Amortization – The gradual reduction of a debt by means of periodic payments
sufficient to pay principal and interest and thereby liquidate the debt. (back
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APR (Annual Percentage Rate) – Represents the percentage relationship of the
total finance charge to the amount of the loan. Important in preparing the
Federal Truth in Lending Disclosure Statement. (back
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Appraisal – A report made by a qualified person setting forth an opinion or
estimate of value. The term also refers to the process by which this estimate is
obtained. (back to top
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Cap – A provision of an adjustable rate mortgage (ARM) limiting how much the
interest rate or mortgage payments may increase or decrease. (back
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Closing – The conclusion or consummation of a transaction. In real estate,
closing includes the delivery of a deed, financial adjustments, the signing of
loan documents, and the disbursement of funds necessary to the sale or loan
transaction. (back to top
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Closing Costs – Money paid by any party to the transaction to affect the closing
of a mortgage loan. Does not include prepaid expenses, but does normally include
an origination fee, title insurance, survey, attorney’s fees, etc. (back
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Collateral – Property pledged as security for a debt, such as the real estate
securing a mortgage. (back to top
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Contract – An agreement between one or more parties to do a particular lawful
thing. (back to top
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Conventional Loan – A mortgage loan not insured by FHA nor guaranteed by VA.
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Co-signer – One who agrees to assume the debt obligation if the principal
borrower should default on mortgage payments. A co-signer assumes only personal
liability and has no ownership interest in the property. His or her income and
obligations are used in the underwriting process to reinforce the credit of the
principal applicant, but they are not given equal weight with those of the
principal applicant. They serve as compensating factors only. (back
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Credit Report – A report to a prospective lender on the credit standing of a
prospective applicant, used to help determine creditworthiness. (back
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Discount Point – One discount point is an amount equal to one percent of the
principal amount of a loan, or an investment or note. Loan discount points are a
one-time charge assessed at closing by the lender to increase the yield on the
mortgage loan to a competitive position with other types of investments. (back
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ECOA (Equal Credit Opportunity Act) – ECOA is 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. (back
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Escrow Payment – The portion of a monthly mortgage payment held by the lender to
pay for taxes, hazard insurance, mortgage insurance, lease payments and other
items as they are due. Known as impounds or reserves in some states. (back
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Fair Market Value – The price at which property is transferred between a willing
buyer and a willing seller, each of whom has a reasonable knowledge of all
pertinent facts and neither being under any obligation to buy or sell. (back
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Federal Home Loan Mortgage Corporation, (FHLMC), “Freddie Mac” – A private
corporation authorized by Congress. Freddie Mac sells participation sales
certificates secured by pools of conventional mortgage loans, their principal
and interest guaranteed by the Federal Government through the FHLMC. It also
sells Government National Mortgage Association bonds to raise funds to finance
the purchase of mortgages. (back to top
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Federal Housing Administration (FHA) – A division of the Department of Housing
and Urban Development. Its main activity is the insuring of residential mortgage
loans made by private lenders. It sets standards for construction and
underwriting. FHA does not lend money, nor plan nor construct housing. (back
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Federal National Mortgage Association (FNMA), “Fannie Mae” – A tax paying
corporation created by Congress to support the secondary mortgage market. It
purchases and sells residential mortgages insured by FHA or guaranteed by VA, as
well as conventional home mortgages. (back
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Flood Insurance – Insurance to indemnify against loss by flood damage. Required
by lenders in areas designated (federally) as potential flood areas. The
insurance is private, but federally subsidized in participating communities. (back
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Good Faith Estimate – An itemized estimate of the costs to settle (or close) the
loan. (back to top
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Government National Mortgage Association (GNMA), “Ginnie Mae” – On September 1,
1968, Congress enacted legislation to portion FNMA into two continuing corporate
entities. GNMA has assumed responsibility for the special assistance loan
program and the management and liquidation function in the older FNMA. Also,
GNMA administers the mortgage-backed securities program which channels new
sources of funds into residential financing through the sale of privately issued
securities carrying a GNMA guaranty. (back
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Homeowner’s (Hazard) Insurance –
Insurance carried by the homeowner to protect
the dwelling against fire and other hazards. (back
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Homeowners Association – An organization of homeowners residing within a
particular development whose major purpose is to maintain community facilities
and services for the common enjoyment of the residents. (back
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Homestead (Exemption) – The dwelling of the head of a family. Some states grant
statutory exemptions, protecting homestead property against the rights of
creditors. Property tax exemptions are also available in some states. Statutory
requirements to establish a homestead may include a formal declaration to be
recorded. (back to top
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HUD-1 – See Settlement Statement. (back
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Interest – Consideration in the form of money paid for the use of money, usually
expressed as an annual percentage. Also, a right, share or title in the
property. (back to top
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Inter Vivos Revocable Trust – (Also referred to as a “living trust”). A trust
that an individual creates during his or her lifetime that becomes effective
during his or her lifetime, but which can be changed or canceled at any time and
for any reason during its creator’s lifetime. Use of this trust is only
permitted in some states. (back to top
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Joint Tenancy – An equal undivided ownership of property by two or more persons,
the survivors to take the interest upon the death of any of the others. (back
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Lien – A legal hold or claim of one person on the property of another as
security for a debt or charge. The right given by law to satisfy debt. (back
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Life of Loan – Contract term in years of a mortgage.
