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Mortgage Glossary

A B C D E F G H I J
K L M N O P Q R S T
U V W X Y Z

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1 Month Option ARM

Same as Flexible Payment ARM.

3/2 Downpayment

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

80/10/10, 80/15/5, and 80/20/0 loan plans

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

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. 12 MTA Pay Option ARMSame as Flexible Payment ARM.3.95% ARMA monthly ARM on which the initial rate is 3.95%.  

100% loan

A loan with no down payment.  The loan amount equals the property value. 

125% loan

A loan for 125% of property value.

40-Year Mortgage

A mortgage with a term of 40 years.


A

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.  

Acceleration clause

A contractual provision that gives the lender the right to demand repayment of the entire loan balance in the event that the borrower violates one or more clauses in the note. 

Accrued interest

Interest that is earned but not paid, adding to the amount owed. Same as  Negative amortization. Adjustable rate mortgage (ARM)

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 US most ARMs base rate changes 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 interval

On an ARM, the time between changes in the interest rate or monthly payment. The rate adjustment interval is often displayed in x/y format, where "x" is the period until the first adjustment, and "y" is the adjustment period thereafter. For example, a 5/1 ARM is one on which the initial rate holds for 5 years, after which it is adjusted every year. The rate adjustment interval and the payment adjustment interval are the same on a fully amortizing ARM, but may not be on a negative amortization ARM. 

Affordability

A consumer's capacity to afford a house. Affordability is usually expressed in terms of the maximum price the consumer could pay for a house, and be approved for the mortgage required to pay that amount. 

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 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 table showing the mortgage payment, broken down by interest and amortization, the loan balance, tax and insurance payments if made by the lender, and the balance of the tax/insurance escrow account.

Amount financed

On the Truth in Lending form, the loan amount less "prepaid finance charges", which are lender fees paid at closing.  For example, if the loan is for $100,000 and the borrower pays the lender $4,000 in fees, the amount financed is $96,000.  A useless number. 

Annual percentage rate

See APR.

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 of a property's current market value prepared by an appraiser.  

Appraiser

A professional with knowledge of real estate markets and skilled in the practice of appraisal.  When a property is appraised in connection with a loan, the appraiser is selected by the lender, but the appraisal fee is usually paid by the borrower.

Appraisal fee

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

APR

The Annual Percentage Rate, which must be reported by lenders under Truth in Lending regulations. It is a comprehensive measure of credit cost to the borrower that takes account of the interest rate, points, and flat dollar charges. It is also adjusted for the time value of money, so that dollars paid by the borrower up-front carry a heavier weight than dollars paid ten years down the road. However, the APR is calculated on the assumption that the loan runs to term, and is therefore potentially deceptive for borrowers with short time horizons. Read Does the Annual Percentage Rate (APR) Help?  Other articles about the APR are cited under Mandatory Mortgage Disclosure.

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.

ARM

An adjustable rate mortgage.

Assumption

A method of selling real estate where the buyer of the property agrees to become responsible for the repayment of an existing loan on the property. Unless the lender also agrees, however, the seller remains liable for the mortgage.

Assumable mortgage

A mortgage contract that allows, or does not prohibit, a creditworthy buyer from assuming the mortgage contract of the seller. Assuming a loan will save the buyer money if the rate on the existing loan is below the current market rate, and closing costs are avoided as well. A loan with a "due-on-sale" clause stipulating that the mortgage must be repaid upon sale of the property, is not assumable.

Auction site

See Lead-Generation site.

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 dunned for the unpaid bills of the card holder. 

Automated 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."Bad-faith estimate"The practice of low-balling figures for settlement costs on the Good Faith Estimate to make them appear more attractive to mortgage shoppers.

Balance

The amount of the original loan remaining to be paid. It is equal to the loan amount less the sum of all prior payments of principal.

Balloon 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 7-year balloon loan, for example, the payment is usually calculated over a 30-year period, and the balance at the end of the 7th 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. 

Balloon

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

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

A mortgage on which the borrower pays half the monthly payment every two weeks. Because this results in 26 (rather than 24) payments per year, the biweekly mortgage amortizes before term. 

Bridge loan

A short-term loan, usually from a bank, that "bridges" the period between the closing date of a home purchase and the closing date of a home sale.  To qualify for a bridge loan, the borrower must have a contract to sell the existing house.

