A
Acceleration
clause
A
provision in the mortgage note that gives a lender the right to demand
repayment of the entire balance of the loan if specific actions transpire,
such as failure to make timely payments or a transfer of the property.
Accrual
rate
The
rate at which interest is calculated for an ARM MBS pool remittance.
Acquired
property
Property
owned by Fannie Mae as a result of foreclosure or acceptance of a deed-in-lieu.
Also called real estate owned (or REO).
Additional
principal payment
An
amount paid by the borrower before it is due that is used to reduce the
principal balance of the loan and shorten the term of the loan. Also called
curtailment.
Adjustable-rate
mortgage (ARM)
A
mortgage that permits the lender to periodically adjust the interest rate
on the basis of movement in a specified index.
Adjustment
period
For
an adjustable-rate mortgage, the time period between interest rate change
dates, as stated in the mortgage note.
Alt-A
loan
A
category of slightly higher-risk mortgages; Fannie Mae allows qualified
lenders to deliver such loans provided they are underwritten by Desktop
Underwriter.
Amenity
A
feature of real property, whether natural or manmade, that enhances its
attractiveness although it is not essential to the property's use (such
as a scenic view or a recreational facility).
Americans
with Disabilities Act
A
federal law passed in 1990 that prohibits discrimination against a person
with a disability in areas including housing, public accommodations, employment,
government services, transportation, and telecommunications.
Amortization
Gradual
reduction of the mortgage debt through regularly scheduled payments over
the term of the loan.
Annual
percentage rate (APR)
Annual
Percentage Rate
The
annualized cost of credit, expressed as a percentage, that results from
an equation that takes into account the amount financed, the finance charge,
and the term of the loan.
Appraisal
A
written estimate or opinion of a property's value prepared by a qualified
appraiser.
ARM
(adjustable-rate mortgage)
A
mortgage that permits the lender to periodically adjust the interest rate
on the basis of movement in a specified index.
Assessed
valuation
The
value placed on property for the purpose of taxation.
Assets
Items
of value including cash, real estate, securities, and investments.
Assignment
of mortgage
A
document evidencing the transfer of mortgage ownership from one person
to another.
Assumption
A
transaction in which the purchaser of real property takes over the seller's
existing mortgage; the seller remains liable for the mortgage unless released
by the lender from this obligation. If the mortgage contains a due-on-sale
clause, the loan may not be assumed without the lender's consent.
Assumption
fee
A
fee charged by the lender for permitting a homebuyer to assume the seller's
existing mortgage.
Automated
Drafting System
A
system in which Fannie Mae initiates the drafting of fees and remittances
from the servicer's account.
B
Balloon
mortgage
A
loan in which the borrower's monthly payments are amortized over a longer
period than the actual term of the mortgage; as a result, the borrower
must pay off the outstanding balance with a lump-sum payment or refinance
the loan at the end of the mortgage term.
Balloon
payment
The
outstanding principal balance due when a balloon mortgage reaches maturity.
Bankruptcy
A
legal proceeding in federal court in which an insolvent debtor can obtain
relief from payment of certain obligations. This affects the borrower's
personal liability for a mortgage debt, but not the lien of the mortgage.
Basis
point
1/100
of 1 percent. For example, 2 1/2 basis points equal .025 percent or .00025.
Biweekly
mortgage
A
mortgage in which payments are made every two weeks, rather than monthly;
the payments, which are equal to one-half the standard monthly payment,
are automatically drafted from the borrower's bank account.
Borrower
The
person to whom credit is extended. The borrower on a mortgage loan has
an ownership interest in the security property, signs the security instrument,
and signs the mortgage or deed of trust note (if his or her credit is used
for qualifying purposes). See also co-borrower.
Bridge
loan
A
short-term loan that enables home buyers to close on a new home before
their present home is sold. Also called swing loan.
Broker
An
individual or firm that acts as an agent between providers and users of
products or services. See also mortgage broker.
Buydown
1)
An MBS option whereby lenders can reduce or eliminate excess servicing
and place loans in a higher-priced security by buying down the guaranty
fee in exchange for a onetime, upfront fee to Fannie Mae.
2)
An arrangement whereby the property developer or another third party provides
an interest subsidy to reduce the borrower's monthly payments in the early
years of the loan.
Buyup
An
MBS option whereby lenders can reduce or eliminate excess servicing and
maximize upfront cash proceeds by buying up the guaranty fee in return
for a one-time payment from Fannie Mae.
C
Call
provision
1)
A provision that gives the holder the right, but not the obligation, to
buy the underlying security at a specified price.
2)
In a loan agreement, a clause that permits the lender to demand repayment
of the entire balance of the loan when a specified event occurs -- such
as a transfer of the mortgage without the lender's permission. Also called
acceleration clause.
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. For example, an ARM may have a +1 percent per-adjustment cap
and a +5 percent lifetime cap.
Capitalization
The
addition of delinquent interest (or other amounts due under a mortgage)
to the unpaid principal balance of the mortgage.
Capital
market
The
financial market in which long-term investments such as mortgages, mortgage-backed
securities, Treasury bonds, and certificates of deposit are traded.
Cash-out
refinance
A
refinance transaction in which the borrower receives additional funds over
and above what is needed to repay the existing mortgage, closing costs,
points, and any subordinate liens.
Certificate
of deposit index
An
index that is used to determine interest rate changes for certain ARM plans;
it is based on the interest rates of six-month negotiable certificates
of deposit (CDs).
