insurance.
Partial Payment
In loan collection, less than
the full payment
due, usually not credited until
the balance
is received.
Payoff Figure
Information released to the borrower
or to
his/her representative giving
the unpaid
principal balance and interest
amounts, to
be used for payment in full of
the mortgage.
Point
An up-front fee; one point is
equal to one
percent of the loan amount. Many
lenders
allow customers the option of
paying 'points'
in exchange for a lower interest
rate on
the loan.
Principal Payment
A payment applied entirely to
the principal
balance of the loan; formerly
called 'curtailment'.
Private Mortgage Insurance (PMI)
Insurance written by a private
company protecting
the mortgage lender against financial
loss
occasioned by a borrower defaulting
on the
mortgage.
Rate Guarantee (lock-in)
A guarantee that the rate in
effect when
you apply will be the final rate
when you
close your loan. Good for a specific
time
only.
Real Property
Land and buildings, as opposed
to personal
property or chattels.
Recorded
The noting in the office of the
Recorder
(or other public office in a
political subdivision
who keeps records or transactions
affecting
real property in the area) of
the details
of a properly executed legal
document such
as a deed, mortgage, or satisfaction
of mortgage,
thereby making it a part of the
public record
as of a specific date and time.
Refinancing
The repayment of a debt from
the proceeds
of a new loan using the same
property as
security.
Reinstatement
The acknowledgement by a mortgagee
that a
delinquent loan has been brought
current
by the mortgagor.
Reinstatement Program
A program or schedule of partial
payments
leading to reinstatement of the
loan to a
current status. Also called a
'forbearance
plan'.
Release of Liability
An agreement by a lender to terminate
the
personal obligation of a mortgagor
in connection
with the payment of a debt. FHA
and VA require
approval by regulatory agencies
for a release
of liability.
Return Premium
The refund of unearned advance
premium resulting
from cancellation of a hazard
insurance policy
prior to its expiration date
or date to which
the premium has been paid (see
'short-rate').
Satisfaction of Mortgage
The recorded instrument the lender
provides
to evidence payment in full of
the mortgage
debt.
Second Mortgage
A mortgage which is subordinate
to a first
mortgage.
Security
Collateral; personal property
pledged to
secure repayment of a debt, as
the real estate
security.
Self-Insurer
A company or organization which
chooses not
to buy insurance for certain
risks but provides
for losses either by absorbing
them as they
occur or by establishing a fund
from which
they can be paid. Self-insurance
is usually
undertaken as a cost-saving device
where
the risks are well diversified.
FHA and VA
are self-insurers with respect
to fire and
similar hazards on properties
they own.
Servicing
Same as 'Loan Administration'.
Short Rate
A method of calculating the premium
refund
on a hazard insurance policy
cancelled between
anniversary dates. To reimburse
the insurance
company for the additional administrative
work involved in mid-term cancellation,
a
short-rate refund is less than
it would be
on a prorated basis.
Short Sale
Payment of less than total indebtedness
to
satisfy debt through sale of
property.
Soldiers & Sailors Civil
Relief Act
A federal law restricting the
enforcement
of civilian debts against military
personnel
whose ability to pay has been
severely hampered
by entry into military service
after the
debt was incurred.
Stay
Enjoin, restrain, delay, hold
up.
Term
The number of years it will take
to pay off
your loan, making your regular
payments.
Third Party Purchaser
A successful purchaser at a foreclosure
sale
other than the mortgagee or mortgagor
or
their representatives.
Title
Ownership.
Title Examination
A search of public records to
determine the
status of a title (i.e., the
identity of
the current owner and the existence
and nature
of any liens or claims outstanding
against
the property).
Title Insurance
See "Title Policy"
Title Policy
A policy issued by a title insurance
company
insuring against loss due to
any defect in
the title to real property existing
prior
to the issuance of the policy
(see 'Owner's
Title Insurance Policy'; 'Mortgage
Title
Policy').
Title Search
Verifies that the title to the
property you
are buying is clear of any claims
from other
persons.
Underwriting
Guidelines the lender uses to
determine if
a borrower qualifies for a loan.
VA Guaranty
An undertaking by the Federal
government
to guarantee the lender, subject
to limitations,
against loss arising from a default
by the
borrower.
Veteran?s Administration (VA)
An independent agency of the
Federal Government
created in 1930. The Service-Readjustment
Act of 1944 authorized the agency
to administer
a variety of benefit programs
designed to
facilitate the adjustment of
returning veterans
to civilian life. Among the benefit
programs
is the VA Home Loan Guaranty
program, which
encourages mortgage lenders to
offer long-term,
low down payment financing to
eligible veterans
by guaranteeing the lender against
loss.
The VA attained Department status
in March
1989.
Warranty Deed
A deed in which the grantor or
seller warrants
or guarantees that he/she is
conveying good
title, as opposed to a quit-claim
deed which
contains no representation or
warranty as
to the quality of title being
conveyed.
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With a fixed rate mortgage, you know exactly
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| Adjustable Rate |
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