Builder-financed construction

Having the builder finance the construction. 

Buy-down

A permanent buy-down is the payment of points in exchange for a lower interest rate. See Points. A temporary buy-down concentrates the rate reduction in the early years.

Buy-up

Paying a higher interest rate in exchange for a rebate by the lender which reduces upfront costs. See Negative Points.


C

Cap

Same as Float-down.

Cash Flow Option Loan

Same as Flexible Payment ARM.

Cash-Out refi

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.

Closing

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 costs

Same as Settlement costs.

Closing date

The date on which the closing occurs.  See Mortgage Closing Date: Does it Matter?CMG planA technique for repaying a loan early that involves using the mortgage as a substitute for a checking account.

Co-Borrowers

One or more persons who have signed the note, and are equally responsible for repaying the loan.  Unmarried co-borrowers who live together are advised to agree beforehand on what happens if they split. 

COFI

Cost of funds index.  One of many interest rate indexes used to determine interest rate adjustments on an adjustable rate mortgage. 

Conforming mortgage

A loan 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. 

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 home mortgage that is neither FHA-insured nor VA-guaranteed.

Conversion option

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.

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. See What Is a Correspondent Lender?

COSI

Cost of savings index.  One of many interest rate indexes used to determine interest rate adjustments on an adjustable rate mortgage.   See Which Adjustable Rate Mortgage Index Is the Best?

Co-signing a note

Assuming responsibility for someone else's loan in the event that that party defaults.  A risk not to be taken lightly.  See The Hazards of Co-signing, and Co-Signing a Mortgaage: How Much Help?

Credit report

A report from a credit bureau containing detailed information bearing on credit-worthiness, including the individual's credit history.  See What Is a Credit Report? and Credit Reports and Credit Scores.

Credit score

A single numerical score, based on an individual's credit history, that measures that individual's credit worthiness.  Credit scores are as good as the algorithm used to derive them.  The most widely used credit score is called FICO for Fair Issac Co. which developed it. 

Cumulative interest

The sum of all interest payments to date or over the life of the loan. This is an incomplete measure of the cost of credit to the borrower because it does not include up-front cash payments, and it is not adjusted for the time value of money. See Interest cost.

Current index value

The most recently published value of the index used to adjust the interest rate on an indexed ARM.


D

Debt consolidation

Rolling short-term debt into a home mortgage loan, either at the time of home purchase or later. For columns on the subject, see Debt Consolidation.

Deed in lieu of foreclosure

Deeding the property over to the lender as an alternative to having the lender foreclose on the property. 

Default

Failure of the borrower to honor the terms of the loan agreement.  Lenders (and the law) usually view borrowers delinquent 90 days or more as in default. 

Deferred interest

Same as negative amortization.

Delinquency

A mortgage payment that is more than 30 days late.   For articles on payment problems, see Payment Problems. Don't confuse with Late payment.

Demand clause

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

Direct lender

Same as lender.

Discount mortgage broker

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

Discount points

Same as points.

Discretionary ARM

An adjustable rate mortgage on which the lender has the right to change the interest rate at any time subject only to advance notice.  Discretionary ARMs are found abroad, not in the US. 

Documentation requirements

The set of lender requirements that specify how information about a loan applicant's income and assets must be provided, and how it will be used by the lender. 

Down payment

The difference between the value of the property and the loan amount, expressed in dollars, or as a percentage of the price. For example, if the house sells for $100,000 and the loan is for $80,000, the down payment is $20,000 or 20%. To read articles about the down payment, see Down Payment.

Dual apper

A borrower who submits applications through two loan providers, usually mortgage brokers. 

Dual index mortgage

A mortgage on which the interest rate is adjustable based on an interest rate index, and the monthly payment adjusts based on a wage and salary index.  See Dual Index Mortgages.

Due-on-sale clause

A provision of a loan contract that stipulates that if the property is sold the loan balance must be repaid. This bars the seller from transferring responsibility for an existing loan to the buyer when the interest rate on the old loan is below the current market. A mortgage containing a due-on-sale clause is not an assumable mortgage.


