Glossary Flashcards
vocab
abusive act
action that materially interferes with a consumer’s ability to understand the product or service
acceleration clause
clause that gives a lender the right to declare the entire loan balance due immediately because of borrower default or for violation of other contract provisions
accrued expenses
items on a settlement statement for which the cost has been incurred, but the expense has not yet been paid
acquisition cost
the total amount needed to purchase property, including down payment, loan amount, and any allowable buyer-paid closing costs
adjustable rate mortgage (ARM)
a mortgage that permits the lender to periodically adjust the interest rate to reflect fluctuations in the cost of money
adverse action
the denial of credit or an increased charge for credit based on information obtained from a third party
advertisement
a commercial message in any medium that promotes, directly or indirectly, a credit transaction
alienation clause
in a contract, gives the lender certain stated rights when there is a transfer of ownership in a property (also called “due on sale clause”
alt-a loan
a type of loan in which the risk is greater than prime, but less than subprime. The borrower may have a strong credit history, but the mortgage may have elements that increase risk. Risk issues could include higher loan-to-value and debt-to-income ratios, or lack of documentation about the borrower’s income.
Amortization
Reduction of the loan balance by paying back, on a regular basis, some of the principal owed.
Application
Submission of a borrowers financial information in anticipation of a credit decision.
ALIENS = address, loan amount, income, estimate of property value, name, SSN
Appraisal
A professional estimate or opinion of the value of a piece of property (parcel of land), as of a certain date, that’s supported by objective data.
Appraisal Management Company
A business entity that (for a management fee) administers a network of certified and licensed appraisers to fulfill real estate appraisal assignments on behalf of mortgage lending institutions.
Appraiser
A person who estimates the value of property, especially a licensed expert qualified to do so by education and experience.
Assets
Items of value
Assumption
An action in which one party agrees to take over payments of another party’s debts, with terms of the note staying unchanged.
Average Prime Offer Rate (APOR)
An annual percentage rate derived from average interest rates, points, and other loan pricing terms that are currently offered to consumers by a representative sample of lenders for mortgage transactions that have low-risk pricing characteristics.
Balloon Payment
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.
Bankruptcy
A court process that cancels debt and provides some relief for creditors
Bankruptcy; Chapter 7
Sometimes called a straight bankruptcy, it is a liquidation proceeding
Bankruptcy; Chapter 13
Sometimes called a reorganization proceeding, is filed by individuals who want to pay off their debts over a period of 3-5 years.
Bi-Weekly Payment Plan
Plan in which payments are made every two weeks instead of once a month.
Bona Fide Offer
An offer made in good faith with no element of fraud.
Boot
Money and like-kind property exchanged in a transaction; term frequently expressed concerning IRS Section 1031 exchanges.
Buydown, Permanent
The payment of points by a borrower to a lender to reduce the interest rate and loan payments for the entire life of the loan.
Buydown, Temporary
The payment of points by a borrower to a lender to reduce the interest rate and payments early in a loan, with interest rates and payments rising later. ETC ETC ETC
Chain of Title
A clear and unbroken chronological record of the ownership of a specific piece of property.
Closing
The final stage in a real estate transaction where ownership of real property is transferred from seller to buyer according to the terms and conditions set forth in a sales contract or escrow agreement.
Closing
Loan Consummation or Settlement
Closing Costs
Expenses incurred in the transfer of real estate in addition to the purchase price (ex: the appraisal fee, title insurance premiums, broker’s commission, transfer tax).
Cloud on the Title
A claim, encumbrance, or defect that makes the title to real property unmarketable.
Collateral
Property pledged as security for a debt.
Conforming Loan
A loan that meets the criteria necessary to be sold in the secondary market.
Consumer
Individual who obtains, or has obtained, a financial product or service from a financial institution for personal, family, or household reasons.
Consumer Financial Protection Bureau (CFPB)
Independent agency funded by the Federal Reserve with rulemaking and enforcement authority over many consumer financial laws. Established under Title X of the Dodd-Frank Act.
