Mortgage Glossary,Quick Overview of Terms Used In Today’s Mortgage Market
Most lender use FICO scores to rate their consumers, the best consumers are rated as having A-Credit.
Acceleration Clause:
Is a contractual provision that gives the lender the right to demand repayment of the entire loan balance in the event that the borrower violates one or more clauses in the note.
Accrued Interest and Negative amortization:
Both refer to the interest on a loan that is earned but not paid and adding to the amount owed
Adjustable Rate Mortgage (ARM):
In the US ARM mortgage loans are tried to a pre-selected interest rate indexes and will adjust based on the contractual agreement or Adjustment Intervals
Adjustment Interval:
Is the time between the changes in the interest rate or monthly payment on an ARM mortgage loan. This can be a fix rate for a period of time and after that period of time the rate will adjust up and down base on the pre-selected interest rate index.
Affordability:
What a consumer could pay for a house, capacity to afford the house and amount approved for the mortgage required to pay that amount for the house.
Agency:
When one party in a relationship has a fiduciary obligation to the other.
Agreement of Sale:
A contract stating the terms and conditions under which a property will be sold, sign buy both the buyer and seller
Alt-A:
Mortgage risk categorization for a loan that falls between prime and sub-prime, Also referred to as “A minus”. These loans are closer to prime then sub-prime
Alternative Documentation:
If acceptable will speed up the documentation requirements. Where the lender will accept paychecks stubs, W-2 and the borrower’s original bank statements and still be considered full documentation for the loan.
Amortization:
The scheduled payment less the interest, the gradual payment of a loan by making regular payments of principal and interest over time
Amortization schedule:
Is a table detailing each periodic payment on an amortizing loan
Amount financed:
It represents the loan amount minus any prepaid finance charges and assumes the loan will be kept to its maturity and making only the required monthly payments.
Annual percentage rate:
Also known as the APR is calculated as if the fees paid up front are allocated to each month over the life of the mortgage, and that the sum of the fees and the interest payment each month, when divided by the balance in that month, equals the APR.
Application:
When requesting a loan, the application would include information about the potential borrower, the property and the requested loan that the solicited lender needs to make a decision. The standardized mortgage application form is called the “1003” which the borrower is obliged to fill out.
Application fee:
A fee that some lenders charge to accept an application. It may or may not cover other costs such as a property appraisal or credit report, and it may or may not be refundable if the lender declines the loan.
Appraisal:
A written estimate of a property’s current market value prepared by an licensed appraiser.
Appraiser:
A professional with knowledge of the real estate markets and skilled in the practice of appraising property. When a property is appraised in connection with a loan, the appraiser is selected randomly by the lender, but the appraisal fee is usually paid by the borrower.
Approval:
Approval means that the borrower meets the lender’s qualifications and underwriting requirements. The approval may be conditional on further verification of information to be provided by the borrower.
Assumption:
When a buyer buys a property from a seller and assume the loan and the payments on that property. Unless the lender also agrees to allow the buyer to assume the mortgage the seller remains liable for the mortgage and unless the lender had agreed in the contract to make the loan assumable the lender will have the right to call the loan due and payable.
Assumable mortgage:
A mortgage contract that allows a creditworthy buyer to assume the mortgage contract of the seller.
Automated underwriting:
A computer-driven process for informing the loan applicant very quickly, whether the applicant will be approved, or whether the application will be forwarded to an underwriter. The quick decision is based on information provided by the applicant, which is subject to later verification, and other information retrieved electronically including information about the borrower’s credit history and the subject property.
Balloon mortgage:
The balance on a mortgage which is payable in full after a period of time that is shorter than the term of the mortgage.
Balloon:
The loan balance remaining at the time the loan contract calls for full repayment.
Bimonthly mortgage
A mortgage on which the borrower pays half the monthly payment on the first day of the month and the second payment on the 15th of the month
Biweekly weekly:
A mortgage on which the borrower pays half the monthly payment every two weeks. By paying every two weeks your making 26 payments over the year not 24 payments.
Bridge loan:
A short-term loan, that “bridges” the period between the closing date of a home purchase and the closing date of a home sale. Also called a swing loan.
Buy-down:
A buy-down is the payment of points in exchange for a lower interest rate.