E

Effective rate

A term used in two ways. In one context it refers to a measure of interest cost to the borrower that is identical to the APR except that it is calculated over the time horizon specified by the borrower. The APR is calculated on the assumption that the loan runs to term, which most loans do not.  In most texts on the mathematics of finance, however, the "effective rate" is the quoted rate adjusted for intra-year compounding. For example, a quoted 6% mortgage rate is actually a rate of .5% per month, and if interest received in the early months is invested for the balance of the year at .5%, it results in a return of 6.17% over the year. The 6.17% is called the "effective rate" and 6% is the "nominal" rate.

Equity

In connection with a home, the difference between the value of the home and the balance of outstanding mortgage loans on the home.

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 money or other objects of value be placed with a third party for safe keeping, pending the performance of some promised act by one of the parties to the agreement.  It is common for home mortgage transactions to include an escrow agreement where the borrower adds a specified amount for taxes and hazard insurance to the regular monthly mortgage payment.  The money goes into an escrow account out of which the lender pays the taxes and insurance when they come due.  For articles on this subject, see Escrows.Escrow abuseThe practice of using escrow accounts inappropriately to generate more income from hapless borrowers.


F

Fallout

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

Fannie Mae

One of two Federal agencies that purchase home loans from lenders. (The other is Freddie Mac).  Both agencies 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. 

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 mortgage

A mortgage on which the lender is insured against loss by the Federal Housing Administration, with the borrower paying the mortgage insurance premium. The major advantage of an FHA mortgage is that the required down payment is very low, but the maximum loan amount is also low. 

FICO Score

See Credit Score.

Final prices

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

Financing points

Including points in the loan amount.

First mortgage

A mortgage that 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. 

Fixed rate mortgage (FRM)

A mortgage on which the interest rate and monthly mortgage payment remain unchanged throughout the term of the mortgage.

Fixed-Markup UML

An Upfront Mortgage Lender who discloses his wholesale price and markup.

Flexible payment ARM. Same as Option ARM.

Float

Allowing the rate and points to vary with changes in market conditions. The borrower may elect to lock the rate and points at any time but must do so a few days before the closing.  Allowing the rate to float exposes the borrower to market risk, 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. Do not confuse with interest rate increase caps and payment increase caps.

Foreclosure

The legal process by which a lender acquires possession of the property securing a mortgage loan when the borrower defaults. 

Forbearance agreement

 An agreement by the lender not to exercise the legal right to foreclose in exchange for an agreement by the borrower to a payment plan that will cure the borrower’s delinquency.

Freddie Mac

One of two 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 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% for 1 year, the fully indexed rate 7%, and the rate adjusts every year subject to a 1% rate increase cap, the 7% rate will be reached at the end of the third year. 


G

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 down payment.

Good faith estimate

The form that lists the settlement charges the borrower must pay at closing, which the lender is obliged to provide the borrower within three business days of receiving the loan application.

Government National Mortgage Association (GNMA)

 A Federal agency that guarantees mortgage securities 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% 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.

Guaranteed Mortgage Price Agreement

A proposal by HUD in 2002 to allow lenders and others to offer packages of loans and settlement services at a single price. 


H

Hazard insurance

Insurance purchased by the borrower, and required by the lender, to protect the property against loss from fire and other hazards. Also known as "homeowner insurance", it is the second "I" in PITI.

Historical scenario

The 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.  That is not very useful.  Showing how a mortgage originated now would change if the index followed a historical pattern would be useful, but nobody does it.

Homebuyer protection plan

A plan purporting to protect FHA homebuyers against property defects. 

Homeowner's equity

See Equity.

Homeowners insurance

Insurance purchased by the borrower, and required by the lender, to protect the property against loss from fire and other hazards. It is the second "I" in PITI.

Home equity line of credit (HELOC)

 A mortgage set up as a line of credit against which a borrower can draw up to a maximum amount, as opposed to a loan for a fixed dollar amount. For example, using a standard mortgage you might borrow $150,000, which would be paid out in its entirety at closing.  Using a HELOC 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.

Home Equity Conversion Mortgage (HECM)

A reverse mortgage program administered by FHA.  See Reverse Mortgages.

Home equity line

Same as HELOC.

Home equity loan

Same as second mortgage

Home Keeper

A reverse mortgage program administered by Fannie Mae.  See Reverse Mortgages.

Home Owners Loan Corporation

A Federal Government agency established by Congress in 1933 to help families avoid having their homes foreclosed.