Conventional Loan
A loan usually made by a bank or institution lender that is not insured or guaranteed by a government entity or agency (ex: FHA, VA)
Conversion Option
An ARM option that gives the borrower the right to convert from an adjustable rate loan to a fixed-rate loan.
Correspondent
A mortgage banker who originates mortgage loans that are sold to other mortgage bankers or financial institutions.
Cost of Funds Index (COFI)
A regional average of interest expenses incurred by financial institutions, which in turn is used as a base for calculating variable rate loans.
Credit
Sum of money to be received.
Credit Freeze
Places a credit file “on ice” by preventing the information from being reported to third parties, such as credit grantors and other companies. ETC ETC ETC
Credit History
A person’s record of debt repayment, often used as a guide to whether he or she is likely to pay accounts on time in the future.
Credit Scoring
A means by which the lender makes certain determinations regarding the creditworthiness of potential borrowers. This involves a lender assigning specified numerical values to different aspects relating to a borrower.
Customer
Consumer with a continuing, significant relationship with a financial institution.
Debit
Sum of money that is owned
Debt
Any recurring monetary obligation that will not be cancelled.
Debt-to-Income Ratio (DTI)
The relationship of a borrower’s total monthly debt obligations to income, expressed as a percentage.Total debt / income = ratio. Also known as “back-end”.
Deed of Trust
A security instrustment placing into the hands of a disinterested third party a specific financial interest in the title to real property as security for the payment of a note.
Defeasance Clause
A clause in a legal document that states that in the event a stated condition has been fulfilled, the document becomes null and void
Demand Clause
Any provision that enables a creditor to call a loan due before maturity.
Demand Deposit
Money that is immediately accessible by a customer, who may elect to withdraw it from the bank at any time.
Depository Institution
Any bank or savings association and includes any credit union.
Discount Points
A form of pre-paid interest that is charged by a lender to increase the yield on a lower-than-market interest rate loan; one point equals one percent of the loan amount.
Disintermediation
The loss of deposits to competing investments that offer higher returns
Disparate Impact
A law that may be neutral on its face, but has a discriminatory effect since it has a greater adverse impact on one group than on others
Dodd-Frank Wall Street Reform and Consumer Protection Act
A federal law with the purpose to promote the financial stability of the US by improving accountability and transparency in the financial system. It establishes the Consumer Financial Protection Bureau and new standards concerning a wide range of mortgage lending practices, including compensation of mortgage originators, federal mortgage disclosures, and mortgage servicing.
Dower or Curtesy Right
Interest in the real estate of a deceased spouse given by law to the surviving partner.
Down Payment
The amount a buyer pays to obtain a property in addition to the money that the buyer borrows.
Dual Tracking
The term used when servicers move forward on a foreclosure at the same time the mortgage servicer is working with a borrower on a workout plan.
Dwelling
A residential structure or mobile home, which contains one-to-four family housing units, or individual units of condominiums or cooperatives.
Easement
The non-ownership right acquired by a person to use the land of another for a specific purpose. It is irrevocable and creates an interest in the property.
Encumbrance
Any claim, lein, charge, or liability that affects or limits the fee simple title to real property.
Entitlement
A veteran’s maximum guaranty amount for a loan guarantee by the VA.
Equitable Title
Substitute title so they don’t have to use real paper title
Equity Exchange
Condition in which value in one property is traded for value in another property. Also called a tax-deferred exchange, tax-free exchange, like-kind exchange, or Section 1031.
Exclusionary Zoning Laws
Laws that have the effect of denying housing to minorities or other protected classes.
Federal Deposit Insurance Corporation (FDIC)
A public corporation, established in 1933, that insures up to $250,000 for each depositor for most member commercial banks and S & Ls. Has its own reserves and can also borrow from the US Treasury.
Federal Home Loan Mortgage Corporation (Freddie Mac)
A nonprofit, federally-chartered institution (now privately owned) that functions as buyer and seller of residential mortgages.
