Financing Flashcards
One who insures another or takes risks, such as by approving a loan.
Underwriter
One who originates, sells and services mortgage loans, and usually acts as the originator and servicer of loans on behalf of large investors, such as insurance companies, pension plans, or FNMA.
Mortgage Banker
Party who, for a fee, originates loans on behalf of lenders but does not service such loans.
Mortgage Broker
Any present right to acquire legal title to property.
Equitable Title
A mortgage that permits the lender to periodically adjust the interest rate so that the rate reflects fluctuations in the cost of money.
Adjustable-Rate (ARM) Mortgage
A contract clause that gives the lender the right to declare all outstanding payments immediately due upon a default by the borrower.
Acceleration Clause
A mortgage clause allowing the lender to demand the full and immediate payment of the mortgage because the owner transferred or pledged to transfer ownership of the property. Also called Due on Sale Clause.
Alienation Clause
Occurs when a loan balance decreases because of periodic installments paid on the principal and interest.
Amortization
The system of land ownership where anyone can own land.
Allodial System
A final lump-sum payment at the end of a loan term to pay off the entire remaining balance of principal and interest not covered by payments during the loan term.
Balloon Payment
Mortgage backed securities issued by GNMA, which are long-term, pay interest semi-annually, and provide for repayment at a specified date.
Bond-Type Securities
A mortgage loan that covers more than one parcel of real estate that is typically used to finance entire subdivision developments rather than an individual unit or lot.
Blanket Mortgage
Additional funds in the form of points paid to a lender at the beginning of a loan to lower the interest rate and monthly payments
Buydown
Loans that meet FNMA/FHLMC standards, and thus can be sold on the secondary market.
Conforming Loans
A method in which numerical values are assigned to different aspects of a borrower’s loan application and used by lenders to gauge creditworthiness and assess credit risk.
Credit Scoring
Property pledged as security for a debt.
Collateral
Financial institutions that are a type of cooperative organization where members share something in common (e.g. an employer), pool their deposits together, pay members better interest rates, and loan money to fellow members.
Credit Unions
Failure to fulfill an obligation, duty, or promise, as when borrower fails to make payments, tenant fails to pay rent, or party fails to perform a contract. Mortgage, note or other document will define what constitutes default.
Default
The difference between the stated amount of an obligation and the amount paid.
Discount
The interest rate charged by the Federal Reserve Banks on loans to member commercial banks.
Discount Rate
Potential gross income, less a figure for vacancy and collection losses.
Effective Gross Income
Mortgage clause which prohibits assignment by making the entire mortgage balance due when property is sold.
Due on Sale Clause
(15 USC §1691 et seq.) A federal law passed in 1974 that ensures that all consumers are given an equal chance to obtain and maintain credit. ECOA is implemented through Regulation B (12 CFR § 1002) and enforced by the Consumer Financial Protection Bureau.
Equal Credit Opportunity Act (ECOA)
The Federal Reserve’s target for short term interest rates.
Federal Funds Rate
Federal National Mortgage Association - The nation’s largest, and privately owned, investor in residential mortgages.
Fannie Mae
Banks that provide services to financial institutions, e.g. check clearing. (One main office in each Federal Reserve district.) All nationally chartered commercial banks must join Federal Reserve and buy stock in its district reserve bank.
Federal Reserve Banks
A federal agency established in 1934 to increase home ownership by providing an insurance program to safeguard the lender against the risk of non-payment. Currently part of the Department of Housing and Urban Development (HUD).
Federal Housing Administration (FHA)
The system of land ownership where a king or queen owns all of the land and all other people are merely tenants.
Feudal System
Program where a commitment is made by FHLMC to buy mortgages for 6-8 months, with delivery of mortgages at the option of seller.
Forward Commitment Purchase Program
The process used by a lienholder to force a property to be sold so that the proceeds of the sale can be applied toward debt satisfaction.
Foreclosure
A type of credit scoring, where a number from 400-850 is assigned to a credit report. The lower the score, the greater the risk of default. Above 660 is an acceptable risk, 620-660 is a marginal risk, below 620 is a high risk. Also referred to as Beacon Score.
FICO Score
The federal act of 1975(12 U.S.C. 2801 et seq.) requires many depository and non-depository lenders to collect and publicly disclose information about housing-related loans and applications for such loans, including several applicant/borrower demographic characteristics. It is implemented by the Consumer Financial Protection Bureau’s Regulation C (12 CFR Part 1003).
Home Mortgage Disclosure Act (HMDA)
Federal Home Loan Mortgage Corporation - (FHLMC) Nonprofit, federally chartered institution that functions as a buyer and seller of savings and loan residential mortgages.