Housing bank

A government-owned or affiliated housing lender.   With minor exceptions, government in the US has never loaned directly to consumers, but housing banks are widespread in many developing countries.
Housing bubbleA 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.

Housing investment

The amount invested in a house, equal to the sale price less the loan amount. 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 3 years or longer.


I

Impounds

Same as Escrow.

Indexed ARM

An ARM on which the interest rate adjusts mechanically based on changes in an interest rate index, as opposed to a "discretionary ARM" on which the lender can change the rate at any time subject only to advance notice.  All ARMs in the US are indexed.

Initial interest rate

The interest rate that is fixed for some specified number of months at the beginning of the life of a an ARM.  The initial rate is sometimes referred to as a "teaser" when it is below the fully indexed interest rate.

Initial rate period

The number of months for which the initial rate holds, ranging from 1 month to 10 years.

Interest accrual period

The period over which the interest due the lender is calculated. If the interest accrual period on a 6 %  mortgage for $100,000 is a year, as it is on some loans in the UK and India, the interest for the year is .06($100,000) = $6,000.  If interest accrues monthly, as it does on most mortgages in the US, the monthly interest is .06/12($100,000) = $500.  If interest accrues biweekly, as on a few programs in the US, the biweekly interest is .06/26($100,000) = $230.77.  And if interest accrues daily, as HELOCs and some other mortgages in the US do, the daily interest is .06/365($100,000) = $16 .44.  

Interest cost

A time-adjusted measure of cost to a mortgage borrower.  It is calculated in the same way as the APR except that the APR assumes that the loan runs to term, and is always measured before taxes.  The formula is shown in Mortgage Formulas.  Interest cost is measured over the individual borrower's time horizon, and it may be measured after taxes at the individual borrower's tax rate.  In addition, the cost items included in interest cost may be more or less inclusive than those included in the APR.

Interest due

The amount of interest, expressed in dollars, computed by multiplying the loan balance at the end of the preceding period times the annual interest rate divided by the interest accrual period.  It is the same as interest payment except when the scheduled mortgage payment is less than the interest due, in which case the difference is added to the balance and constitutes negative amortization.

Interest-only mortgage

A mortgage on which for some period the monthly mortgage payment consists of interest only.  During that period, the loan balance remains unchanged.

Interest payment

The dollar amount of interest paid each month.  It is the same as interest due so long as the scheduled mortgage payment is equal to or greater than than the interest due.  Otherwise, the interest payment is equal to the scheduled payment.

Interest rate

The rate charged the borrower each period for the loan of money, by custom quoted on an annual basis. A rate of 6%, for example, means a rate of 1/2% per month.  A mortgage interest rate is a rate on a loan secured by a specific property.

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 3 years while a 3/1 ARM has an initial rate period of 3 years after which the rate adjusts every year.

Interest rate ceiling

The highest interest rate possible under an ARM contract; same as "lifetime cap." It is often expressed as a specified number of percentage points above the initial interest rate.

Interest rate floor

The lowest interest rate possible under an ARM contract. Floors are less common than ceilings.

Interest rate increase cap

The maximum allowable increase in the interest rate on an ARM each time the rate is adjusted. It is usually 1 or 2 percentage points, but may be 5 points if the initial rate period is 5 years or longer.

Interest rate decrease cap

The maximum allowable decrease in the interest rate on an ARM each time the rate is adjusted. It is usually 1 or 2 percentage points.

Interest rate index

The specific interest rate series to which the interest rate on an ARM is tied, such as "Treasury Constant Maturities, 1-Year," or "Eleventh District Cost of Funds." All the indices are published regularly in readily available sources. 

Interim refinance

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

Internet mortgages

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

Investor

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


J

Jumbo mortgage

A mortgage larger than the maximum eligible for purchase by the two Federal agencies, Fannie Mae and Freddie Mac, $333,700 in 2004 (see Non-conforming mortgage). However, some lenders use the term to refer to programs for even larger loans, such as, e.g., greater than $500,000.

Junk fees

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


L

Late fees

Fees that lenders are entitled to collect from borrowers who don't pay within the grace period.  Most mortgage notes offer borrowers a 10 or 15-day grace period, with a late charge of about 5% on payments received on the 16th or later.