Federal Housing Finance Agency (FHFA)
Gov agency that merged the powers and regulatory authority of the Federal Housing Finance Board (FHFB) and the Office of Federal Housing Enterprise Oversight (OFHEO), as well as the GSE mission office at the Department of Housing and Urban Development (HUD); the conservator of Fannie Mae and Freddie Mac.
Federal National Mortgage Association (Fannie Mae)
The nation’s largest, privately owned investor in residential mortgages.
Finance Charge
The cost of a consumer credit as a dollar amount
First Mortgage
A security instrument with a first lein position
Force- Placed Insurance
Type of insurance that covers the lender’s interest in the home.
Foreclosure, Judicial
A lawsuit filed by a lender or other creditor to foreclose on a mortgage or other lein; a court-ordered sheriff’s sale of the property to repay the debt.
Foreclosure, Non-Judicial
Foreclosure by a trustee under the power of a sale clause in a deed of trust, without the involvement of a court. (Not used in some states).
Fraud Alert
Condition attached to a credit report the requires lenders to take extra precautions (ex: contact by phone) to verify that the identity of the party seeking to establish the credit account is actually the individual who wants the new account.
Fully Indexed Rate
In an adjustable rate mortgage, the fully indexed rate is the sum of the current numerical value of the index value used and the margin, as defined in the note.
Government National Mortgage Association (Ginnie Mae)
Gov-owned corporation that guarantees payment of principal and interest to investors who buy its mortgage-backed securities on the secondary market
Government-Sponsored Enterprise (GSE)
A group of financial services corporations created by the US Congress to enhance the flow of credit to targeted sectors of the economy and to make those segments more efficient and transparent.
Hazard Insurance
Coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards.
High Cost Loans
Under the Dodd-Frank Act, HOEPA protections are triggered where a loan’s APR exceeds the average prime offer rate by 6.5% points for most first-lein mortgages and 8.5% points for subordinate lien mortgages; where a loan’s points and fees exceed 5% of the total transaction amount, or a higher threshold for loans below $20,000; or where the creditor may charge a prepayment penalty more than 36 months after loan consummation or account opening, or penalties that exceed more than 2% of the amount prepaid.
Higher-Priced Loan
A loan where the APR of the mortgage loan exceeds the average prime offer rate by 1.5% for a conventional first lein mortgage, 2.5% for a “jumbo” loan, or 3.5% for a subordinate-lein mortgage.
Home Equity Loan
A loan secured by a mortgage on one’s principal residence; generally requires a balloon payment.
Home Equity Line of Credit (HELOC)
An open-end home equity loan in which borrowers are granted a specific credit limit from which to draw and repay principal only as it is used.
Housing Expense Ratio
The relationship of a borrower’s total monthly housing expense to income, expressed as a percentage (Total Housing Expense / Income = Ratio %). Also called Front-End Ratio.
Hybrid Mortgage (ARM)
Mortgage with a combination of fixed and adjustable rates.
Hypothecate
Condition in which a debtor pledges personal or real property as security for a debt, typically without giving up possession of it.
Identity Theft
Condition when someone uses another person’s identity on a loan application without the knowledge of the rightful property owner.
Immediate Family Member
A spouse, child, sibling, parent, grandparent, or grandchild, including those who are “step” and adoptive relatives.
Individual
A natural person.
Junior Lein
Any lein that is a lower priority than another lein.
Land Contract
A real estate installment agreement in which the buyer makes payments to the seller in exchange for the right to occupy and use the property, but no deed or title is transferred until all, or a specified portion, of the payments have been made.
Lease
a contract where one party pays the other rent in exchange for possession of real estate.
Lease/Option
Contract in which a seller leases property to someone for a specific term, with the tenant agreeing to buy the property at a set price during or following the lease term.
Lease/Purchase
Contract in which a seller leases property to someone for a specific term, with the tenant agreeing to buy the property at a set price during or following the lease term.
