Glossary of Terms

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A

Acceleration - The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due-on-Sale Clause.

Acceleration Clause - A clause in contracts of debt which makes the entire amount due upon the debtor's default.

Accrued Interest - Interest earned but not yet paid.

Acknowledgment (with respect to an instrument) - The statement of a competent officer, usually a notary public, that the person who has executed an instrument has appeared before him and sworn to the facts of its execution.

Adjustable Rate - An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly. See Adjustable Rate Mortgages.

Adjustable Rate Mortgage (ARM) - Is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also sometimes known as the re-negotiable rate mortgage, or the variable rate mortgage.

Adjustment Interval - On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index.

Affordable Housing Programs - These are mortgages for low-to-moderate income borrowers that provide more liberal terms than traditional home financing methods with regard to LTV and borrower qualifications.

Agent - A person authorized by another, i.e., the principal, to act for him.

Alternative Documentation - A method of documenting a loan file, often referred to as Alt Doc, that relies on information that the borrower is likely to be able to provide, rather than waiting on verification sent to third party for confirmation of statements made in the mortgage loan application.

Amortization - A repayment method in which the amount you borrow is repaid gradually though regular monthly payments of principal and interest. During the first few years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.

Amortize - To repay a debt through a series of periodic payments.

Annual Membership - An amount that may be charged annually for having a line of credit available. Often charged regardless of whether or not you use the line. Also referred to as a "participation fee."

Annual Percentage Rate (APR) - The cost of credit on a yearly basis, expressed as a percentage. Required to be disclosed by the lender under the federal Truth in Lending Act, Regulation Z. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Does not include title insurance, appraisal, and credit report.

Application - An initial statement of personal and financial information which is required to approve your loan.

Application Fee - Fees that are paid upon application. An application fee may frequently include charges for property appraisal and a credit report.

Appraisal Fee - A fee charged by an appraiser to render an opinion of market value as of a specific date. Required by most lenders to obtain a loan.

Appraisal Report - A written report by an appraiser containing an opinion as to the value of a property and the reasoning leading to that opinion.

Appreciation - An increase in the value of property.

Assessment - A local tax levied against a property for a specific purpose, such as a sewer or street lights.

Assignment - The transfer of property rights by one person, known as the assignor, to another, known as the assignee.

Assumability - A feature of a loan which permits you to transfer your mortgage and its specified terms to the person(s) purchasing your home. Having an assumable loan could make it easier to sell your home, since assumption of a loan usually involves lower fees and/or qualifying standards for the new borrower than a new loan.

Assumption - The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing cost and new, probably higher, market-rate interest charges will apply.

Attorney-In-Fact - A person who is authorized by power of attorney to act for another.

Audited Financial Statement - A report on the financial position or operations of a company that has been reviewed by an independent auditor.

Average Life - See weighted average life.

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B

Balance Sheet - The balance sheet shows the financial condition of a company at a specific point in time. The balance sheet is broken down into the major sections: Assets, liabilities and net worth.

Balloon Payment - Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

Bankruptcy - State of insolvency of an individual or organization - in other words, an inability to pay debts. There are two kinds of legal bankruptcy under U.S. law: involuntary, when one or more creditors petition to have a debtor judged insolvent by a court; and voluntary, when a debtor brings the petition. In both cases, the objective is an orderly and equitable settlement of obligations.

Bankruptcy Trustee - The person appointed by a bankruptcy court to oversee either the running of a business in a reorganization proceeding or the sale of assets and distribution of proceeds in a business liquidation.

Bearer - The person in possession of an instrument, document of title or security payable to bearer or endorsed in blank.

Bequest - A gift of personal property by will.

Bill of Exchange - A written order, which may be negotiable or nonnegotiable, directing one party to pay a certain sum of money to the drawer or to a third person.

Bill of Lading - Receipt and contract issued by a common carrier for the shipment of goods.

Bill of Sale - A written instrument by which one transfers his rights or interest in chattels and goods to another.

Blank Endorsement - Endorsement which consists only of the signature of the endorser and does not state in whose favor it is made.

Blanket Mortgage - A mortgage covering at least two pieces of real estate as security for the same mortgage.

Bona Fide - In good faith.

Bona Fide Purchaser - One who buys property without knowledge or notice of any defects in the title of the seller.

Bond - An instrument representing the right to certain payments on the underlying collateral.

Book Entry - An electronic issuance and transfer system for securities transactions, such as that maintained by the Federal Reserve System.

Borrower (Mortgagor) - One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.

Broker - An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.

Buy-down - When the lender and/or the home builder subsidized the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.

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C

C.O.D. - Cash On Delivery. (Some people use it as Check On Delivery).

C.M.B. - Certified Mortgage Banker. The highest accreditation awarded mortgage professionals by Mortgage Bankers Association of America.

Cap - The maximum allowable increase, for either payment or interest rate, for a specified amount of time on an adjustable rate mortgage.

Caps (interest) - Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.

Caps (payment) - Consumer safeguards which limit the amount monthly payments on an adjustable rate mortgage may change.