Late payment

A payment received after the grace period stipulated in the note. Most mortgage grace periods are 10 or 15 days.

Lead-Generation website

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" because lenders post their prices directly to the consumer.

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

See Mortgage lender Lien

The lender’s right to claim the borrower’s property in the event the borrower defaults. If there is more than one lien, the claim of the lender holding the first lien will be satisfied before the claim of the lender holding the second lien, which in turn will be satisfied before the claim of a lender holding a third lien, etc.

Loan amount

The amount the borrower promises to repay, as set forth in the mortgage contract. It differs from the amount of cash disbursed by the lender by the amount of points and other upfront costs included in the loan.

Loan "churning"

The process of raising cash periodically through successive cash-out refinancings.  It is a scam initiated by mortgage brokers that victimizes wholesale lenders, with the connivance of borrowers.

Loan discount fee

The term used to describe points on the Good Faith Estimate.

Loan modification

A change in the  terms of a loan, usually the interest rate and/or term, in response to the borrower's inability to make the payments under the existing term. 

Loan officer

Employees of lenders or mortgage brokers who find borrowers, sell and counsel them, and take applications. 

Loan provider

A lender or a mortgage broker.

Loan-to-value ratio

The loan amount divided by the lesser of the selling price or the appraised value. Also referred to as LTV.  The LTV and down payment are different ways of expressing the same set of facts.

Lock

An option exercised by the borrower, at the time of the loan application or later, to "lock in" the rates and points prevailing in the market at that time.  The lender and borrower are committed to those terms, regardless of what happens between that point and the closing date.

Lock commitment letter

A written statement from a lender verifying that the price and other terms of a loan have been locked.  Borrowers who lock through a mortgage broker should always demand to see the lock commitment letter.

Lock failure

The inability or unwillingness of a lender to honor a mortgage price that a borrower had believed was guaranteed.

Lock 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. See Mandatory Mortgage Disclosure.

Manufactured housing

A house built entirely in a factory, transported to a site and installed there.  They are usually built without knowing where they will be sited, and are subject to a Federal building code administered by HUD. 

Margin

The amount added to the interest rate index, ranging generally from 2 to 3 percentage points, to obtain the fully indexed interest rate on an ARM.

Market niche

A particular combination of  loan, borrower and property characteristics that lenders use in setting prices and underwriting requirements.  These characteristics are believed to affect the default risk or cost of the loan.  As examples, borrowers who don't intend to occupy the house they purchase pay more than those who do, and borrowers who refinance only the balance on their existing loan pay less than those who take "cash out". 

Maturity

The period until the last payment is due.  This is usually but not always the term, which is the period used to calculate the mortgage payment.

Maximum loan amount

The largest loan size permitted on a particular loan program. For programs where the loan is targeted for sale to Fannie Mae or Freddy Mac, the maximum will be the largest loan eligible for purchase by these 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 loan-to-value 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.

Minimum down payment

The minimum allowable ratio of down payment to sale price on any program. If the minimum is 10%, for example, it means that you must make a down payment of at least $10,000 on a $100,000 house, or $20,000 on a $200,000 house.

Monthly housing expense

Same as Housing expense.

Monthly debt service

Monthly payments required on credit cards, installment loans, home equity loans, and other debts but not including payments on the loan applied for.

Monthly total expenses

Same as Total housing expense.

Mortgage

A written document evidencing the lien on a property taken by a lender as security for the repayment of a loan.  The term “mortgage” or “mortgage loan” is used loosely to refer both to the lien and the loan.  In most cases, they are defined in two separate documents: a mortgage and a note.

Mortgage auction site

See Lead generation site.

Mortgage bank

Same as mortgage company.

Mortgage broker

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 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.

Mortgage lead

A packet of information about a consumer who a loan provider might be able to convert into a borrower. You become a lead when you fill out a questionnaire about yourself on-line in response to a sexy ad.

Mortgage formulas

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

Mortgage insurance

Insurance against loss provided to a mortgage lender in the event of borrower default.  In most cases, the borrower pays the premiums.

Mortgage insurance premium

The up-front and/or periodic charges that the borrower pays for mortgage insurance. There are different mortgage insurance plans with differing combinations of up-front, monthly and annual premiums.  The most widely used premium plan is a monthly charge with no upfront premium.