Buy-up:
Paying a higher interest rate in exchange for a rebate by the lender which reduces upfront costs.
Cap:
The maximum interest rate the mortgage loan can go up or down too.
Cash-Out Refi:
Refinancing for an amount in excess of the balance on the old loan plus settlement costs.
Cash-in refi:
As part of a refinance transaction, paying down the loan balance in order to reduce the loan-to-value ratio and qualify for a lower interest rate and/or reduced mortgage insurance premium.
Closing:
The process of transferring ownership from the seller to the buyer or On a refinance, there is no transfer of ownership, but the closing includes repayment of the old lender.
Closing costs or Settlement costs:
Costs that the borrower must pay at the time of closing in addition to the down payment.
Closing date:
The date on which the closing occurs.
Co-Borrowers:
One or more persons who have signed the note, and are equally responsible for repaying the loan.
Collateral:
Assets pledged as security for the repayment of a loan.
Conforming mortgage:
A loan eligible for purchase by the two major Federal agencies that buy mortgages, Fannie Mae and Freddie Mac.
Construction financing:
The method of financing used when a borrower contracts to have a house built.
Conventional mortgage:
Conventional,” i.e. not insured or guaranteed by the HUD, Veterans’ Administration or the Federal Housing Agency (FHA)
Co-signing a note:
Assuming responsibility for someone else’s loan in the event that that party defaults.
Credit report:
A single numerical score, based on an individual’s credit history that measures that individual’s credit worthiness.
Current index value:
The most recently published value of the index used to adjust the interest rate on an indexed ARM.
Deadbeat:
A borrower who doesn’t pay.
Debtaholic:
A borrower who cannot handle debt except by complete abstinence.
Debt consolidation:
Rolling short-term debt into a home mortgage loan, either at the time of home purchase or later.
Deed in lieu of foreclosure:
Deeding the property over to the lender as an alternative to having the lender foreclose on the property.
Default:
Failure of the borrower to honor the terms of the loan agreement.
Deferred interest:
The amount of interest that is added to the principal balance of a loan when the contractual terms of that loan allow for a scheduled payment to be made that is less than the interest due.
Delinquency:
A mortgage payment that is more than 30 days late.
Demand clause:
A clause in the note that allows the lender to demand repayment at any time for any reason.
Desecuritization:
The process by converting a security back into individual loans.
Direct lender:
Direct lending involves the transfer of funds from the ultimate lender to the ultimate borrower.
Discount mortgage broker:
A mortgage broker who claims to be compensated entirely by the lender rather than by the borrower.
Discount points:
A type of prepaid interest mortgage borrowers can purchase that lowers the amount of interest they will have to pay on subsequent payments.
Each discount point generally costs 1% of the total loan amount and depending on the borrower, each point lowers your interest rate by one-eighth to one one-quarter of your interest rate. Discount points are tax deductible only for the year in which they were paid.
Documentation requirements:
The set of lender requirements that specify how information about a loan applicant’s income and assets must be provided, and how it will be used by the lender.
Down payment:
The difference between the value of the property and the loan amount, expressed in dollars, or as a percentage of the price.
Dual apper:
A borrower who submits applications through two loan providers, usually mortgage brokers.
Due-on-sale clause:
A provision of a loan contract that stipulates that if the property is sold or transferred to a new buyer, the loan or mortgage balance must be repaid.
Effective rate:
The interest rate on a loan or financial product restated from the nominal interest rate with annual compound interest in arrears.
The effective interest rate generally does not incorporate one-time charges such as front-end fees. The effective interest rate is (generally) not defined by legal or regulatory authorities.
Equity:
In Real Estate it is the difference between the value of the home and the balance of outstanding mortgage loans on the home.
Equity grabbing:
A type of predatory lending where the lender intends for the borrower to default so the lender can grab the borrower’s equity.
Escrow:
As stated on wikipedia
- an arrangement made under contractual provisions between transacting parties, whereby an independent trusted third party receives and disburses money and/or documents for the transacting parties, with the timing of such disbursement by the third party dependent on the fulfillment of contractually-agreed conditions by the transacting parties, or
- an account established by a broker, under the provisions of license law, for the purpose of holding funds on behalf of the broker’s principal or some other person until the consummation or termination of a transaction or,
- a trust account held in the borrower’s name to pay obligations such as property taxes and insurance premiums.