Cash Flow - The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc.).

Cash Out - Receiving money back when refinancing your present mortgage.

Cashier's Check - A check whose payment is guaranteed because it is drawn on the bank's account rather than the customer's account. The customer pays in advance or has the funds withdrawn in advance from his or her account. Cashier's checks are also called bank checks.

Ceiling - The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.

Certificate of Eligibility - The document given to qualified veterans which entitles them to VA guaranteed loans for homes, business, and mobile homes.  Certificates of eligibility may be obtained by sending a DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility).

Certificate of Occupancy - A document from an official agency stating that the property meets the requirements of local codes, ordinances, and regulations.

Certificate of Reasonable Value (CRV) - An appraisal issued by the Veterans Administration showing the property's current market value.

Certificate of Veteran Status - The document given to veterans or reservists who have served 90 days of continuous active duty (including training time).  It may be obtained by sending a DD 214 to the local VA office with form 26-8261a (request for certificate of veteran status. This document enables veterans to obtain lower down payments on certain FHA insured loans).

Certified Check - A check drawn on the issuer's account but for funds that have been segregated by the bank, guaranteeing payment.

Chattel - Any type of personal property as distinguished from real property.

Closing - The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands. Also called settlement costs, closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The cost of closing usually is about three to six percent of the mortgage amount.

Closing Costs - Any fees paid by the borrowers or sellers during the closing of the mortgage loan. This normally includes an origination fee, discount points, attorney's fees, title insurance, survey, and any items which must be prepaid, such as taxes and insurance escrow payments.

Collateral - Assets that back a mortgage loan or security.

Collateral Security - A separate obligation which is given to secure the performance of the primary obligation in a contract.

Collateralized Mortgage Obligation (CMO) - A multiple-class MBS. The REMIC has replaced the CMO and, today, all CMOs are issued in the form of REMICs; however, the terms are often used interchangeably.

Commitment - A promise by a lender to make a loan on specific terms or conditions to a borrower or builder. A promise by an investor to purchase mortgages from a lender with specific terms or conditions. An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions.

Commitment Letter - A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer.

Community Property - Property acquired by husband and wife during a marriage when not acquired as separate property by either spouse. Each spouse has equal rights, including the rights of survivorship.

Conditional Sale - An installment sale in which the goods are delivered to the buyer, but title remains with the seller until payment is made for the goods.

Conditions, Covenants, and Restrictions (CC and R) - The standards that define how a property may be used and the protections the developer makes for the benefit of all owners in a subdivision.

Condominium - A form of property ownership in which the homeowner holds title to an individual dwelling unit plus an interest in common areas of a multi-unit project.

Conforming Loan - Generally, a mortgage with a loan amount under the maximum limits set by FNMA and FHLMC.  Qualifying ratios and underwriting methods are standardized to a large degree.

Consideration - The required element in all contracts by which a legal right or promise is exchanged for the act or promise of another party. The inducement to a contract.

Constant Maturity Treasury (CMT) - An index published by the Federal Reserve Board, calculated from the average yield of a range of Treasury securities, adjusted to constant maturities of various time periods (for example, six months, one year, ten years, etc.).

Constant Prepayment Rate - The pre-payment measure calculated by assuming that a constant portion of the outstanding mortgage loans will pre-pay each month (also see PSA) ..

Construction loan - A short term interim loan to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he progresses.

Contingency - A condition that must be met before a contract is legally binding.

Contract of Sale - The agreement between the buyer and seller on the purchase price, terms, and conditions necessary to both parties to convey the title to the buyer.

Conventional Loan - A mortgage not insured by FHA or guaranteed by the VA.

Conventional/fixed rate mortgage - Payments and interest rates are fixed for 15, 20, 25, or 30 year loans with up to 95% financing, 5% down payment and quicker loan approval than with FHA or VA. These are usually not assumable.

Conveyance - The transfer of an interest in realty: a deed. Sometimes includes leases and mortgages.

Cooperative - A form of common property ownership in which the residents of an apartment building do not own their own units, but rather own shares in the corporation that owns the property.

Cost of Funds Index (COFI) - An index of the weighted-average interest rate paid by savings institutions for sources of funds, usually by members of the 11th Federal Home Loan Bank District.

Coupon rate - The stated annualized percentage of interest paid on an investment.

Covenant - A promise made by one person to another.

Credit Limit - The maximum amount that you can borrow under a home equity plan.

Credit Report - A report documenting the credit history and current status of a borrower's credit standing.

Credit Risk - The possibility that there may be a default by the issuer or other party in its financial obligations to the investor.

Creditor's Committee - The committee appointed by a bankruptcy court to represent the classes of creditors in a Chapter 11 reorganization. The committee primarily is responsible for reviewing the reorganization plan and recommending adoption or rejection.

Current Face Value - The current amount of principal outstanding on a security, which is calculated by multiplying the original face value by the most recent factor.

Current Pay Class - A term used for any REMIC class that is currently paying principal and/or interest.