Legal Title
Ownership of real property that is enforceable by law.
Liabilities
Financial obligations owed by a borrower.
Lien
A non-possessory interest in property, giving a lienholder the right to foreclose if the owner does not pay a debt owed the lienholder.
Lien Position
The order in which liens are paid off out of the proceeds of a foreclosure sale.
Lis Pendens
A notice of a pending legal action.
Loan Inquiry
A consumer oral or written discussion about a mortgage loan’s rates, terms, or other characteristics.
Loan Processor
An individual who performs clerical or support duties as an employee at the direction of and subject to the supervision and instruction of a person licensed, or exempt from licensing under state mortgage licensing laws.
Loan-to-Value (LTV)
The relationship between the unpaid principal amount of the mortgage and the appraised value ( or sale price, if it is lower) of the property
Loan Workout
Establishment of new payment terms that are mutually agreed upon between the lender and delinquent borrower to get payments back on schedule.
Marketable Title
A title that is free and clear from undisclosed encumbrances or other defects that would expose a purchaser’s ability to enjoy the property or to later sell the property easily.
Money Laundering
The process of concealing illicit sources of money to make it appear to be legitimate money.
Mortgage
An instrument that creates a voluntary lien on real property to secure repayment of a debt. The parties to it are a mortgagor (borrower) and mortgagee (lender).
Mortgage-Backed Security (MBS)
A Fannie Mae security that represents an undivided interest in a group of mortgages. Principal and interest payments from the individual mortgage loans are grouped and paid out to the MBS holders.
Mortgage Banker
Party 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 Fannie Mae.
Mortgage Broker
Party who, for a fee, places loans with investors, but typically does not service such loans.
Mortgage Loan Originator (MLO)
As defined by the SAFE Act, an individual who either takes a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan for compensation or gain.
Mortgage Servicer
When a mortgage escrow account is established, the entity that collects monthly mortgage payments; pays taxes, insurance, and other items as they come due; and notifies the borrower of late payments.
Mortgage Servicing
The ongoing relationship between a borrower and the entity that accepts the borrower’s payments, pays taxes and insurance (if escrowed), and is the entity that the borrower works with in the event of loan default.
Negative Amortization
Payments that do not fully pay the interest due on a loan and that cause an increase in the borrower’s total principal debt.
Nontraditional Mortgage Product
Defined by the SAFE Act as any mortgage product other than a 30-year fixed-rate mortgage; as defined by the Interagency Guidance on Nontraditional Mortgage Product Risk, allows a borrower to defer principal and, sometimes, interest.
Option
A contract giving one party the right to do something within a designated time period, without obligation to do so.
Payment Shock
Any significant increase in monthly liability that heightens the risk of loan default.
Periodic/Prepaid Interest
The charge a lender makes for the use of the asset (mortgage loan) from the day of funding to the beginning of the next month. Expressed as a dollar charge per day (per diem).
Person
Refers to any of the following: Natural person, corporation, company, Limited Liability Company, partnership, or association.
PITI
A typical mortgage payment that includes Principal, Interest, Taxes, and Insurance.
Point
One percent of the loan amount. A fee charged by a lender for making a loan, calculated based on the loan amount.
Power of Sale Clause
A clause that allows the trustee to sell trust deed property, without court supervision, when terms of the trust deed are not kept.
Pre-Approval
The process by which a lender determines that potential borrowers can be financed through the lender for a certain amount of money.
Prepaid Expenses
The items on a Closing Disclosure the seller has already paid.
Prepayment Clause
In a contract, give the lender the right to charge the borrower a penalty for paying off the loan early, such as when refinancing a loan.
Pre-Qualification
The process by which an agent or lender reviews potential borrowers to determine if they are likely to get approved for a loan, and for approximately what amount.
Primary Mortgage Market
When lenders make mortgage loans directly to borrowers.
Private Mortgage Insurance (PMI)
Insurance offered by private companies to ensure a lender against default on a loan by a borrower, when there is a loss of value in the repossessed collateral value.