Charge-off
The
outstanding balance of a loan that is written off because it is deemed
to be uncollectible.
Clear
title
Ownership
that is not subject to liens, defects, or other legal encumbrances.
Closing
The
process of completing a loan transaction at which time the mortgage documents
are signed, funds are disbursed, and the property is transferred to the
buyer. Also called settlement.
Closing
costs
Money
paid by the borrower to effect the closing of a mortgage loan, generally
including a loan origination fee, title insurance, survey, attorney's fees,
and prepaid items such as taxes and insurance escrow payments.
CLTV
(combined loan-to-value) ratio
The
relationship between the total amount of the first mortgage and any subordinate
financing and the value of the property (the lower of the property's sales
price or appraised value), expressed as a percentage of the property's
value. This ratio is a major determinant in assessing the comprehensive
risk of a mortgage.
Co-borrower
Any
borrower other than the first borrower whose name appears on the mortgage
note, even when that person owns the property jointly with the first borrower
and shares liability for the note.
COFI
(Cost of Funds Index)
An
index that is used to determine interest rate changes for certain 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.
Collection
The
procedures a lender takes to collect past-due payments.
Combined
loan-to-value (CLTV) ratio
The
relationship between the total amount of the first mortgage and any subordinate
financing and the estimated value of the property (the lower of the property's
sales price or appraised value), expressed as a percentage of the property's
value. This ratio is a major determinant in assessing the comprehensive
risk of a mortgage.
Commitment
1)
A legally binding contract in which a loan originator agrees to deliver
a specified dollar amount of loans to Fannie Mae for an agreed-upon price
within a specified time; also called forward sale.
2)
An agreement by a lender to loan money at a future date subject to the
borrower's compliance with stated conditions.
Community
bank
A
small local bank that serves the financial needs of one community.
Community
Homebuyer's ProgramSM
An
initiative under which Fannie Mae encourages lenders to offer underwriting
flexibilities to increase the buying power of low- and moderate-income
borrowers.
Community
Land Trust
A
Fannie Mae program that enables nonprofit organizations to provide and
preserve long-term affordable housing for low- and moderate-income borrowers.
Typically, the nonprofit acquires land for the benefit of a community,
then retains title to the land but sells the homes under long-term ground
leases.
Community
lending
A
suite of Fannie Mae mortgage products with special affordability features
designed to provide housing finance opportunities for low- and moderate-income
borrowers, to revitalize neighborhoods, or to reverse historical patterns
of neglect and decay. These products may require prepurchase homebuyer
education and early delinquency counseling.
Community
Reinvestment Act (CRA)
A
federal law passed in 1977 (and expanded in 1989) that requires federally
regulated financial institutions to meet the credit needs of their community,
including low- and moderate-income households.
Comparable
A
property used as a comparison in determining the current value of a property
that is being appraised.
Comparative
market analysis
An
appraisal method in which the value of a property is based on an analysis
of sales of properties with similar characteristics.
Compensating
factor
An
underwriting consideration that may justify using debt-to-income ratios
that exceed Fannie Mae's benchmark ratios.
Conditional
right to refinance
A
provision in a balloon mortgage document that gives the borrower the right
to refinance the mortgage when the balloon payment comes due provided certain
eligibility criteria are satisfied.
Condominium
A
real estate project in which each unit owner holds title to an individual
unit and an undivided interest in the common areas.
Conforming
loan
A
loan that can be purchased or securitized by Fannie Mae because it meets
our eligibility requirements.
Construction
loan
A
short-term loan for financing the cost of construction or improvements
to a property; the lender disburses payments to the builder periodically
during construction.
Construction-to-permanent
loan
A
mortgage that combines financing for the purchase of land, the construction
of a new home, and a permanent mortgage in one loan with one closing.
Consumer
Credit Counseling Service (CCCS)
A
nationwide, nonprofit organization that helps consumers get out of debt
and improve their credit profile.
Contingency
A
condition specified in a purchase contract, such as a satisfactory home
inspection.
Contingent
liability
A
potential debt that an individual or business incurs as a result of cosigning,
or guaranteeing, a loan; the cosigner is obligated only if the borrower
defaults on the loan.
Contributory
risk factor
Any
of various factors that Fannie Mae has identified as affecting default
risk although it is not of sufficient weight by itself for a lender to
use as the basis for reaching an underwriting decision. See also primary
risk factor.
Conventional
mortgage
A
mortgage that is not insured or guaranteed by the federal government.
Conversion
option
A
provision of some adjustable-rate mortgages that allows the borrower to
change the ARM to a fixed-rate mortgage in the early years of the loan.
Convertible
ARM
A
type of adjustable-rate mortgage that allows the borrower to convert the
loan to a fixed-rate mortgage in the early years of the loan.
Conveyance
The
transfer of title to real property.
Corporate
relocation mortgage
A
mortgage made to facilitate an employee's transfer to a new business location
and which is originated under a structured corporate relocation program.
Correspondent
A
bank that maintains an account relationship or engages in an exchange of
services with another bank; also, an organization that typically sells
the mortgages it originates to other lenders with which it has an ongoing
relationship.
Cosigner
An
individual who signs the mortgage note along with the borrower and is jointly
liable with the borrower for repayment of the loan, but does not have an
ownership interest in the property. Compare with co-borrower.
Cost
approach to value
An
appraisal method in which a property's value is based on the cost of constructing
a substitute residence similar to the property being appraised.