Current Ratio - Current Assets/Current Debt.

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D

Debt Service - The total amount of credit card, auto, mortgage or other debt upon which you must pay.

Debt-to-Income Ratio - The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her gross monthly income. See housing expenses-to-income ratio.

Debt to Net Worth Ratio - Total Debt / Net Worth.

Debtor in Possession - A debtor that has filed for protection from creditors under Chapter 11 of the Bankruptcy Code and that is still running the company during the reorganization.

Deed - The legal document conveying title to a property.

Deed of Trust - Used in many western states, the agreement used to pledge your home or other real estate as security for a loan. Similar to a mortgage.

Default - Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

Deferred Interest - When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance. See negative amortization.

Delinquency - Failure to make payments on time. this can lead to foreclosure.

Delivery - With respect to instruments, documents of title, chattel paper or certificate securities, means the voluntary transfer of possession.

Deposit - Cash paid to the seller when a formal sales contract is signed.

Depreciation - A decline in the value of property; the opposite of appreciation.

Discharge - The bankruptcy discharge extinguishes the debtor's liability on a debt and acts as an injunction against any further efforts to collect a discharged debt from the debtor or the debtor's assets.

Dischargeable Debt - Debt that can be removed or forgiven in a Chapter 7 liquidation.

Discount Points (or Points) - The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000).

Distribution Date - The date on which payments from a security to an investor are made.

Dividend - The portion of a company's profit paid out to its shareholders.

Document Review - A fee charged by the lender for the review of documents necessary to fund the loan.

Down Payment - The difference between the purchase price and that portion of the purchase price being financed. Most lenders require the down payment to be paid from the buyer's own funds. Gifts from related parties are sometimes acceptable, and must be disclosed to the lender.

Draft - A bill of exchange.

Drawee - The person on whom a bill of exchange or a draft is drawn.

Drawer - The person who draws a bill or draft.

Due on Sale - A clause in a mortgage agreement providing that, if the mortgagor (the borrower) sells, transfers, or, in some instances, encumbers the property, the mortgagee (the lender) has the right to demand the outstanding balance in full.

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E

Earnest money - Good faith money provided to seller by the potential buyer to show he is serious about purchasing the home. This amount may be applied to the down payment, but if the deal does not go through it may be forfeited, although in some cases it's returned.

Easement - The right-of-way granted to a person or company authorizing access to the owner's land; for example, a utility company may be granted an easement to install pipes or wires. An owner may voluntarily grant an easement or can be ordered to grant one by a local jurisdiction.

Effective Interest Rate - The cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Useful in comparing loan programs with different rates and points.

Effective Yield - The annual return on an investment that is calculated by dividing the coupon interest rate by the amount invested expressed as a percent of par.

Encumbrance - A claim against a property by another party which usually affects the ability to transfer ownership of the property.

Endorsement - The signature of the person transferring a negotiable instrument.

Entitlement - The VA home loan benefit is called entitlement. Entitlement for a VA guaranteed home loan. This is also known as eligibility.

Equal Credit Opportunity Act (ECOA) - A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

Equity - The difference between the fair market value (appraised value) of your home and your outstanding mortgage balance.

Equity loan - A loan based on the borrower's equity in his or her home.

Equity of Redemption - The right of a mortgagor to redeem his property after the mortgage is past due.

Escrow - A fee charged by the escrow as a neutral third party to carry out the procedures necessary to transfer ownership of property.

Escrow Waiver - When a loan value is 80% or less, you may elect not to open an escrow account and pay the hazard insurance and property taxes yourself. There is a one time charge by the Investor of 1/4 of a percent to 3/8 of a percent (0.0025 - 0.0375) of the loan amount.

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F

FDIC - Federal Deposit Insurance Corporation is the independent deposit insurance agency created by Congress to maintain stability and public confidence in the nation's banking system.

FHA - The Federal Housing Administration is a government agency with great information on home finance programs, loan limits and other interesting items.

FHA Loan - More appropriately termed "FHA Insured Loan." A loan for which the Federal Housing Administration insures the lender against losses the lender may incur due to your default.

FHLBB - Federal Home Loan Bank Board is the former name for the regulatory and supervisory agency for federally chartered savings institutions. Agency is now called the Office of Thrift Supervision.

FHLMC - Federal Home Loan Mortgage Corporation, also called "Freddie Mac", is a quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.

FIFO Inventory - The valuation of inventory on a first-in, first-out basis, which assumes that the earlier, cheaper inventory is sold first, and the later, more expensive inventory is left in stock.

FmHA - Farmers Home Administration provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

FNMA - The Federal National Mortgage Association is a major secondary market investor that purchases mortgage loans from mortgage bankers and other financial institutions. Also known as "Fannie Mae."

Face value - The principal amount of a bond.

Factor - The decimal value, calculated monthly, that represents the proportion of the original principal amount outstanding at a given time.

Fair Credit Reporting Act - A consumer protection law that sets up a procedure for correcting mistakes on one's credit record.