Freddie Mac
A fixed-rate mortgage set up like a 30-year conventional loan, but payments increase regularly like an ARM. Also Rapidly Amortizing Mortgage.
Growth Equity (GEM) Mortgage
The government agency that deals with housing issues.
Department of Housing and Urban Development (HUD)
The relationship of a borrower’s total monthly housing expense to gross monthly income, expressed as a percentage (Total Housing Expense ÷ Income = Ratio%). Also called Income-to-Payment Ratio or Front-End Ratio.
Housing Expense Ratio
To make property security for a loan without giving up possession of it (as with a mortgage).
Hypothecate
Any mortgage that has a lower lien position than another mortgage.
Junior Mortgage
States where a mortgagee only holds a lien against property (not actual title) until the loan is repaid, and the mortgagor holds the actual title.
Lien Theory States
The form lenders require potential borrowers to fill out, listing all pertinent information about the borrower and property.
Loan Application
The amount of money borrowed compared to the value (or price) of the property.
Loan-to-Value Ratio (LTV)
A security instrument that creates a voluntary lien on real property to secure repayment of a debt.
Mortgage
Promissory note or other finance instrument that is freely transferable.
Negotiable Instrument
When the Federal Reserve Board sells or buys government securities (or U.S. dollars) as a means of controlling supply and demand and confidence in those items.
Open Market Operations
A loan containing a clause that allows the mortgagor to borrow additional money without rewriting the mortgage.
Open-End Mortgage
Fee charged by lender to cover the administrative costs of making a loan, usually based on a percentage of the loan amount (where 1% = 1 point). Also called: Loan Service Fee
Origination Fee
The government entity that regulates savings and loans in the same manner that the Federal Reserve regulates commercial banks.
Office of Thrift Supervision (OTS)
A mortgage where personal property (e.g., appliances) is included in a real estate sale and financed with one contract.
Package Mortgage
One percent of the loan amount. May be charged for any reason, but are often used for buydowns (where they may also be called Discount ________). Used to increase the lender’s yield on a loan.
Points
Additional money charged by a lender for the borrower paying a loan off early. Not permitted for FHA-insured loans or VA-guaranteed loans.
Prepayment Penalty
A financial domain in which various entities-including banks and other financial institutions-produce and issue new securities, such as stocks, bonds, and mortgage loans.
Primary Market
The short-term interest rate a bank charges its most creditworthy customers.
Prime Rate
Insurance offered by private companies to insure a lender against default on a loan by a borrower.
Private Mortgage Insurance (PMI)
A financing instrument that evidences a promise to pay a specific amount of money to a specific person within a specific time frame. A written, legally binding promise to repay a debt.
Promissory Note
Generally describes a mortgage used to finance the purchase of real property; may specifically refer to a situation where the seller finances all or part of the sale price of real property for the buyer.
Purchase Money Mortgage
A real estate investment business with at least 100 investors, organized as a trust.
Real Estate Investment Trust (REIT)
An agency formed to manage the disposition of bankrupt savings and loans.
Resolution Trust Corporation (RTC)
The income a borrower has left after subtracting taxes, housing expense, and all recurring debts and obligations (used for VA loan qualifying). Also called the cash flow analysis method.
Residual Income
The act of filing a document at the county recorder’s office so it will be placed in the public record.
Recording
Private investors and gov’t agencies that buy and sell mortgages.
Secondary Markets
The process of collecting loan payments, keeping records and handling defaults.
Servicing
When a homeowner over age 62 with little or no outstanding liens, mortgages their home to a lender and in return receives a monthly check.
Reverse Annuity Mortgage
A note that calls for payments of interest only during the term of the note, with a balloon payment at the end of the loan term to pay off the principal amount.
Straight Note
Loans that have more risks than are allowed in the conforming market. Also called B-C Loans or B-C Credit.
Sub-Prime Loans
A loan when buyer and another investor (or seller, lender, etc.) enter into a partnership, with buyer paying an equity share in a deal in lieu of interest. Also called: Participation Plan
Shared Equity Loan
Act that requires lenders to disclose consumer credit costs in order to promote informed use of consumer credit.
Truth-in-Lending Act
Charging an interest rate that exceeds legal limits.
Usury
A contract clause that gives a mortgage recorded at a later date the right to take priority over an earlier recorded mortgage.
Subordination Clause
Principal, Interest, Taxes, Insurance
PITI
Mortgage that allows the borrower to make smaller payments in early years of the mortgage, with payments increasing yearly until payments are high enough that they’ll fully amortize the loan.
Graduated Payment Mortgage
The interest earned by an investor on the investment
Yield