Cost
of Funds Index (COFI)
An
index that is used to determine interest rate changes for certain 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.
Coupon
1)
The interest rate payable by the borrower.
2)
The rate at which interest on an MBS loan pool is remitted by the loan
servicer (net of the servicing fee and guaranty fee) to the holder of a
mortgage-backed security. Also called pass-through rate.
Credit
bureau
An
independent agency that gathers and maintains information on the debts
and repayment records of individuals and businesses.
Credit
enhancement
A
method of reducing credit risk by requiring collateral, letters of credit,
mortgage insurance, guarantees, or other agreements that provide assurance
to the lender that it will be recompensed in the event of a loss from a
loan default.
Credit
history
The
record of an individual's debts and repayment record. Fannie Mae considers
a borrower's credit history to be a primary risk factor in determining
the default risk for a mortgage.
Credit
report
A
document provided by a credit-reporting agency containing information about
a loan applicant's previous mortgage history, bank loans, credit cards,
and public records dealing with financial matters.
Credit
repository
A
company that gathers financial and credit information from various sources
about individuals who have applied for credit.
Credit
risk
The
risk that a borrower will default on a loan.
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.
See also FICO Score.
Creditworthiness
An
assessment of the borrower's ability to successfully manage his or her
finances and make timely payments on debt, as demonstrated by the borrower's
credit history.
Custodial
account
A
bank account established by a servicer to hold funds collected on behalf
of others (including borrowers and Fannie Mae).
Custody
documents
The
original mortgage note and other documents that are held for safekeeping
by a document custodian.
D
Debt
Borrowed
money, the repayment of which may be either secured or unsecured.
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.
Also called qualifying ratio.
Deed
The
legal document that transfers the ownership of real property from one party
to another.
Deed-in-lieu
of foreclosure
The
transfer of title from a delinquent borrower to the lender in satisfaction
of the mortgage debt to avoid foreclosure. Also called voluntary conveyance.
Deed
of trust
A
legal document that conveys title to real estate to a disinterested third
party (trustee) who holds the title until the borrower has repaid the debt.
In some states, this is used in place of a mortgage.
Default
The
failure to make a scheduled payment or otherwise comply with the terms
of a mortgage loan or other contract.
Deficiency
judgment
A
personal judgment created by court decree for the difference between the
amount of the mortgage indebtedness and any lesser amount recovered from
the foreclosure sale. The judgment is against any person who is liable
for the mortgage debt.
Delinquency
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 a payment is
30 or more days past due.
Depository
A
financial institution that accepts demand deposits from consumers (including
banks, credit unions, and savings and loans).
Discount
points
A
fee paid by the borrower at closing to reduce the interest rate. A point
equals 1 percent of the loan amount.
Domestic
partner
An
unrelated individual who shares a committed relationship with the primary
wage earner, resides in the same household, and intends to occupy the security
property with the primary wage earner.
Down
payment
The
amount of cash a buyer puts toward a purchase.
Due-on-sale
clause
A
provision in a mortgage that allows the lender to demand full payment of
the outstanding balance if the property securing the mortgage is sold.
E
Early
delinquency counseling
A
requirement of certain loan products in which lenders must offer financial
counseling to borrowers in the event of default.
Earnest
money
Money
included with an offer to purchase real estate to show that the buyer's
offer is being made in "good faith." Also called deposit.
Easement
A
right to the enjoyment of, or access to, land owned by another (for example,
a right of way over another person's land).
Encroachment
An
improvement (such as a fence or other structure) that intrudes illegally
on a neighboring property.
Encumbrance
Any
claim on a property, such as a lien, mortgage, or easement, which complicates
the title process.
Endorsement
The
signature placed on a negotiable instrument that transfers the instrument
to another party.
Equal
Credit Opportunity Act
A
federal law passed in 1974 that requires lenders to grant credit without
discrimination based on the applicant's sex, marital status, race, religion,
national origin, age, or receipt of public assistance.
Equifax
A
major, nationwide credit-reporting bureau.
Equity
The
owner's interest in a property, calculated as the value of the property
less the amount of existing liens.
Equity
investment
The
borrower's ownership interest in a property, as measured by the loan-to-value
ratio (or combine loan-to-value, if subordinate financing exists). Fannie
Mae considers a borrower's equity investment to be a primary risk factor
in determining the default risk for a mortgage.
Escrow
account
An
account established by the servicer to hold funds collected from the borrower
for the payment of property taxes and insurance premiums when they come
due.
Expanded
Approval with Timely Payment RewardsSM
An
option targeting borrowers with minimal funds for a down payment or closing
costs or who have had minor credit problems in the past; available only
for Desktop Underwriter-approved mortgages, it expands the range of loans
eligible for delivery to Fannie Mae, and provides a rate-reduction incentive
to borrowers who make 24 on-time consecutive payments.
Experian
A
major, nationwide credit-reporting bureau (formerly known as TRW).
Extension
An
option that allows lenders additional time in which to satisfy the terms
of a commitment to deliver loans to Fannie Mae.
F
Fair
Credit Reporting Act
A
federal law passed in 1970 that guarantees individuals access to their
credit files and specifies procedures for challenging erroneous information.
Fair
Debt Collection Practices Act
A
federal law passed in 1977 that regulates the collection of debt by third-party
debt collectors.
Fair
Housing Act
A
landmark federal civil rights law passed in 1968 that prohibits housing
discrimination (denial to rent or refusal to sell) based on race, color,
religion, sex, or national origin. A 1988 amendment expanded the protections
to include family status and disability.