Mortgage insurance cancellation

Canceling a mortgage insurance policy.

Mortgage lender

The party who disburses funds to the borrower at the closing table.  The lender receives the note evidencing the borrower's indebtedness and obligation to repay, and the mortgage which is the lien on the subject property.

Mortgage payment

The monthly payment of interest and principal made by the borrower. The formula used to calculate it is shown in Mortgage Formulas.

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

Offers for great mortgage deals that appear unbidden in your email.

Mortgage suitability

The doctrine that mortgage lenders should be held liable for providing loans that are not suitable for the borrower. See Mortgage Suitability.


N

Negative amortization

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%). Reaching the cap triggers an automatic increase in the payment, usually to the fully amortizing payment level, overriding any payment increase cap.Negative Homeowners EquityThe condition of owing more on the house than the house is worth.

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%/0 points, 7.5%/3 points, 8.75%/-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 branch

A facility offered by some lenders to mortgage brokers where de jure the brokers become employees of the lender but de facto they retain their independence as brokers.  One of the advantages of this arrangement to brokers is that they need not disclose yield spread premiums received from lenders.

Net jumping

Using a broker's time and expertise to become informed and creditworthy, then jumping to the internet to get the loan. 

Niche

See Market niche.

Nichification

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

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.

Non-conforming 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.

Non-Permanent resident alien

A non-citizen without a green card who is employed in the US. As distinct from a permanent resident alien, who has a green card and who lenders do not distinguish from US citizens. Non-permanent resident aliens are subject to somewhat more restrictive qualification requirements than US citizens.

No asset loan

A documentation requirement where the applicant's assets are not disclosed.

No income loan

A documentation requirement where the applicant's income is not disclosed.

Non-warrantable condo

A condominium that does not meet meet lender requirements, see Warrantable condos.

No-Surprise adjustable rate mortgage

An ARM with a preset graduated payment combined with variable term.. Nominal interest rateA quoted interest rate that is not adjusted for either intra-year compounding, or for inflation. A quoted rate of 6% on a mortgage, for example, is nominal. Adjusted rates are called "effective" see Effective rate.

No ratio loan

A documentation requirement where the applicant's income is disclosed and verified but not used in qualifying the borrower.  The conventional maximum ratios of expense to income are not applied.

Note

A document that evidences a debt and a promise to repay.  A mortgage loan transaction always includes both a note evidencing the debt, and a mortgage evidencing the lien on the property, usually in two documents.


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. See  Option (Flexible Payment) ARMs.

Option fee

An upfront fee paid by the buyer under a lease-to-own purchase, usually 1% to 5% of the price, which is credited to the purchase price when the option is exercised but is lost if it is not. See Lease-to-Own House Purchases.

Origination fee

An upfront fee charged by some lenders, usually expressed as a percent of the loan amount.  It should be added to points in determining the total fees charged by the lender that are expressed as a percent of the loan amount.  Unlike points, however, an origination fee does not vary with the interest rate.

Overage

The difference between the price posted to its loan officers by a lender or mortgage broker, and the price charged the borrower.


P

Partial prepayment

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

Paydown magic

Belief that there is a special way to pay down the balance of a home mortgage faster, if you know the secret. 

Payment adjustment interval

The period between payment changes on an ARM, which may or may not be the same as the interest rate adjustment period. Loans on which the payment adjusts less frequently than the rate may generate negative amortization.

Payment increase cap

The maximum percentage increase in the payment on an ARM at a payment adjustment date.  A 7.5% cap is common.

Payment decrease cap

The maximum percentage decrease in the payment on an ARM at a payment adjustment date.

Payment period

The period over which the borrower is obliged to make payments.  On most mortgages, the payment period is a month, but on some it is biweekly.

Payment power

A program begun by Fannie Mae in 2003-4 that allows a borrower to skip up to 2 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

An ill-advised scheme to tap into equity for cash advances through periodic refinancings.
Permanent buydown

Paying points as a way of reducing the interest rate.

Pick a Payment ARM

Same as Flexible Payment ARM.

Piggyback mortgage

A combination of a first mortgage for 80% of property value, and a second for 5%, 10%, 15%, or 20% 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% 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

Shorthand for principal, interest, taxes and insurance, which are the components of the monthly housing expense.