Family Debt Arbitration and Counseling Services, Inc. - A very good consumer oriented web site. It is a non-profit debt management agency helping people create a positive financial home environment.

Federal Reserve - The Federal Reserve is the central bank of the United States and a major regulator agency for many commercial banks.

Fee Simple - Absolute ownership of real property.

Final Distribution Date or Maturity Date - The latest possible date on which a REMIC class will receive payment. The actual final payment of any class will likely occur earlier, and could occur much earlier, than the final distribution date or maturity. A projected final maturity is calculated based on an assumed pre-payment rate to determine the final maturity of each class.

Firm Commitment - A promise by FHA to insure a mortgage loan for a specified property and borrower. A promise from a lender to make a mortgage loan.

First Mortgage - A mortgage which is in first lien position, taking priority over all other liens (which are financial encumbrances).

5/25 and 7/23 - Loans in which rates are fixed for five or seven years at rates slightly lower than standard 30-year, fixed- rate loans. Amortized for 30 years, loans are due in five or seven years or can be converted to a fixed-rate at the current market rate.

Fixed Rate - An interest rate which is fixed for the term of the loan. Payments are also fixed at one amount.

Flood Insurance - A form of hazard insurance that may be required by the lender as a condition of making the loan. May not cover personal property.

Floor - The minimum rate of interest payable on an adjustable-rate class or mortgage.

Forbearance - The lender's postponement of foreclosure to give the borrower time to catch up on overdue payments.

Foreclosure - The legal act by which the owner of a mortgage cuts off the rights or interest of the mortgagor in the mortgaged property.

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G

Garnishment - The legal process by which property due to a debtor and in the hands of a third person is attached.

GNMA - GNMA is a government owned secondary market investor that purchases FHA and VA mortgage loans from mortgage bankers and other financial institutions. Also known as "Ginnie Mae."

Good Faith Estimate - A written estimate of closing costs which a lender must provide you within three days of submitting an application.

Grace Period - A period of time during which a loan payment may be paid after its due date but not incur a late penalty. Such late payments may be reported on your credit report.

Graduated Payment Mortgage (GPM) - A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.

Gross - Before taxes

Gross Income - For qualifying purposes, the income of the borrower before taxes or expenses are deducted.

Gross Profit Sales - Cost of Goods Sold (COGS).

Growing Equity Mortgage (Rapid Payoff Mortgage) - A fixed-rate, fixed-schedule loan that starts with the same payments as a level payment loan.  The payments rise annually, with the entire increase being used to reduce the outstanding balance. No negative amortization occurs, and the increase in payments may enable the borrower to pay off a 30-year loan in 15 to 20 years, or less.

Guarantee - To assume the liability for such debts of another in the event of his default.

Guaranty - A contract wherein one party assumes liability for the debt of another person in the event of his default.

Guaranty Fees - A sum of money required by FNMA, FHLMC, and GNMA, a credit guarantee to mortgage-backed security.

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H

HUD - Housing and Urban Development is a federal agency that oversees the Federal Housing Administration.

HUD-I Settlement Statement - A form utilized at loan closing to itemize the costs associated with purchasing the home. Used universally by mandate of HUD, the Department of Housing and Urban Development.

Hazard Insurance - A contract between purchaser and an insurer, to compensate the insured for loss of property due to hazards (fire, hail damage, etc.), for a premium.

Holder in Due Course - A bona fide holder who takes an instrument for value without notice of it being overdue or of possible defenses.

Home Equity Line of Credit - A loan providing you with the ability to borrow funds at the time and in the amount you choose, up to a maximum credit limit for which you have qualified. Repayment is secured by the equity in your home. Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible. Often used for home improvements, major purchases or expenses, and debt consolidation.

Home Equity Loan - A fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax-deductible. Often used for home improvement or freeing of equity for other real estate or investments. Recommended by many to replace or substitute for consumer loans whose interest is not tax-deductible, such as auto or boat loans, credit card debt, medical debt, and education loans.

Home Inspection - A home inspection is performed by a qualified home inspector to determine the structural soundness and condition of the home, at the request of a purchaser, seller or lender. The inspector will provide a report outlining the condition of the home and what repairs, if any, are necessary before the loan may be closed.

Homeowners Warranty - A type of insurance that covers repairs to specified parts of a house for a specific period of time.

Housing Expenses-to-Income Ratio - The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her gross monthly income. See debt-to-income ratio.

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I

Impound - That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.

Impound Account - A savings account for accumulating that portion of a borrower's monthly payments designated for future payments of taxes and/or insurance. Required by certain lenders or with certain types of financing.

Index - A number, usually a percentage, upon which future interest rates for adjustable rate mortgages are based. Common indexes include the Cost of Funds for the Eleventh Federal District of Banks or the average rate of a one year Government Treasury Security.

Insolvency - Condition of a person who is unable to pay his debts as they fall due.

Installment Debt - Debts with more than ten months left to repay.

Insurance - The first annual premium, plus 2 months, for fire and extended coverage insurance to cover loss of the property. Usually called Homeowners Insurance. In the event of a condominium property, coverage for personal property (contents) may also be needed.