Fair
market value
The
price at which property would be transferred between a willing buyer and
a willing seller, each of whom has a reasonable knowledge of all pertinent
facts and is not under any compulsion to buy or sell.
Fallout
risk
The
risk that borrowers will fail to close on loans that the lender has already
committed for a forward sale into the secondary market.
Federal
Housing Administration (FHA)
An
agency within the U.S. Department of Housing and Urban Development (HUD)
that insures mortgages made by private lenders.
FHA
mortgage
A
mortgage that is insured by the Federal Housing Administration.
FHA
Section 203(b) program
A
HUD program that makes available below-market-rate mortgages to buyers
who make a down payment as small as 3 percent.
FHA
Title I loan
An
FHA-insured loan that enables borrowers who have little equity in their
properties to finance home improvements.
FICO
score
A
numerical score based on a system developed by Fair, Isaac and Company
that uses the borrower's credit history and other factors to predict the
creditworthiness of borrowers.
First
mortgage
A
mortgage that is the primary lien against a property.
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-period
ARM
An
adjustable-rate mortgage that offers a fixed rate for an initial period,
typically three to seven years, then adjusts annually for the remaining
term.
Fixed-rate
mortgage
A
mortgage loan in which the interest rate does not change for the entire
term.
Flood
certification fee
A
fee charged by independent mapping firms to identify properties located
in areas designated as flood zones.
Flood
Disaster Protection Act of 1977
A
federal law that requires lenders to notify borrowers if the property securing
a loan is located in a flood zone; if so, borrowers in participating communities
must purchase flood insurance.
Flood
insurance
Insurance
that compensates for property damage resulting from flooding; it is required
in federally designated flood zones.
Forbearance
The
postponement of foreclosure or other legal action, giving a delinquent
borrower additional time to bring the mortgage current.
Foreclosure
The
legal process by which property that is mortgaged as security for a severely
delinquent loan may be sold at auction and the proceeds of the sale applied
to the mortgage debt.
Forfeiture
The
relinquishing of property rights by a delinquent borrower.
Fully
amortizing mortgage
A
mortgage in which the borrower's monthly payments are designed to retire
the obligation at the end of the mortgage term.
G
Gift
letter
A
letter or affidavit that indicates that part of a borrower's down payment
is supplied by a gift that does not have to be repaid.
Good
faith estimate
A
listing of each service for which the borrower will be charged at closing,
and the estimated cost of each.
Government
loan
A
mortgage that is insured or guaranteed by a federal government entity such
as the Federal Housing Administration, Veterans Administration, or Rural
Housing Service.
Grace
period
A
specified period of time beyond the due date in which a borrower may make
a loan payment without incurring a penalty.
Gross
note rate
The
interest rate that the borrower pays on a loan.
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).
H
Hazard
insurance
A
type of insurance that compensates for physical damage to a property by
fire, wind, or other natural disaster.
Homebuyer
education
A
requirement of certain Fannie Mae loan programs intended to prepare first-time
homebuyers for the ongoing responsibilities of homeownership; early delinquency
counseling may also be required.
Home
equity line-of-credit loan
A
type of loan that enables home owners to obtain multiple advances up to
an amount that represents a specified percentage of their equity in the
property.
Home
inspection
An
examination of the construction, condition, and internal systems of a home
prior to purchase; a satisfactory home inspection may be a condition of
purchase.
Homeowner's
insurance
Insurance
coverage available for owner-occupied properties to protect against personal
liability and physical property damages for a dwelling and its contents.
Homeowners'
warranty
Insurance
offered by the seller that covers certain home repairs and fixtures for
a specified amount of time.
Housing
expense ratio
The
percentage of a borrower's gross monthly income that is devoted to housing
costs.
HUD
The
U.S. Department of Housing and Urban Development, a federal agency that
oversees the Federal Housing Administration and numerous housing and community
development programs.
HUD-1
Uniform Settlement Statement
A
closing statement or settlement sheet that lists all closing costs on a
real estate purchase or refinance transaction.
I
Improvement
Any
permanent structure on land such as buildings, fences, and driveways, as
well as landscaping, drainage, and utilities.
Income
approach to value
An
appraisal method in which the property's value is based on the rental income
the property can be expected to earn.
In-file
credit report
A
computer-generated report of a borrower's credit and public record information
obtained from a credit repository.
Initial
interest rate
The
original interest rate, or "start rate," of an adjustable-rate mortgage.
Installment
debt
A
loan that is repaid via scheduled payments for a specified term (such as
an automobile loan).
Interest
A
charge for borrowing money, usually expressed as an annual percentage rate.
Interest
accrual rate
The
percentage rate at which interest accrues on the mortgage.
Interest-only
mortgage
A
mortgage loan in which the borrower makes monthly payments that cover only
the interest due on the loan for a specified period; during this period,
the outstanding balance of the loan does not decline.
Interest
rate buydown plan
An
arrangement whereby the property developer or another third party deposits
money to an account to reduce a borrower's monthly payments during the
early years of a mortgage.
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. For example, an ARM may have a +1 percent per-adjustment cap
and a +5 percent lifetime cap.
Interest
rate ceiling
The
maximum interest rate for an adjustable-rate mortgage, as stated in the
mortgage note. Also called lifetime cap.
Interest
rate change date
The
date on which the interest rate for an adjustable-rate mortgage changes.