Escrow abuse:
The practice of using escrow accounts inappropriately to generate more income from hapless borrowers.
Fallout:
Loan applications that arewithdrawn by borrowers, sometimes because they have found a better deal.
FAMEMP:
fully-amortizing mortgage with equal monthly payments.
Fannie Mae:
Federal agencies that purchase home loans from lenders.
Fees:
The sum of all upfront cash payments required by the lender as part of the charge for the loan.
FHA mortgage:
A mortgage on which the lender is insured against loss by the Federal Housing Administration, with the borrower paying the mortgage insurance premium.
FICO Score:
Credit bureau scores are often called “FICO scores” because most credit bureau scores used in the U.S. are produced from software developed by Fair Isaac and Company.
Financing points:
Including points in the loan amount.
First mortgage:
A mortgage that has a first-priority claim against the property in the event the borrower defaults on the loan.
Fixed rate mortgage (FRM):
A mortgage on which the interest rate and monthly mortgage payment remain unchanged throughout the term of the mortgage.
Float:
Allowing the rate and points to vary with changes in market conditions.
The borrower may elect to lock the rate and points at any time but must do so before the ordering of docs.
Floatdown A rate lock, plus an option to reduce the rate if market interest rates decline during the lock period.
Foreclosure The legal process by which a lender acquires possession of the property securing a mortgage loan when the borrower defaults.
Forbearance agreement:
An agreement by the lender not to exercise the legal right to foreclose in exchange for an agreement by the borrower to a payment plan that will cure the borrower’s delinquency.
Freddie Mac:
Federal agencies that purchase home loans from lenders. The other is Fannie Mae.
Front-end fee:
Mortgage broker fee paid by the borrower, as distinguished from the fee paid by the lender, which is “back-end”.
Fully amortizing payment:
The monthly mortgage payment which, if maintained unchanged through the remaining life of the loan at the then-existing interest rate, will pay off the loan over the remaining life.
Fully indexed interest rate:
The interest rate on an adjustable-rate loan that is calculated by adding the margin to an index level.
Gifte of equity:
A sale price below market value, where the difference is a gift from the sellers to the buyers.
Good faith estimate:
The form that lists the settlement charges the borrower must pay at closing.
Government National Mortgage Association (GNMA):
A Federal agency that guarantees mortgage securities that are issued against pools of FHA and VA mortgages.
Grace period:
The period after the payment due date during which the borrower can pay without being hit for late fees.
Graduated payment mortgage (GPM):
A mortgage on which the payment rises by a constant percent for a specified number of periods, after which it levels out over the remaining term and amortizes fully.
Graduation period:
The interval at which the payment rises on a GPM.
Graduation rate:
The percentage increase in the payment on a GPM.
HARP Program:
The Home Affordability Refinance Program (HARP) was started by Fannie Mae and Freddie Mac in 2010 to provide refinancing to borrowers with loan-to-value ratios too high to be eligible for their standard programs.
Hazard insurance:
Insurance purchased by the borrower, and required by the lender, to protect the property against loss from fire and other hazards. Also known as “homeowner insurance”.
HECM:
Stands for Home Equity Conversion Mortgage, a reverse mortgage program authorized by Congress in 1988.
On a HECM, FHA insures the lender against loss in the event the loan balance at termination exceeds the value of the property, and insures the borrower that any payments due from the lender will be made, even if the lender fails.
Historical scenario:
The assumption that the index value to which the rate on an ARM is tied follows the same pattern as in some prior historical period.
Home equity line of credit (HELOC):
A mortgage set up as a line of credit against which a borrower can draw up to a maximum amount, as opposed to a loan for a fixed dollar amount.
Home Valuation Code of Conduct (HVCC):
A rule issued by Fannie Mae and Freddie Mac, effective May 1, 2009, that the agencies thenceforth would only purchase mortgages that were supported by an “independent” appraisal.
Housing bubble:
A marked increase in house prices fueled partly by expectations that prices will continue to rise.
Housing expense:
The sum of mortgage payment, hazard insurance, property taxes, and homeowner association fees.
Housing expense ratio:
The ratio of housing expense to borrower income, which is used (along with the total expense ratio and other factors) in qualifying borrowers.