Intangible Tax - This tax is required by State governments whenever real property is sold. In Georgia, for example, this tax is $3.00 per $1,000.

Interest Adjustment or Prepaid Interest - An estimated amount of interest due at closing, usually from the date of closing to the end of the month.

Interest Rate - The periodic charge, expressed as a percentage, for use of credit.

Interest Rate Cap - A safeguard built into a variable rate loan to protect the consumer in the rate of interest movements at time of adjustment.

Interim Financing - A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.

Intestate - A person who dies without a will.

Investment Instrument - Legal document in which some contractual relationship is given formal expression or by which some right is granted - for example, notes, contracts, agreements.

Investor - A money source for a lender.

Issue date - The date as of which a security is originally formed.

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J

Joint Liability - Liability imposed upon two or more persons.

Joint Tenancy - The ownership of property by two or more persons with the survivor taking the interest of the deceased.

Joint Venture - A legal entity consisting of several persons jointly undertaking a commercial enterprise for profit.

Jumbo Loan - Mortgage loans over the conforming loan limit. Terms and underwriting requirements may vary from conforming loans.

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K

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L

LIBOR (London Interbank Offered Rate) - The interest rate charged among banks for short-term Eurodollar loans. A common index for adjustable-rate mortgages and securities.

Late charge - The penalty a borrower must pay when a payment is made after the due date.

Lease-Purchase Mortgage Loan - An alternative financing option that allows low- and moderate-income homebuyers to lease a home from a nonprofit organization with an option to buy.  Each month's rent payments consists of PITI (principal, interest, taxes, insurance) payments on the first mortgage, plus an extra amount that is earmarked for a savings account in which money for a down payment accumulates.

Letter of Credit - A promise by a debtor's bank to pay the creditor upon presentation of specified documents.

Lien - The right to satisfy a debt out of certain property owned by the debtor.

Liquidity - The capability of ready conversion of an asset or investment to cash.

Loan Administration - The collection of mortgage payments from borrowers and related responsibilities of a loan servicer. Also known as Loan Servicer.

Loan Application Fee - A lender's fee, usually ranging from $75 to $300, which the buyer must pay when applying for a mortgage.

Loan Origination Fee - A fee charged by the lender for processing a mortgage.

Loan Servicing - See Loan Administration.

Loan to Value Ratio (LTV) - A ratio determined by dividing the sales price or appraised value into the loan amount, expressed as a percentage. For example, with a sales price of $100,000 and a mortgage loan of $80,000, your loan to value ratio would be 80%. Loans with an LTV over 80% may require Private Mortgage Insurance, defined below.

Lock or Lock In - A commitment you obtain from a lender assuring you a particular interest rate or feature for a definite time period. Provides protection should interest rates rise between the time you apply for a loan, acquire loan approval, and, subsequently, close the loan and receive the funds you have borrowed.

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M

MBS - Mortgage Backed Security is an investment instrument that represents ownership of an undivided interest in a group of mortgages. Principal and interest from the individual mortgages are used to pay principal and interest on the MBS.

MGIC - Mortgage Guaranty Insurance Company is a provider of private mortgage insurance and an excellent national real estate economic resource center.

MIP - Mortgage Insurance purchased by the borrower to insure the lender or the government against loss should you default. MIP, or Mortgage Insurance Premium, is paid on government-insured loans (FHA or VA loans) regardless of your LTV (loan-to-value). Should you pay off a government-insured loan in advance of maturity, you may be entitled to a small refund of MIP. PMI, or Private Mortgage Insurance, is paid on those loans which are not government-insured and whose LTV is greater than 80%. When you have accumulated 20% of your home's value as equity, your lender may waive PMI at your request. Please note that such insurance does not constitute a form of life insurance which pays off the loan in case of death.

Margin - An amount, usually a percentage, which is added to the index to determine the interest rate for adjustable rate mortgages.

Market Price - The current price of the security will change over time.

Market Rate - The average rate charged by lenders for conventional, fixed-rate loans.

Market Risk - The possibility that the price of the security will change over time.

Market Value - The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Minimum Payment - The minimum amount that you must pay, usually monthly, on a home equity loan or line of credit. In some plans, the minimum payment may be "interest only," (simple interest). In other plans, the minimum payment may include principal and interest (amortized).

Minor - A person who has not reached legal maturity; an infant.

Mortgage Banker - Originates mortgage loans, loaning you their funds and closing the loan in their name.

Mortgage Broker - As do mortgage bankers, takes loan application and processes the necessary paperwork. Unlike a mortgage banker, brokers do not fund the loan with their own money, but work on behalf of several investors, such as mortgage bankers, Savings and Loan's, banks, or investment bankers.

Mortgage Loan - A loan which utilizes real estate as security or collateral to provide for repayment should you default on the terms of your loan. The mortgage or Deed of Trust is your agreement to pledge your home or other real estate as security.

Mortgage Note - A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time; the agreement is secured by a mortgage.