Interest
rate floor
The
minimum interest rate for an adjustable-rate mortgage, as stated in the
mortgage note. Fannie Mae ARM plans do not include a floor.
Investment
property
A
property purchased to generate rental income, tax benefits, and profitable
resale rather than to serve as the borrower's primary residence.
Issue
date
The
first day of the month in which mortgage-backed securities are issued.
For example, if the pool settlement date is April 14, the issue date is
April 1.
J
Joint
tenancy
Ownership
by two or more people that gives them equal shares of a piece of property,
with rights passing to the surviving owner or owners.
Jumbo
mortgage
A
loan that exceeds the amount eligible for purchase by Fannie Mae or Freddie
Mac.
Junior
mortgage
A
loan that is subordinate to the primary loan, such as a second or third
mortgage.
L
Last
paid installment (LPI)
The
due date of the most recent monthly payment collected from the borrower.
Late
charge
A
penalty fee imposed by the lender when a borrower fails to make a scheduled
payment on time.
Late
payment
A
payment received by the lender after the due date.
Leasehold
estate
An
arrangement in which the borrower does not own a property but possesses
a recorded long-term lease, usually 99 years.
Lender
A
bank, savings institution, mortgage company, or other entity that offers
home loans.
Lender-purchased
MI
Mortgage
insurance for a conventional mortgage that the lender pays for using its
own funds.
Letter
of intent
A
formal statement that the buyer intends to purchase a property for a stated
price on a specified date.
Liabilities
A
borrower's debts and financial obligations.
Liability
insurance
A
type of insurance that protects property owners against claims of negligence,
personal injury, or property damage to another party.
LIBOR
(London Interbank Offered Rate) 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 the property of another person as security
for a debt.
Lifetime
cap
A
limit on the amount the interest rate can increase over the life of an
adjustable-rate mortgage, as stated in the mortgage note.
Limited
cash-out refinance
A
refinance transaction in which the mortgage amount is limited to the sum
of the unpaid principal balance of the first mortgage, closing costs, points,
and the amount required to satisfy any mortgage liens, and other funds
for the borrower's use not to exceed 2 percent of the principal amount
of the new mortgage.
Liquidating
plan
A
relief provision in which the borrower agrees to make payments in addition
to the regular monthly payments to cure a delinquency.
Liquidation
Any
transaction, such as a payoff, that reduces the unpaid principal balance
of a loan to zero.
Liquidity
The
ability to readily convert an asset or investment into cash.
Loan
officer
An
official representative of a lending institution who is empowered to act
on behalf of the lender within certain limits.
Loan
term
The
repayment period, as stated in the mortgage note.
Loan-to-value
(LTV) ratio
The
relationship between the loan amount and the value of the property (the
lower of the appraised value or sales price), expressed as a percentage
of the property's value. This ratio is a major determinant in assessing
the comprehensive risk of a mortgage.
Lock-in
An
agreement in which a lender agrees to "lock in" the borrower's interest
rate for a set period of time before closing.
Lookback
period
For
an adjustable-rate mortgage, the date on which the index value that will
be used to establish the next interest rate change is determined; it is
a specified number of days (usually 30 to 45) before the interest rate
change date.
Loss
mitigation
A
mortgage servicer's efforts to minimize mortgage delinquencies and control
losses from foreclosure.
LTV
(loan-to-value) ratio
The
relationship between the loan amount and the value of the property (the
lower of the appraised value or sales price), expressed as a percentage
of the property's value. This ratio (or combine loan-to-value, if subordinate
financing exists) is a major determinant in assessing the comprehensive
risk of a mortgage.
M
Margin
For
an adjustable-rate mortgage, the amount that is added to the index value
to determine the mortgage interest rate, as stated in the note.
Maturity
date
The
date a mortgage loan is scheduled to be paid in full, as stated in the
note.
Mechanic's
lien
A
lien against a property filed by a contractor or supplier who is seeking
payment for work performed or materials provided.
Merged
credit report
A
credit report issued by a credit reporting company that draws information
from the three major credit-reporting bureaus: Equifax, Experian, and TransUnion
Corp.
MI
(mortgage insurance)
Insurance
for conventional mortgage loans that protects lenders against loss in the
event of default by the borrower.
Military
indulgence
A
relief provision available to borrowers who are called to active military
duty.
Modification
Any
change to the terms of a mortgage, including changes to the interest rate,
loan balance, or loan term. Modifications are sometimes used to enable
a borrower to avoid foreclosure.
Monthly
conversion option
An
option that allows a borrower to convert an adjustable-rate mortgage to
a fixed rate at the beginning of any month in the early years of the loan.
Compare with periodic conversion option.
Monthly
payment
The
total payment of principal and interest and any required escrow funds due
from the borrower each month.
Mortgage
Collectively,
the security instrument, note title evidence, and all other documents and
papers that evidence a secured debt.
Mortgage-backed
security (MBS)
An
investment security that represents an undivided interest in a pool of
mortgages; Fannie Mae guarantees that the borrowers' monthly payments on
the mortgages underlying the security will be passed through to investors
at the pass-through rate.
Mortgage
banker
A
company that specializes in originating, selling, and servicing real estate
loans.
Mortgage
broker
An
individual or firm that matches lenders with prospective borrowers, and
receives a commission if a loan closes. Brokers take applications and may
process loans, but the mortgage is closed in the name of the lender that
commissioned the broker's services.