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Margin – The set percentage the lender adds to the index value to determine the
interest rate of an ARM. (back to top
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Mortgage – A conveyance of an interest in real property given as security for
the payment of a debt. In its simplest form, a mortgage permits foreclosure if
the debt is not paid. Should a foreclosure occur, the property is then sold,
usually by an officer of the court, to satisfy the debt. (back to top
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Mortgage Banker – A firm or individual active in the field of mortgage banking.
Mortgage bankers, as local representatives of regional or national institutional
leaders, act as correspondents between lenders and borrowers. More and more
frequently, though, mortgage bankers are, themselves, becoming institutional
lenders, holding mortgages in their own portfolios as the basis for
mortgage-backed securities that they issue. (back to top
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Mortgage Broker – An individual or company that, for a fee, acts as intermediary
between borrowers and lenders. (back to top
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Mortgage Insurance – Insurance, for which a premium is paid, that protects the
lender against loss if the borrower should default on the mortgage payments and
foreclosure of the mortgage should become necessary. Mortgage Insurance issued
by private mortgage insurance (PMI) companies typically covers a specific dollar
amount or percentage of the debt adequate to protect the lender. (back to top
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Mortgage Note – A written promise to pay a sum of money at a stated interest
rate during a specified term. It is secured by a mortgage. (back to top
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PITI (Principal, Interest, Taxes and Insurance) – The principal and interest
payment on most loans is fixed for the term of the loan; the tax and insurance
portions may be adjusted to reflect changes in taxes or insurance costs. (back to top
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Preliminary Title Report – A title search by a title company before issuance of
a title binder or commitment to insure. (back to top
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Processing – The preparation of a mortgage loan application and supporting
documents for consideration by a lender or insurer. (back to top
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RESPA (Real Estate Settlement Procedures Act) – RESPA is a federal law that
requires lenders to provide home mortgage borrowers with information of known or
estimated settlement costs. RESPA also limits the amount lenders may require to
be held in an escrow account for real estate taxes and the insurance, requires
the disclosure of known settlement costs to both buyers and sellers by the
person conducting the settlement and outlaws certain referral fees. (back to top
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Sales Contract – A deliberate written agreement between competent parties
stating terms and conditions of a sale. (back to top
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Servicing – The duties of the mortgage banker as a loan correspondent, as
specified in the servicing agreement for which a fee is received. The collection
for an investor of payments, interest, principal and trust items such as hazard
insurance and taxes, on a note by the borrower in accordance with the terms of
the note. Servicing also consists of operational procedures covering accounting,
bookkeeping, insurance, tax records, loan payment follow-up, delinquency loan
follow-up and loan analysis. (back to top
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Settlement Statement (HUD-1) – A statement showing the full details of the loan
closing, including costs paid by both the buyer and the seller and detailed
breakdown of the manner in which the loan proceeds were distributed. The Real
Estate Settlement Procedures Act (RESPA) requires that this standardized form be
used in all loan closings involving purchase money first mortgages. For
practical purposes, the form must be used with all purchase money first mortgage
loan closings and may be used in other transactions, such as second mortgages,
refinancing transactions, etc. (back to top
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Tenancy – A holding of real estate under any kind of right of title. Used alone,
tenancy implies a holding under a lease. (back to top
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Tenancy by Entirety – The joint ownership of property by a husband and wife
where both are viewed as one person under common law that provides for the right
of survivorship. (back to top
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Tenancy in Common – In law, the type of tenancy or estate created when real or
personal property is granted, devised or bequeathed to two or more persons, in
the absence of express words creating a joint tenancy. There is no right of
survivorship. (See joint tenancy.) (back to top
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Title – The evidence of the right to or ownership in property. In the case of
real estate, the documentary evidence of ownership is the title deed that
specifies in whom the legal estate is vested and the history of ownership and
transfers. Title may be acquired through purchase, inheritance, devise or
through foreclosure of a mortgage. (back to top
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Title Insurance – A contract by which the insurer, usually a title insurance
company, agrees to pay the insured a specific amount for any loss caused by
defects of title to real estate, wherein the insured has an interest as
purchaser, mortgagee or otherwise. (back to top
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Title Search – An examination of public records, laws and court decisions to
disclose the past and current facts regarding ownership of real estate. (back to top
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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. (back to top
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Underwriting – The analysis of risk and the matching of it to an appropriate
rate and term. Underwriting involves an analysis of the property, as revealed in
the appraisal report, as acceptable and adequate security for the loan and of
the loan. Risk may also be affected by other factors, such as loan-to-value
ratios, the presence or absence of mortgage insurance, etc. (back to top
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