Mortgagee - The lender in a mortgage loan transaction.

Mortgagor - The borrower in a mortgage loan transaction.

Multiple Listing Service (MLS) - A networking system, frequently on computer, in which a number of real estate firms share information about their client's homes that are for sale.

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N

Negative Amortization - A situation which may occur on variable rate loans which have the payment cap feature. Because your monthly payment is capped, your adjusted payment amount may, at times, be insufficient to pay the actual amount of interest due. The unpaid deferred interest will then be added to your loan balance. This increase in your loan balance is known as negative amortization. A borrower usually has the option of increasing the monthly payment in any given month to avoid negative amortization.

Negotiable - That species of property which can be transferred by endorsement and delivery.

Net - After taxes.

Net Effective Income - The borrower's gross income minus federal income tax.

Non Assumption Clause - A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender. Note: The signed obligation to pay a debt as a mortgage note.

Nondischargeable Debt - Debt, such as taxes, that cannot be forgiven in a bankruptcy liquidation.

Note - A formal document showing the existence of a debt and stating the terms of repayment.

Notice of Default - A formal written notice to a borrower that a default has occurred and that legal action may be taken.

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O

OCC - Office of the Comptroller of Currency provides supervision and regulation to national banks to ensure safety and soundness in banking.

OTS - Office of Thrift Supervision provides supervision and regulation to thrift institutions to ensure safety and soundness in banking.

Offer to Purchase - Also known as a purchase offer, earnest money agreement, contract of purchase, or deposit receipt.  A document that lists the price conditions, and terms under which the buyer is willing to purchase a property.

Original Face Value - The original principal amount of a security on its issue date.

Origination - A loan processing fee charged by the lender for originating a new loan. (Usually 1% of the loan amount, or one "point").

Origination Fee - The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.

Origination Points - Points charged by the Broker for their services (i.e. commission).

Owner Financing - A purchase in which the seller provides all or part of the financing.

Owner's Title Policy - An insurance premium charged by the title company to insure the buyer that the title is free from defects up to the date the conveying instrument is recorded. Buyer is the beneficiary. (Frequently paid by the seller. $300 and up).

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P

PITI - Principal, interest, taxes and insurance, which comprise your monthly mortgage payment.

PSA (Public Securities Association) - The national trade association of banks, dealers, and brokers that underwrite, trade, and distribute mortgage-backed securities, U.S. government and federal agency securities, and municipal securities.

Par - 100 percent of face value.

Payment Cap - Provision of some ARMs limiting how much a borrower's payments may increase regardless of how much the interest rate increases; may result in negative amortization.

Payoff Statement - A fee charged by the lender or collection company for payoff information on a loan which you are paying in full.

Per Diem Interest - Depending on the day of the month you close, you will have to pay interest from the date of closing to the end of the month. Then, usually, the first mortgage payment will be due the first of the following month

Perfection - The proper recording or filing of an instrument, thereby giving notice to the world.

Permanent Loan - A long term mortgage, usually ten years or more. Also called an "end loan."

Personal Property Right - All rights and interest owned in goods or chattels as distinguished from an interest in real property.

Pest Inspection - A certified pest inspector will check the home's interior and exterior to ensure that it is free from destructive insects. The inspector will provide the lender with a detailed report. Specific treatments are sometimes required before the loan may be closed, usually at the seller's expense.

Pledged Account Mortgage (PAM) - Money is placed in a pledged savings account and this fund plus earned interest is gradually used to reduce mortgage payments.

Points (loan discount points) - Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).

Pool - A group of mortgages backing an individual MBS issue.

Power of Attorney - A legal document authorizing one person to act on behalf of another.

Preference - Paying or securing to one or more creditors, by an insolvent debtor, of all or part of an antecedent debt to the exclusion of other creditors. Under the U.S. Bankruptcy Code such payment is a preference if to a regular creditor within 90 days or to an insider within one year of insolvency.

Premium - A price in excess of 100 percent of face value.

Prepaid Expenses - Necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

Prepaid Interest - The amount of interest to cover the period from close of escrow until the beginning of the first payment.

Pre-payment - The unscheduled payment of all or part of the outstanding principal of a mortgage loan, including payments by the borrower as well as liquidations from foreclosures, condemnations, or casualty.

Prepayment Penalty - A penalty found in a Promissory Note imposed by the lender when the loan is paid before it is due.

Pre-payment Risk - The possibility that the mortgages underlying the security are repaid faster or more slowly than expected.

Prequalification - The process of determining how much money a prospective homebuyer will be eligible to borrow before a loan is applied for.

Price - The amount paid for a security, usually stated as a percentage of its face value. A par price is 100 percent, a premium price is higher than par, while a discount price is lower than par.

Primary Mortgage Market - Lenders making mortgage loans directly to borrowers such as savings and loan associations, commercial banks, and mortgage companies. These lenders sometimes sell their mortgages into the secondary mortgage markets such as to FNMA or GNMA, etc.

Principal - The amount of debt, not counting interest, left on a loan.