Mortgagee
The
institution or individual to whom a mortgage is given; the lender.
Mortgage
insurance (MI)
Insurance
for conventional mortgage loans that protects lenders against loss in the
event of default by the borrower. MI is typically required if the borrower's
down payment is less than 20 percent of the purchase price.
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
margin
For
an
adjustable-rate mortgage, the amount that is added to the index value to
determine the mortgage interest rate, as stated in the note.
Mortgage
note
The
note or other evidence of indebtedness for a mortgage loan.
Mortgagor
The
owner of real estate who pledges property as security for the repayment
of a debt; the borrower.
Multifamily
mortgage
A
residential mortgage on a building with more than four apartment units.
Multiple
listing service (MLS)
A
service that lists all available homes for sale in an area in one directory
or database.
N
Negative
amortization
An
increase in the balance of a loan caused by adding unpaid interest to the
loan balance; this occurs when the monthly payment does not cover the interest
due.
Net
worth
The
value of a company's or individual's assets, including cash, less total
liabilities.
Nonconforming
mortgage loan
A
loan that cannot be purchased or securitized by Fannie Mae because it fails
to meet our requirements.
Nontraditional
credit history
An
alternative or supplemental credit history that can be developed for borrowers
who don't use the types of credit that traditionally are reported to credit
repositories (for example, rent and utility payments).
Note
A
written promise to pay a specified amount under the agreed-upon conditions.
Also called promissory note.
O
Odd
due date mortgage
A
mortgage for which the payment is due on any day other than the first of
the month.
Option
A
contract giving the holder the right, but not the obligation, to buy or
sell a specific amount of the underlying security at a set price within
a specified time period.
Original
term
The
period of time over which a mortgage is to be repaid, as stated in the
note (for example, 360 months).
Origination
The
process of generating mortgage loans -- from taking down the loan application
through loan closing.
Origination
fee
The
amount charged by a lender for processing a loan application, usually computed
as a percentage of the loan amount.
Owner
financing
A
transaction in which the seller of a property finances all or part of the
purchase.
Owner-occupied
property
A
property that serves as the borrower's primary residence.
Owner
of record
The
entity that appears in the public records as the owner of a mortgage; usually
the mortgage originator, unless the mortgage is subsequently assigned to
someone else and that assignment is recorded.
P
Par
price
A
selling price that is equal to the unpaid principal balance of the mortgage.
Partial
payment
A
payment that is less than the borrower's scheduled monthly mortgage payment.
Payment
change date
For
an adjustable-rate mortgage, the date on which a new payment amount is
due from the borrower.
Payment
change interval
The
period between payment change dates for an adjustable-rate mortgage, as
stated in the note.
Payment
in full
A
payment that pays off the total indebtedness of a mortgage loan at or before
maturity. Also called payoff.
Payoff
Payment
in full of a loan at or before maturity.
Per-adjustment
cap
For
an adjustable-rate mortgage, a restriction on the amount that the payment
or interest rate can change at any one adjustment period, as specified
in the mortgage note.
Periodic
conversion option
An
option that allows a borrower to convert an adjustable-rate mortgage to
a fixed-rate loan in the early years of the loan at any scheduled interest
rate change date. Compare with monthly conversion option.
PITI
(Principal, Interest, Taxes, Insurance)
The
components that are commonly included in a monthly mortgage payment.
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.
Point
An
amount equal to 1 percent of the principal amount of a note. Loan discount
points are a one-time charge assessed at closing by the lender to increase
the yield on the mortgage loan.
Pool
A
group of mortgages backing an issue of mortgage-backed securities; also
the act of swapping a group of loans with similar characteristics for mortgage-backed
securities.
Portfolio
lender
A
lender that makes loans with its own funds and keeps them on the company's
books rather than selling them on the secondary market.
Predatory
lending
A
deceptive or abusive lending practice in which unsophisticated or vulnerable
borrowers are steered to loans they can't afford or to higher-priced loans
than they would qualify for based on their credit history.
Preforeclosure
sale
A
transaction in which the borrower is allowed to satisfy his debt by selling
a property for less than the amount owed in order to avoid a foreclosure.
Premium
price
An
above-par price for a mortgage or mortgage security.
Prepaid
expenses
Amounts
paid by the buyer to reimburse the seller for taxes, insurance, and assessments
already paid for periods extending beyond the closing date.
Prepaid
interest
Interest
paid by borrowers before it is due - typically interest paid at closing
for the period prior to the first monthly payment.
Prepayment
penalty
A
charge that may be imposed in the early years of a mortgage if a borrower
repays the mortgage in full or pays large sums to reduce the unpaid balance.
Prequalification
A
preliminary assessment by a lender of the amount it will loan to a potential
homebuyer.
Primary
wage earner
The
borrower whose income represents the majority of the income used in qualifying
for a mortgage.
Principal
The
amount borrowed, or the outstanding balance of the loan.
Principal
and interest (P&I)
The
portion of a borrower's monthly mortgage payment that represents repayment
of the amount borrowed plus interest charges.
Private
mortgage insurance (PMI)
Insurance
for conventional mortgage loans that protects lenders against loss in the
event of default by the borrower. Also called mortgage insurance.
PUD
(Planned Unit Development)
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.
Purchase
agreement
A
document that details the purchase price and conditions of a transaction.
Purchase-money
mortgage
A
mortgage that enables the borrower to acquire a property, rather than refinance
or pay for home improvements.
