General Terms & Definitions

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. 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. 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

Purchase money mortgage

Answer 14

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 15

Qualifying ratios

Answer 15

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 16

Reconveyance

Answer 16

a clause in a mortgage that conveys title to a borrower once the loan is paid in full. This concept also applies to reconveyance contracts where homeowners have the option to repurchase their home pursuant to foreclosure assistance.

Question 17

Refinance

Answer 17

obtaining a new mortgage loan on a property already owned

Question 18

Revolving debt

Answer 18

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. Credit cards are a common form of revolving credit.

Question 19

Subordinate lien

Answer 19

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. 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 20

Subprime

Answer 20

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

Question 21

Table funding

Answer 21

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 22

Underwriting

Answer 22

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.