Principal-Only (PO) Class - A class that does not bear interest and is entitled to receive only payments on principal. Rising interest rates will have an adverse effect on POs.

Priority of Claims - The specified order in which creditors' claims are paid when the assets of a debtor are liquidated in a bankruptcy. The priority of claims is regulated by the Bankruptcy Code.

Private Label - A mortgage security not issued or guaranteed by a U.S. government agency (such as GNMA) or a U.S. government-sponsored enterprise (such as FNMA or FHLMC).

Private Mortgage Insurance (PMI) - In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment - as low as 5 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will usually require an initial premium payment and may require an additional monthly fee depending on your loan's structure.

Processing Fee - This fee is paid at closing. The Processor is the person who handles all paperwork requirements in getting your loan approved. He/She obtains verifications from your bank, employer, and other sources.

Profit and Loss Statement - Part of the financial statement that shows sales, expenses and profits for a specific period of time. Also known as Income Statement ..

Prospectus and Prospectus Supplement - The legal documents that outline all details of an investment.

Proxy - An absentee ballot received before the annual meeting.

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

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Q

Qualifying Ratios - Comparisons of a borrower's debts and gross monthly income.

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R

REMIC (Real-Estate Mortgage Investment Conduit) - A multiple-class mortgage cash flow security.

RESPA - Short for the Real Estate Settlement Procedures Act. RESPA is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only.

ROI - Return on Investment

R-Value - The resistance of insulation materials (including windows) to heat passing through air. The higher the number, the greater the insulating value.

Rate Lock - See Lock-in.

Real Estate Agent - A person licensed to negotiate and transact the sale of real estate on behalf of the owner.

Real Estate Settlement Procedures Act - A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Real Property - Land and everything that is permanently affixed to it.

Realtor - A collective membership mark that may be used only by real estate professionals who are members of the National Association of Realtors and subscribe to its strict code of ethics.

Receiver - A person appointed by the court to take custody over property in litigation or insolvency.

Reclamation - A term used in bankruptcy to denote a right or proceeding on the part of a person having title to property to recover the same when it is in possession of the bankrupt, debtor, receiver, or trustee.

Reconveyance/Satisfaction - A fee charged by the lender to execute the Deed of Reconveyance, or Satisfaction, when an existing note is paid off.

Record Date - The date used to determine the owner of a security for purposes of distributing the next scheduled payment.

Recording Fees - Fees charged by the County Recorder's Office for recordation of Deed, Mortgage or Deed of Trust, and, at times, additional documents requiring public notice.

Refinancing - The process of paying off one loan with the proceeds from a new loan secured by the same property.

Renegotiable Rate Mortgage - a loan in which the interest rate is adjusted periodically. See adjustable rate mortgage.

Rent With Option To Buy - See Lease-purchase mortgage loan.

Rescission - The annulment of a contract as a result of which both parties are returned to their former positions.

Reverse Annuity Mortgage (RAM) - A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as Satisfaction of Mortgage: The document issued by the mortgagee when the mortgage loan is paid in full. Also called a "release of mortgage."

Right of Rescission - The legal right to void or cancel your mortgage contract in such a way as to treat the contract as if it never existed. Right of rescission is not applicable to mortgages made to purchase a home, but may be applicable to other mortgages, such as home equity loans.

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S

Satisfaction - The discharge of an obligation by paying a party what is due.

Second Mortgage - A mortgage made subsequent to another mortgage and subordinate to the first one.

Secondary Mortgage Market - The place where primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for the lenders.

Security Interest - Any interest in property acquired by contract for the purpose of securing payment or performance of an obligation.

Seller Carryback - An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.

Servicing - All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.  Also known as Loan Administration.

Servicing a Loan - The ongoing process of collecting your monthly mortgage payment, including accounting for and payment of your yearly tax and/or homeowners insurance bills.

Settlement Costs - See closing/closing costs.

Settlement Date - The date of the delivery of and payment for a security.

Settlement Sheet - The computation of costs payable at closing which determines the seller's net proceeds and the buyer's net payment.

Shared Appreciation Mortgage (SAM) - A mortgage in which a borrower receives a below-market interest rate in return for which the lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property. May also apply to a mortgage where the borrowers share the monthly principal and interest payments with another party in exchange for part of the appreciation.

Sight Draft - Terms of sale common in manufacturing by which goods are shipped via common carrier to purchaser. An invoice, sight draft document, and bill of lading are presented to the customer's bank. When the bank debits the customer's account, the bill of lading is released and the goods are delivered.

Simple Interest - Interest which is computed only on the principal balance.

Subsidized Second Mortgage - An alternative financing option for low- and moderate-income households that also includes a down payment and a first mortgage, with funds for the second mortgage provided by city, county, or state housing agencies, foundations, or nonprofit corporations. Payment on the second mortgage is often deferred, carries no or low interest rates, and part of the debt may be forgiven for each year the family remains in the home.

Survey - A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to know points, its dimensions, and the location and dimensions of any buildings.