HUD1 form:
The form a borrower receives at closing that details all the payments and receipts among the parties in a real estate transaction, including borrower, lender, home seller, mortgage broker and various other service providers.
Hybrid ARM:
An ARM on which the initial rate holds for some period, during which it is “fixed-rate”, after which it becomes adjustable rate.
Impound Account:
An impound account is an account that is set up so that you pay your mortgage company a monthly amount, which they hold to pay your property taxes and home insurance.
Indexed ARM:
An adjustable-rate mortgage on which the interest rate adjusts periodically according to an underlying benchmark index plus a margin.
Initial interest rate
The interest rate that is fixed for some specified number of months at the beginning of the life of an ARM.
Interest due:
The amount of interest, expressed in dollars, computed by multiplying the loan balance at the end of the preceding period times the annual interest rate divided by the interest accrual period.
Interest-only mortgage:
A mortgage on which for some period the monthly mortgage payment consists of interest only. During that period, the loan balance remains unchanged.
Interest payment:
The dollar amount of interest paid each month.
Interest rate:
The rate charged the borrower each period for the loan of money
Interest rate adjustment period:
The frequency of rate adjustments on an ARM after the initial rate period is over.
Interest rate ceiling:
The highest interest rate under an ARM contract.
Interest rate floor:
The lowest interest rate possible under an ARM contract.
Interest rate increase cap:
The maximum allowable increase in the interest rate on an ARM each time the rate is adjusted.
Interest rate decrease cap:
The maximum allowable decrease in the interest rate on an ARM each time the rate is adjusted.
Interest rate index:
The specific interest rate series to which the interest rate on an ARM is tied.
Interest rate risk premium:
Is the minimum amount of money by which the expected return on a risky asset must exceed the known return on a risk free asset.
Jumbo mortgage:
A mortgage larger than the maximum eligible for purchase by the two Federal agencies, Fannie Mae and Freddie Mac.
Junk fees:
A junk fee is any charge that serves no purpose but to provide additional profit to the lender.
Late fees:
Fees that lenders are entitled to collect from borrowers who don’t pay within the grace period.
Late payment:
A payment received after the grace period stipulated in the note.
Lease-to-own purchase:
A transaction in which a hopeful home buyer leases a home with an option to buy it within a specified period.
Lien:
The lender’s right to claim the borrower’s property in the event the borrower defaults.
Loan amount:
The amount the borrower promises to repay, as set forth in the mortgage contract.
Loan discount fee:
The term used to describe points on the Good Faith Estimate.
Loan or Mortgage modification:
restructuring, or workout plan, it’s when a borrower who is facing great financial hardship, having difficulty making their mortgage payments and is facing foreclosure, works with their lender to change the terms of their mortgage loan to make it affordable.
Loan officer:
Employees of lenders or mortgage brokers who find borrowers, sell and counsel them, and take applications.
Loan-to-value ratio:
The loan amount divided by the lesser of the selling price or the appraised value. Also referred to as LTV.
Lock:
An option exercised by the borrower, at the time of the loan application or later, to “lock in” the rates and points prevailing in the market at that time.
The lender and borrower are committed to those terms, regardless of what happens between that point and the closing date.
Lock commitment letter:
A written statement from a lender verifying that the price and other terms of a loan have been locked.
Lock period:
The number of days for which any lock or float-down holds.
Mandatory disclosure:
The array of laws and regulations dictating the information that must be disclosed to mortgage borrowers, and the method and timing of disclosure.
Manufactured housing:
A house built entirely in a factory, transported to a site and installed there.
Margin:
The amount added to the interest rate index.
Maximum loan amount:
The largest loan size permitted on a particular loan program.
Maximum loan to value ratio:
The maximum allowable loan-to-value ratio on a selected loan program.
Maximum lock:
The longest period for which the lender will lock the rate and points on any program.
Minimum down payment:
The minimum allowable ratio of down payment to sale price on any program.
Monthly debt service:
Monthly payments required on credit cards, installment loans, home equity loans, and other debts but not including payments on the loan or mortgage applied for.
Mortgage:
A written document evidencing the lien on a property taken by a lender as security for the repayment of a loan.
Mortgage broker:
An independent contractor who offers the loan products of multiple lenders.
Mortgage company:
A mortgage lender who sells all loans in the secondary market.