PMI

Private mortgage insurance, as distinguished from insurance provided by government under FHA and VA.  See Mortgage insurance.

Points

An upfront cash payment required by the lender as part of the charge for the loan, expressed as a percent of the loan amount; e.g., "3 points" means a charge equal to 3% of the loan balance. It is common today for lenders to offer a wide range of rate/point combinations, 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.  See Mortgage Points and Rebates.

Portable mortgage

A mortgage that can be moved from one property to another.  These were introduced in the US by E*TRADE Mortgage in 2003.

Portfolio lender

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

Posted prices

The mortgage prices delivered by lenders to loan officers and mortgage brokers, as opposed to the final prices paid by borrowers.

Pre-approval

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

A variety of unsavory lender practices designed to take advantage of unwary borrowers.

Prepayment

A payment made by the borrower over and above the scheduled mortgage payment. If the additional payment pays off the entire balance it is a "prepayment in full"; otherwise, it is a "partial prepayment."

Prepayment penalty

A charge imposed by the lender if the borrower pays off the loan early. The charge is usually expressed as a percent of the loan balance at the time of prepayment, or a specified number of months interest.

Pre-qualification

Same as qualification.

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 investor property that will be rented.

Principal

The portion of the monthly payment that is used to reduce the loan balance.  See Amortization.

Principal limit

The present value of a house, given the elderly owner's right to live there until death or voluntary move-out, under the FHA reverse mortgage program.

Private mortgage insurance

Mortgage insurance provided by private mortgage insurance companies, or PMIs.  See Mortgage Insurance.

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.

Property "flipping"

Successive sham home sales at progressively higher prices as part of a scheme to defraud FHA.

Purchase money mortgage

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% and 35%. These may reflect the maximums specified by Fannie Mae and Freddie Mac; they may also vary with the loan-value ratio and other factors.

Qualification requirements

Standards imposed by lenders as conditions for granting loans, including maximum ratios of housing expense and total expense to income, maximum loan amounts, maximum loan-to-value ratios, and so on.  Less comprehensive than underwriting requirements, which  take account of the borrower's credit record. 


R

Rate

See Interest Rate.

Rate caps

Limitations on the size of rate adjustments on an ARM, often expressed in a/b/c fashion: "a" is the maximum rate change at the first rate adjustment, "b" is the maximum at all subsequent adjustments, and "c" is the maximum increase over the initial rate during the life of the contract.

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.  Tables of interest rates and points that lenders distribute daily to their loan officer employees or mortgage brokers.

Rebate

Same as Negative points.

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.

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 Realtor 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 multiple hundreds of them. The principal lure to the consumer is information on generic prices posted by the lenders. 

Refinance

Paying off an old loan while simultaneously taking a new one. 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.

Rent premium

An increment above the rent paid on a lease-to-own home purchase, which is credited to the purchase price if the purchase option is exercised, but which is lost if the option is not exercised.

Required cash

The total cash required of the home buyer to close the transaction, including down payment, points and fixed dollar charges paid to the lender, any portion of the mortgage insurance premium that is paid up-front, and other settlement charges associated with the transaction such as title insurance, taxes, etc. The total required cash is shown on the Good Faith Estimate of Settlement that every borrower receives.

RESPA

The Real Estate Settlement Procedures Act, a Federal consumer protection statute first enacted in 1974.  RESPA was designed to protect home purchasers and owners shopping for settlement services by mandating certain disclosures, and prohibiting referral fees and kickbacks. 

Retail lender

A lender who offers mortgage loans directly to the public.  As distinct from a wholesale lender who operates through mortgage brokers and correspondents.

Reverse mortgage

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

Right of rescission

The right of refinancing borrowers, under the Truth in Lending Act, to cancel the deal at no cost to themselves within 3 days of closing.


S

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 5 or 10 years is the interest payment (see Interest Only Mortgages). And on option (flexible payment) ARMs, it can be the "minimum" payment as defined by the program (see Option (Flexible Payment) ARMs).

Second mortgage

A loan with a second-priority claim against a property in the event that the borrower defaults. The lender who holds the second mortgage gets paid only after the lender holding the first mortgage is paid. 

Secure option ARM

An option ARM on which the initial rate holds for 5 years rather than one month.

Secondary markets

Markets in which mortgages or mortgage-backed securities are bought and sold.