Sweat Equity - Equity created by a purchaser performing work on a property being purchased.

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T

Tax and Insurance Reserve (TIR) - See Impound Account.

Tax Impound - An amount for taxes required and collected by the lender/collection agent and held in the impound account to insure adequate funds are available to pay the taxes. The amount is based upon one month's worth (one-twelfth) of yearly taxes, varying between one and five months, depending upon the time of the year in which you close.

Tenancy by the Entirety - The joint ownership of property by a husband and wife with the right of survivorship.

Tenancy in Common - A form of ownership on which the tenants own separate but equal parts. To inherit the property, a surviving tenant should either have to be mentioned in the will or, in the absence of a will, be eligible through state inheritance laws.

Testator - A person who makes a will.

Three/two (3/2) Option - An alternative financing plan that enables households whose earnings are no more than 100 percent of the median income in their regional area to make a 3 percent down payment with their own funds, coupled with a 2 percent gift from a relative or a 2 percent grant or unsecured loan from a nonprofit or state or local government program.

Title - The written evidence that proves the right of ownership of a specific piece of property.

Title Company - A company that specialized in insuring title to property.

Title Examination - This fee is paid at closing. This policy protects the Investor in case of future title problems arising. You will have the opportunity to purchase your own title insurance at a significant savings at the time of closing.

Title Insurance - Insurance to protect the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.

Title Search - A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

Tort - A private or civil wrong exclusive of a breach of contract.

Tranche - French word for "slice"; a class of investment interest in a REMIC.

Transaction Fee - A fee which may be charged each time you draw on a home equity credit line.

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

Treasury Securities - Treasury securities and T-bills are common indexes for adjustable rate loans.

Truth-in-Lending Act - A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges.

Two-Step Mortgage - A mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often seven or 10), and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. The lender sometimes has the option to call the loan due with 30 days notice at the end of seven or 10 years. Also called "Super Seven" or "Premier" mortgage.

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U

Underwriting - The process of verifying data and approving a loan.

Underwriting Fee - This fee is paid at closing. This charge is for the review of your file to insure your ability to meet your mortgage payment obligations.

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V

VA Funding Fee - A fee charged by the Veteran's Administration to guarantee the loan to a qualified veteran. Similar to Private Mortgage Insurance.

VA Loan - More appropriately termed "VA Insured Loan." A loan for which the Veteran's Administration insures the lender against losses the lender may incur due to your default. Available only to veterans possessing a Certificate of Eligibility.

VA Mortgage Funding Fee - A premium of up to 1-7/8 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.

VOD (Verification of Deposit) - A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.

VOE (Verification of Employment) - A document signed by the borrower's employer verifying his/her position and salary.

VRM (Variable Rate Mortgage) - See Adjustable Rate Mortgage.

Variable Rate - An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.

Variable Rate Loan - Loan in which the rate of interest is tied to a specific financial index, with both the rate of interest and the monthly payments subject to change at established adjustment intervals.

Venue - Used to indicate the county, district, or other place where a case is or will be tried.

Vesting - Name(s) in which title to a property is held.

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W

WAC (Weighted-Average Coupon) - The weighted average of the interest rates on the mortgage loans underlying the MBS that back the REMIC or the weighted average of the WACs of the individual MBS pools backing the REMIC.

WAL (Weighted-Average Life) - The average amount of time that will elapse from the date of a security's issuance until each dollar of principal is repaid to the investor. The weighted-average life of each class of a REMIC is only an assumption. The average amount of time that each dollar of principal is actually outstanding is influenced by, among other factors, the rate at which principal, both scheduled and unscheduled, is paid on the mortgage loans underlying the MBS that back the REMIC.

WAM (Weighted-Average Maturity) - The weighted average of the remaining terms to maturity (expressed in months) of the mortgage loans underlying the MBS or the weighted average of the remaining terms to maturity of the individual MBS pools backing the REMIC.

Waiver - The relinquishment of or refusal to accept some right or benefit.

Walk-through - A final inspection of a home before settlement to search for problems that need to be corrected before ownership changes hands.

Warehouse Fee - Many mortgage firms must borrow funds on a short term basis in order to originate loans which are to be sold later in the secondary mortgage market (or to investors). When the prime rate of interest is higher on short term loans than on mortgage loans, the mortgage firm has an economic loss which is offset by charging a warehouse fee.

Workout - The plan by which a financially distressed company, not in bankruptcy, seeks to rehabilitate itself.

Wraparound Mortgage - Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.

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X

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Y

Yield - The rate of return on an investment over a given time, expressed as an annual percentage rate. Yield is affected by the price paid for the investment as well as the timing of the principal repayments.

Yield to Maturity - The annual percentage rate of return on an investment, assuming it is held to maturity.

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Z

Zoning Regulations - established by local governments regarding the location, height, and use for any given piece of property within a specific area.

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Trinity Financial Alliance, Inc.
P.O. Box 185547
Ft. Worth, Texas 76181
(817) 595-0717 or (817) 589-9660

© 2002 Trinity Financial Alliance