Mortgage insurance:
Insurance against loss provided to a mortgage lender in the event of borrower default.
Mortgage insurance premium:
The up-front and/or periodic charges that the borrower pays for mortgage insurance.
Mortgage lender:
The party who disburses funds to the borrower at the closing table.
The lender receives the note evidencing the borrower’s indebtedness and obligation to repay, and the mortgage which is the lien on the subject property.
Mortgage payment:
The monthly payment of interest and principal made by the borrower.
Mortgage price:
The interest rate, points and fees paid to the lender and/or mortgage broker.
Negative amortization:
A rise in the loan balance when the mortgage payment is less than the interest due.
Negative amortization cap:
The maximum amount of negative amortization permitted on an ARM, usually expressed as a percentage of the original loan amount.
Negative Homeowners Equity:
The condition of owing more on the house than the house is worth.
Negative points:
Points paid by a lender for a loan with a rate above the rate on a zero point loan, referred to as “rebates” because they are used to reduce a borrower’s settlement costs. When negative points are retained by a mortgage broker, they are called a “yield spread premium”.
No-cost mortgage:
A mortgage on which all settlement costs except per diem interest, escrows, homeowners insurance and transfer taxes are paid by the lender and/or the home seller.
Non-conforming mortgage:
A mortgage that does not meet the purchase requirements of the two Federal agencies, Fannie Mae and Freddie Mac, because it is too large or for other reasons such as poor credit or inadequate documentation.
Non-Permanent resident alien:
A non-citizen without a green card who is employed in the US. As distinct from a permanent resident alien, who has a green card and who lenders do not distinguish from US citizens. Non-permanent resident aliens are subject to somewhat more restrictive qualification requirements than US citizens.
No asset loan:
A documentation requirement where the applicant’s assets are not disclosed.
Non-warrantable condo:
A condominium that does not meet lender requirements.
No-Surprise adjustable rate mortgage:
An ARM with a preset graduated payment combined with variable term.
No ratio loan:
A documentation requirement where the applicant’s income is disclosed and verified but not used in qualifying the borrower.
Note:
A document that evidences a debt and a promise to repay. A mortgage loan transaction always includes both a note evidencing the debt, and a mortgage evidencing the lien on the property.
Option ARM:
An adjustable rate mortgage with flexible payment options, monthly interest rate adjustments, and very low minimum payments in the early years.
Option fee:
An upfront fee paid by the buyer under a lease-to-own purchase.
Overage:
The difference between the price posted to its loan officers by a lender or mortgage broker, and the price charged the borrower.
Par Rate:
The mortgage interest rate at zero points.
Partial prepayment:
Making a payment larger than the scheduled payment as a way of paying off the loan earlier.
Payment adjustment interval:
The period between payment changes on an ARM.
Payment increase cap:
The maximum percentage increase in the payment on an ARM at a payment adjustment date.
Payment decrease cap:
The maximum percentage decrease in the payment on an ARM at a payment adjustment date.
Payment period:
The period over which the borrower is obliged to make payments.
Payment rate:
The interest rate used to calculate the mortgage payment which is usually but not necessarily the interest rate.
Payment shock:
A very large increase in the payment on an ARM that may surprise the borrower.
Payoff month:
The month in which the loan balance is paid down to zero.
Per diem interest:
Interest from the day of closing to the first day of the following month.
Piggyback mortgage:
A combination of a first mortgage for 80% of property value, and a second for 5%, 10%, 15%, or 20% of value.
This is a way of putting down a total of 20% down. Your down payment plus the different, as a second.
Piggybacks are a substitute for mortgage insurance for borrowers who cannot put 20% down.
PITI:
Short for principal, interest, taxes and insurance, which are the components of the monthly housing expense.
PMI:
Private mortgage insurance, as distinguished from insurance provided by government under FHA and VA.
Points:
An upfront cash payment required by the lender as part of the charge for the loan, expressed as a percent of the loan amount.
Portfolio lender:
A lender that holds the loans it originates in its portfolio rather than selling them.
Posted prices:
The mortgage prices delivered by lenders to loan officers and mortgage brokers, as opposed to the final prices paid by borrowers.
Pre-approval:
A commitment by a lender to make a mortgage loan to a specified borrower, prior to the identification of a specific property.