Self-employed borrower

A borrower who must document income using tax returns rather than information provided by an employer.  This complicates the process somewhat.

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.

Servicing

Administering loans between the time of disbursement and the time the loan is fully paid off. This includes collecting monthly payments from the borrower, maintaining records of loan progress, assuring payments of taxes and insurance, and pursuing delinquent accounts.

Servicing agent

The party who services a loan, who may or may not be the lender who originated it.

Servicing release premium

A payment made by the purchaser of a mortgage to the seller for the release of the servicing on the mortgage. It has no direct relevance to borrowers.

Servicing transfer

When one servicing agent is replaced by another.

Settlement costs

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

Shared appreciation mortgage

A mortgage on which the borrower gives up a share in  future price appreciation in exchange for a lower interest rate and/or interest deferral. 

Shopping site

A type of multi-lender web site that offers borrowers the capacity to shop among multiple competing lenders. 

Short sale

An agreement between a mortgage borrower in distress and the lender that allows the borrower to sell the house and remit the proceeds to the lender.  It is an alternative to foreclosure, or a deed in lieu of foreclosure. 

Silent second

A second mortgage used to deceive the first mortgage lender, or to provide preferential (subsidized) terms to qualified home buyers.

Simple interest mortgage

A mortgage on which interest is calculated daily based on the balance at the time of the last payment. The daily interest charge within the month is constant -- interest is not charged on the interest charges of prior days.

Simple interest biweekly mortgage

A biweekly mortgage on which the biweekly payment is applied to the balance every two weeks, rather than held in an account as on a conventional biweekly.

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.

Stated assets

A documentation requirement where the borrower discloses her assets but they are not verified by the lender.

Stated income

A documentation requirement where the lender verifies the source of the income but not the amount.

Streamlined refinancing

Refinancing that omits some of the standard risk control measures, and is therefore quicker and less costly.

Subordinate financing

A second mortgage on the property which is not paid off when a new loan is taken out.  The second mortgage lender must allow subordination of the second to the new first mortgage.

Subordination policy

The policy of a second mortgage lender 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.

Swing loan

Same as Bridge loan.


T

Tangible net benefit

The net gain to a borrower from a refinancing, which some proposed legislation would make the responsibility of lenders. Tax service feeA fee charged by some lenders at closing to cover the cost of paying taxes on the borrower's property when they come due, or (if the borrower is paying the taxes), verifying that the payment has been made.

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 7-year balloon loan, for example, the maturity is 7 years but the term in most cases is 30 years.

Title insurance

Insurance against loss arising from problems connected to the title to property.

Total housing expense

Housing expense plus Monthly debt service.

Total expense ratio

The ratio of Total housing expense to borrower income.

Total interest payments

The sum of all interest payments to date or over the life of the loan. This is an incomplete measure of the cost of credit to the borrower because it does not include up-front cash payments, and it is not adjusted for the time value of money. See Effective rate.

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. See qualification requirements.

Truth in Lending (TIL)

The Federal law that specifies the information that must be provided to borrowers on different types of loans.  Also, the form used to disclose this information.


U

Underage 

Fees collected from a borrower by a loan officer that are lower than the target fees specified by the lender or mortgage broker who employs the loan officer.

Underwriting

The process of examining all the data about a borrower's property and transaction to determine whether the mortgage applied for by the borrower should be issued.  The person who does this is called an underwriter. 

Underwriting requirements

The standards imposed by lenders in determining whether a borrower qualifies for a loan. These standards are more comprehensive than qualification requirements in that they include an evaluation of the borrower’s creditworthiness.  

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.  See Upfront Mortgage Lenders.


V

VA mortgage

A mortgage with no down payment requirement, available only to ex-servicemen and women as well as those on active duty, on which the lender is insured against loss by the Veterans Administration.


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% 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 distinct from 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 2.

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-Spread premium.

Same as Negative points.Yield CurveA graph that shows, at any given time, how the yield varies with the period to maturity. Usually, the curve slopes upwards 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.

Loan Officers & Originators - Tucson

Joshua C. Miller
Loan Officer
Josh @JCMillerMortgage.com
Charlie Morriss
Loan Officer
Charlie @JCMillerMortgage.com
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Don Brown
Loan Officer
Don @JCMillerMortgage.com