Q
Qualifying
ratio
A
calculation used in determining the mortgage amount that a borrower qualifies
for; most commonly used is a comparison of the borrower's total monthly
debt payments to his or her monthly income.
Quality
control
A
system of safeguards to ensure that loans are originated, underwritten,
and serviced according to the lender's and Fannie Mae's standards.
R
Rate
cap
For
an adjustable-rate mortgage, the maximum rate that may be charged; the
cap may be set by the loan documents or by law.
Rate-improvement
mortgage
A
mortgage with a clause that entitles the borrower to a one-time reduction
in the interest rate without refinancing.
Rate
lock
An
agreement in which a lender "locks in" an interest rate with a prospective
borrower for a set period of time prior to closing.
Real
estate owned (REO)
Property
acquired by Fannie Mae through foreclosure or acceptance of a deed-in-lieu.
Real
Estate Settlement Procedures Act (RESPA)
A
federal law requiring lenders to provide home mortgage borrowers with information
about transaction-related costs prior to settlement. RESPA also outlaws
kickbacks in the real estate business.
Real
property
Land
and anything permanently affixed thereto -- including buildings, fences,
trees, minerals, and air space above the land.
Reconciliation9
The
process of comparing two or more sets of records, and accounting for any
differences.
Recording
The
filing of a lien or other legal document in the appropriate public record.
Recording
fee
A
fee charged for conveying the sale of a piece of property into the public
record.
Recourse
The
obligation of the issuer or seller of a note to cover losses the buyer
incurs as a result of a default on the note.
Redemption
period
The
period in which a borrower can reclaim foreclosed property by making full
payment of the mortgage debt under a legally enforceable right of redemption
in some states.
Refinance
transaction
The
repayment of debt from the proceeds of a new loan using the same property
as security.
Regulation
Z
A
Federal Reserve Board regulation that prescribes uniform methods of computing
the cost of credit and disclosing credit terms, pursuant to the provisions
of the Truth-in-Lending Act.
Rehabilitation
mortgage
A
mortgage to cover the costs of repairing or upgrading a property.
Reinstatement
The
curing of a delinquency by paying all past-due installments to bring the
mortgage current.
Relative
The
borrower's spouse, child, or other dependent or any other individual who
is related to the borrower by blood, marriage, adoption, or legal guardianship.
Release
from liability
A
formal agreement absolving a borrower from responsibility for a mortgage
because another party has agreed to assume the mortgage obligations.
Relief
provision
A
formal arrangement designed to help a borrower resolve a delinquency. Fannie
Mae's relief provisions include temporary indulgence, special forbearance,
liquidation plans, and military indulgence.
Remaining
term
The
original term of the loan less the number of payments that have been applied.
Repayment
plan
An
agreement in which a delinquent borrower agrees to make additional payments
to pay down past-due amounts while still making regularly scheduled payments.
Reporting
period
The
monthly interval between cutoff dates for which a servicer reports loan
activity to Fannie Mae.
Reserves
A
borrower's verified liquid assets after making the down payment and paying
closing costs.
Residential
mortgage credit report
A
detailed account of a borrower's credit, employment, and residence history
(as well as public records information).
Reverse
mortgage
A
mortgage that enables older homeowners to withdraw the cash equity from
their home; it is not due and payable as long as the borrower occupies
the property, and is usually repaid in a lump sum (from the proceeds of
the sale of the house or settlement of the borrower's estate).
Revolving
debt
A
credit arrangement in which the customer receives goods or services on
an ongoing basis prior to payment; repayment is usually at regular intervals
but not for a specified amount or term (for example, credit card debt).
Rural
Housing Service (RHS)
A
unit of the U.S. Department of Agriculture that guarantees mortgages secured
by residential properties in rural areas; formerly known as the Farmers
Home Administration.
S
Sale-leaseback
A
transaction in which the buyer leases back the property to the seller for
a specified period of time.
Sales
comparison approach
An
appraisal method in which a property's market value is based on an analysis
of
sales and listings of comparable properties in the same neighborhood or
in similar neighborhoods.
Seasoned
loan
A
mortgage that has been closed for more than one year.
Secondary
market investor
A
financial institution, government-sponsored enterprise, or government agency
that buys mortgages and MBS and either holds them in portfolio or sells
them to other investors in the capital market.
Secondary
mortgage market
The
market in which mortgages and mortgage securities are bought and sold.
Second
mortgage
A
mortgage that has a lien position subordinate to the first mortgage.
Secured
loan
Any
loan backed by collateral.
Securitization
The
process of converting mortgages into mortgage-backed securities that can
be easily traded in an established securities market.
Security
balance
The
scheduled unpaid principal balance of the underlying loans in an MBS pool
as of a given date.
Seller/servicer
number
A
unique nine-digit number assigned to identify lenders that do business
with Fannie Mae.
Seller
take-back
An
agreement in which the seller provides financing for a home purchase.
Serious
delinquency
A
single-family mortgage that is 90 days or more past due, or a multifamily
mortgage that is two months or more past due.
Servicer
A
firm that performs servicing functions, including collecting mortgage payments
and managing borrowers' escrow accounts.
Servicing
The
tasks a lender performs to protect the mortgage investment, including the
collection of mortgage payments, escrow administration, and delinquency
management.
Servicing
fee
The
compensation the servicer retains from borrowers' monthly payments for
servicing loans on behalf of Fannie Mae.
Servicing
released
A
loan sale in which the lender relinquishes loan servicing responsibilities.