Predatory lending:
A variety of unsavory lender practices designed to take advantage of unwary borrowers.
Prepayment:
A payment made by the borrower over and above the scheduled mortgage payment.
Prepayment penalty:
A charge imposed by the lender if the borrower pays off the loan early.
Pre-qualification:
The process of determining whether a prospective borrower has the ability, meaning sufficient assets and income, to repay a loan.
Qualification is sometimes referred to as “pre-qualification” because it is subject to verification of the information provided by the applicant.
Primary residence:
The house in which the borrower will live most of the time, as distinct from a second home or an investor property that will be rented.
Principal:
The portion of the monthly payment that is used to reduce the loan balance.
Private mortgage insurance:
Mortgage insurance provided by private mortgage insurance companies, or PMIs.
Processing:
Compiling and maintaining the file of information about a mortgage transaction, including the credit report, appraisal, verification of employment and assets, and so on.
Property flipping:
Successive sham home sales at progressively higher prices as part of a scheme to defraud FHA.
Purchase money mortgage:
This is also known as seller or owner financing.
Qualification:
The process of determining whether a prospective borrower has the ability, meaning sufficient assets and income, to repay a loan.
Qualification rate:
The interest rate used in calculating the initial mortgage payment in qualifying a borrower.
Qualification ratios:
Requirements stipulated by the lender that the ratio of housing expense to borrower income, and housing expense plus other debt service to borrower income, cannot exceed specified maximums.
Qualification requirements:
Standards imposed by lenders as conditions for granting loans, including maximum ratios of housing expense and total expense to income, maximum loan amounts, maximum loan-to-value ratios, and so on.
Rate caps:
Limitations on the size of rate adjustments on an ARM.
Rate/point breakeven:
The time period you must retain a mortgage in order for it to be profitable to pay points to reduce the rate.
Rate protection:
Protection for a borrower against the danger that rates will rise between the time the borrower applies for a loan and the time the loan closes.
Rate sheets:
Tables of interest rates and points that lenders distribute daily to their loan officer employees or mortgage brokers.
Refinance:
Paying off an old loan while simultaneously taking a new one.
Rent premium:
An increment above the rent paid on a lease-to-own home purchase, which is credited to the purchase price if the purchase option is exercised, but which is lost if the option is not exercised.
Required cash:
The total cash required of the home buyer to close the transaction
RESPA:
The Real Estate Settlement Procedures Act, a Federal consumer protection statute first enacted in 1974. RESPA was designed to protect home purchasers and owners shopping for settlement services by mandating certain disclosures, and prohibiting referral fees and kickbacks.
Retail lender:
A lender who offers mortgage loans directly to the public.
Reverse mortgage:
A loan to an elderly home owner on which the balance rises over time, and which is not repaid until the owner dies, sells the house, or moves out permanently.
Right of rescission:
The right of refinancing borrowers, under the Truth in Lending Act, to cancel the deal at no cost to themselves within 3 days of closing.
Scenario analysis:
Determining how the interest rate and payment on an ARM will change in response to specified future changes in market interest rates, called “scenarios”.
Scheduled mortgage payment:
The amount the borrower is obliged to pay each period.
Second mortgage:
Second mortgages provide a way for homeowners to access their equity and for home buyers to bridge the equity gap for their down payment.
Secure option ARM:
An option ARM on which the initial rate holds for 5 years rather than one month
Secondary markets:
Markets in which mortgages or mortgage-backed securities are bought and sold.
Self-employed borrower:
A borrower who must document income using tax returns rather than information provided by an employer.
Seller contribution:
A contribution to a borrower’s down payment or settlement costs made by a home seller, as an alternative to a price reduction.
Seller financing:
loan provided by the seller of a property or business to the purchaser.
Servicing:
Administering loans between the time of disbursement and the time the loan is fully paid off.
Servicing agent:
The party who services a loan, who may or may not be the lender who originated it.
Servicing release premium:
A payment made by the purchaser of a mortgage to the seller for the release of the servicing on the mortgage.
Servicing transfer:
When one servicing agent is replaced by another.
Settlement costs:
Costs that the borrower must pay at the time of closing, in addition to the down payment.
Short sale:
A short sale is a sales transaction in which the seller’s mortgage lender agrees to accept a payoff of less than the balance due on the loan.
