General Terms

Question 1

Assigned loan:

Answer 1

a loan that is assigned means the debt, and all of the rights and obligations that accompany it, are transferred from a creditor to a third party.

Question 2

Assumable loan:

Answer 2

a type of financing arrangement that allows for the outstanding mortgage loan and its terms to be transferred from the current owner to a buyer.

note: The buyer takes on the current (now previous) owner’s remaining debt, avoiding the need to obtain his or her own mortgage loan.

Question 3

Conforming loan:

Answer 3

a loan that meets the lending limits and other criteria established by Fannie Mae or Freddie Mac.

Question 4

Consumer credit:

Answer 4

credit that is offered or extended to a consumer primarily for personal, family, or household purposes.

Question 5

Conventional loan:

Answer 5

a mortgage that is not made under any federal program (i.e. not insured by the FHA or guaranteed by the VA or the USDA).

Question 6

Conveyance:

Answer 6

the transfer of ownership interest in real property from one person to another.

Question 7

Delinquent:

Answer 7

a situation in which a borrower is late or past due on a payment.

note: Delinquency is distinct from default in that delinquency occurs immediately upon the borrower missing a payment. Default occurs when the borrower fails to repay the loan according to the contract. Typically, borrowers are delinquent for a period of time before the delinquency is declared to be a default.

Question 8

Early payment default:

Answer 8

a mortgage loan that becomes seriously delinquent or goes into default within its first year.

Question 9

Mortgage investor:

Answer 9

a person that purchases mortgage loans or packages of mortgage loans and sets guidelines for how the loans that are purchased should be underwritten.

Question 10

Mortgage lender:

Answer 10

a person that lends its own funds to borrowers for the purpose of purchasing a home.

Question 11

Payment shock:

Answer 11

occurs when a loan’s scheduled future periodic payments increase substantially, often presenting severe financial risk or difficulty to the consumer.

Question 12

PITI:

Answer 12

principal, interest, taxes, and insurance are the monthly housing expenses that a lender calculates in order to determine a borrower’s housing expense ratio.

Question 13

Prepaids:

Answer 13

amounts that the consumer pays in advance of initial scheduled payments.

Question 14

Primary market:

Answer 14

the “front line” of the mortgage industry, where consumers apply for and obtain mortgage loans.

Question 15

Purchase money mortgage:

Answer 15

a mortgage loan obtained by a borrower for the purchase of a residential property in which the property is the collateral for the loan.

Question 16

Qualifying ratios:

Answer 16

investor-specific calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense ratio and total debt ratio.

Question 17

Reconveyance:

Answer 17

a clause in a mortgage that conveys title to a borrower once the loan is paid in full.

note: This concept also applies to reconveyance contracts where homeowners have the option to repurchase their home pursuant to foreclosure assistance.

Question 18

Refinance:

Answer 18

obtaining a new mortgage loan on a property already owned.

Question 19

Revolving debt:

Answer 19

a type of credit arrangement in which a consumer is pre-approved for a line of credit and he/she may make purchases against that credit.

note: Credit cards are a common form of revolving credit.

Question 20

Secondary market:

Answer 20

the environment in which existing mortgages are sold by lenders to investors, creating a source of continued financing for lenders to make more loans.

Question 21

Subordinate lien:

Answer 21

a lien on property that is junior, or subsequent, to another lien, or liens based on the order of recordation or by agreement among the lenders.

note: In the event of foreclosure, subordinate financing does not receive funds until prior liens are paid. Subordinate liens are also referred to as subordinate financing, junior liens, and junior financing

Question 22

Subprime:

Answer 22

below the qualifications set for prime borrowers. Loans for borrowers who have poor credit, an unstable income history, or high debt ratios.

Question 23

Table funding:

Answer 23

in transactions that involve table funding, mortgage bankers and brokers may close loans in their own names, so that the note and security agreement show them as the lender, but immediately (generally within 24 hours) assign the loan to the creditor that actually funded the loan.

Question 24

Third-party provider:

Answer 24

a provider of loan-related services, such as appraisal, title services, etc.

Question 25

Underwriting:

Answer 25

the process of evaluating a loan applicant’s financial information and facts about the real estate used to secure a loan to determine whether a potential loan is an acceptable risk (and on what terms) for a lender.