Servicing-released
premium (SRP)
The
price that a servicing buyer pays for the right to service mortgages and
retain the servicing fee and ancillary income, stated as a percentage of
the loan amount.
Servicing
retained
A
loan sale in which the lender retains servicing responsibilities following
the sale.
Settlement
1)
The process of completing a loan transaction at which time the mortgage
documents are signed and recorded, funds are disbursed, and the property
is transferred to the buyer. Also called closing.
2)
The completion of a trade by the simultaneous transfer of securities and
funding.
Settlement
date
The
date that the sale of a mortgage-backed security is settled and funds are
paid or transferred.
Settlement
statement
A
report detailing closing costs that must be given to each buyer and seller
under the Real Estate Settlement Procedures Act.
Single-family
mortgage
A
mortgage on a dwelling that is designed to house one to four families.
Special
flood hazard area
A
federally designated land area that has been identified as having a significant
likelihood of flooding; properties in such an area require flood insurance.
Special
forbearance
A
relief provision that provides for a period of reduced or suspended payments,
followed by a period of larger than normal payments, to enable the borrower
to cure a delinquency.
Special
remittance
Additional
funds due Fannie Mae for a specific purpose, such as the repayment of advances,
proceeds from the redemption or sale of a portfolio property, and insurance
premium refunds.
Special
servicing option
An
MBS option under which Fannie Mae assumes the risk of loss from borrower
default. See also regular servicing option.
SRP
(servicing-released premium)
The
price that a servicing buyer pays for the right to service mortgages and
retain the servicing fee and ancillary income, stated as a percentage of
the loan amount.
Subordinate
financing
Any
mortgage or other lien with lower priority than the first mortgage.
Subprime
loan
A
higher-cost loan made to a borrower with a higher-than-average risk profile.
Survey
A
precise measurement of a piece of property by a licensed surveyor, showing
the location and dimensions of any improvements.
Sweat
equity
A
borrower's contribution to the down payment in the form of labor or services
rather than cash. Also called work equity.
T
Table
funding
The
funding of a mortgage loan at closing by a source other than the originator.
Taxes
and insurance (T&I)
Funds
collected as part of the borrower's monthly payment and held in escrow
for payment of the borrower's property taxes and insurance premiums.
Temporary
interest-rate buydown
A
temporary reduction in the effective interest rate that a borrower pays
during the early years of a loan, made possible by the seller or another
party depositing a lump-sum of money into a buydown account that is used
to reduce the borrower's payments.
Term
The
repayment period, as stated in the mortgage note.
Third-party
origination
A
process by which a lender uses another party to completely or partially
originate, process, underwrite, close, fund, or package the mortgages it
plans to deliver to
Fannie
Mae.
Third-party
sale
A
foreclosure sale at which the successful purchaser of the property is someone
other than the lender or the borrower or their representatives.
Timely
Payment RewardsSM
An
option for certain Desktop Underwriter-approved mortgages that provides
a rate-reduction incentive to borrowers who makes 24 on-time consecutive
payments.
Title
The
legal document conferring ownership of real property.
Title
insurance
A
type of insurance that protects against losses arising from defects in
the title not listed in the title report or abstract.
Title
search
A
check of public title records to ascertain whether the seller is the legal
owner and to identify any claims or liens against the property.
Trade
equity
Real
estate or assets given to the seller as part of the down payment for a
property.
Transfer
tax
An
assessment by state or local authorities when a piece of property changes
hands.
Trans-Union
One
of three major, nationwide credit-reporting bureaus.
Treasury
index
An
index that is used to determine interest rate changes for certain ARM plans;
it is based on the results of auctions by the U.S. Treasury of treasury
bills and treasury securities.
Treasury-indexed
ARM
An
ARM for which the interest rate is based on the weekly average yield of
U.S. Treasury securities adjusted to a constant maturity.
Truth-in-Lending
Act
Federal
legislation that requires lenders to provide borrowers with specific information
on the cost of obtaining credit.
Two-
to four-family property
A
residential property that provides living space for up to four households
although ownership is evidenced by a single deed; a loan secured by such
a property is considered to be a single-family mortgage.
U
Underwriting
In
mortgage lending, the process of approving or denying a loan application
and setting loan terms based on an evaluation of the borrower's creditworthiness
and ability to repay the loan and the value of the property securing the
loan.
Underwriting
documents
All
the documentation used to support the lending decision for a mortgage --
such as the loan application and documents used to verify a borrower's
employment, income, deposits, and credit history.
Unpaid
principal balance (UPB)
The
outstanding balance on a mortgage loan.
Unsecured
loan
Any
loan that is not backed by collateral.
U.S.
Department of Housing and Urban Development (HUD)
A
federal agency that oversees the Federal Housing Administration (FHA) and
numerous housing and community development programs.
V
VA-guaranteed
loan
A
mortgage that is guaranteed by the U.S. Department of Veterans Affairs.
Verification
of deposit
A
form sent to a depository to confirm the borrower's account balances and
history.
Verification
of employment
A
form sent to the borrower's employer to confirm the borrower's employment
history and salary.
Veterans
Administration
A
unit of the U.S. Department of Veterans Affairs that oversees the VA loan
program.
W
Walk-through
A
buyer's final inspection of the home to determine if conditions in the
purchase agreement have been satisfied.
Y
Yield
The
return on an investment.
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Burton Jamison
Serving All of Maryland
(Located in Maryland)
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