Silent second:
In real estate, secondary mortgage placed on property that is not disclosed to the lender of the original loan.
Simple interest mortgage:
A mortgage on which interest is calculated daily based on the balance at the time of the last payment.
Simple interest biweekly mortgage:
A biweekly mortgage on which the biweekly payment is applied to the balance every two weeks, rather than held in an account as on a conventional biweekly.
Stated assets:
A documentation requirement where the borrower discloses her assets but they are not verified by the lender
Stated income:
A documentation requirement where the lender verifies the source of the income but not the amount.
Strategic default:
Default by a mortgage borrower who has the capacity to make the payments on his mortgage but elects not to because of negative equity — the loan balance is substantially larger than the house value.
Streamlined refinancing:
Refinancing that omits some of the standard risk control measures, and is therefore quicker and less costly.
Subordinate financing:
A second mortgage on the property which is not paid off when a new loan is taken out. The second mortgage lender must allow subordination of the second to the new first mortgage.
Subordination policy:
The policy of a second mortgage lender for allowing a borrower to refinance the first mortgage while leaving the second in place.
Sub-prime borrower:
A borrower with poor credit, who can borrow only from sub-prime lenders who specialize in dealing with borrowers who have poor credit. Such borrowers pay more than prime borrowers.
Sub-prime lender:
A lender who specializes in lending to sub-prime borrowers.
Sub-prime market:
The network of sub-prime lenders, mortgage brokers, warehouse lenders and investment bankers who make possible the delivery of loans to sub-prime borrowers.
Tax service fee:
A fee charged by some lenders at closing to cover the cost of paying taxes on the borrower’s property when they come due, or if the borrower is paying the taxes, verifying that the payment has been made.
Teaser rate:
The initial interest rate on an ARM, when it is below the fully indexed rate.
Temporary Buy-down:
A reduction in the mortgage payment in the early years of the loan in exchange for an upfront cash payment.
Temporary lender:
A lender that sells the loans it originates.
Tenure annuity:
An option available to borrowers under a Home Equity Conversion Mortgage to draw a fixed amount monthly for as long as they remain in their house.
Term:
The period used to calculate the monthly mortgage payment.
Title insurance:
Insurance against loss arising from problems connected to the title to property.
Total interest payments:
The sum of all interest payments to date or over the life of the loan.
Total expense ratio:
The ratio of housing expense plus current debt service payments to borrower income.
Truth in Lending:
The Federal law that specifies the information that must be provided to borrowers on different types of loans.
Underwriting:
The process of examining all the data about a borrower’s property and transaction to determine whether the mortgage applied for by the borrower should be issued.
Underwriting requirements:
The standards imposed by lenders in determining whether a borrower qualifies for a loan.
VA mortgage
A mortgage with no down payment requirement, available only to ex-servicemen and women as well as those on active duty, on which the lender is insured against loss by the Veterans Administration.
Waive escrows:
Authorization by the lender for the borrower to pay taxes and insurance directly.
Warehouse lender:
A firm that lends to temporary lenders against the collateral of closed mortgage loans prior to the sale of the loans in the secondary market. Warehouse lenders can call the loans if the loans “in the warehouse” drop in value.
Warrantable condos:
A condominium project with features that lenders view as protections against hazards that would threaten the value of condo units.
Wholesale lender:
A lender who provides loans through mortgage brokers or correspondents, whot initiates the transaction, takes the borrower’s application, and processes the loan.
Wholesale mortgage prices:
The interest rate and points quoted by wholesale lenders to mortgage brokers and correspondent lenders.
Workout assumption:
The assumption of a mortgage, with permission of the lender, from a borrower unable to continue making the payments.
Wrap-around mortgage:
also known as an all inclusive trust deed, is a creative way to allow you to purchase property without having to qualify for a loan or to pay closing costs.
Yield-Spread premium abuse:
The practice by mortgage brokers of pocketing a rebate from the lender for delivering a high-rate loan, without the knowledge of the borrower.
Yield Curve:
A graph that shows, at any given time, how the yield varies with the period to maturity.
3/2 Down-payment:
Programs offered by some lenders under which a borrower who is able to secure a grant or gift equal to 2% of the down payment will only have to provide a 3% down payment from their own funds.
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