Promissory Note
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.
Proration
The division of expenses between buyer and seller in proportion to the actual usage of the item.
Qualifying Ratios
Guidelines applied by lenders to determine how large a loan to grant a homebuyer.
Rate Lock Agreement (Lock-In Agreement)
A written or electronically transmitted agreement between a mortgage banker or exempt organization and an applicant for a mortgage loan which, subject to the terms set forth in the agreement, obligates the mortgage banker or exempt organization to make a mortgage loan at a specified rate and a specific number of points, if any.
Reconveyance Clause (Partial Release/Satisfaction)
A clause in a contract that obligates a creditor to release of the property from the lien and convey title of that part back to the debtor once certain provisions of the note or mortgage have been satisfied.
Referral
Any oral or written action directed to a person, which has the effect of affirmatively influencing the selection of a settlement service or business provider.
Registered Loan Originator
A natural person who is employed by a depository institution that is regulated by a federal banking agency and is exempt from state licensing regulation who works with a prospective borrower to gather information, assist with completing applications, and otherwise making or initiating a new loan.
Release
A document in which a legal right is given up.
Rescind
Take back or withdraw an offer or contract.
Reserves
Cash on deposits or other highly liquid assets a borrower must have in order to cover 2 months of PITI mortgage payment and pays all closing costs.
Residential Mortgage
A mortgage, loan, or other evidence of a security interest created with respect to a single-family dwelling that is the primary residence of the borrower.
Residential Mortgage Loan
Any loan primarily for person, family, or household use that is secured by a mortgage, deed, or trust, or other equivalent consensual security interest on a dwelling or residential real estate upon which is constructed or intended to be constructed a dwelling.
Residential Real Estate
Any real property located in the state upon which is constructed or intended to be constructed a dwelling (as defined under TILA)
Residual Income
The amount of a borrower’s income remaining after subtracting taxes, housing expenses, and all recurring debts and obligations.
Reverse Mortgage (Also can be called a reverse equity mortgage or reverse annuity mortgage)
A vehicle for a borrow who has substantial equity in a property to convert that accumulated equity in a property to convert that accumulated equity –at a cost– to cash and additional debt without selling the property and without making payments to the lender. With a typical “one”, the balance of the loan rises as the borrower receives money from the lender and incurs interest to the outstanding loan balance. Most popular program is the HECM.
Secondary Financing
When a buyer borrows money from another source to pay part of the purchase price or closing costs.
Secondary Mortgage Markets
The private investors and government agencies that buy and sell real estate mortgages.
Securitization
Act of pooling mortgages and then selling them as mortgage-backed securities.
Senior Lien
Any lien that has a higher position than another lien.
Service Release Premium (SRP)
The payment received by a lending institution, such as a bank or retail mortgage lender, on the sale of the right to service a closed mortgage loan.
Servicing
The process of collecting payments, keeping records, and handling defaults for loans.
Settlement Agent (Closing Officer, Closing Agent, Escrow Agent, or Title Agent)
The person charged with coordinating the activities and documentation necessary for completing a real estate transaction; usually the one who prepares the settlement statement and conducts the closing.
Single-Family Dwelling
A residence consisting of a one-family dwelling unit.
Stable Income
Income that can reasonably be expected to continue in the future.
State-Licensed Mortgage Loan Originator
Any individual who is an MLO; is NOT an employee of a depository institution or a subsidiary that is owned and controlled by a depository institution; and regulated by a federal banking agency.
Steering
Influencing, advising, counseling, or directing consumers to accept the terms offered by a particular creditor in order to receive greater compensation than might be available from a different creditor.
Subordinate Financing
Debt in which the lender is not the first party due to be repaid by the borrower. In mortgage lending, a second mortgage or home equity loan would be considered “this” to the first mortgage debt.
Subordinate Agreement
A written agreement between lienholders on a property that changes the priority of mortgages, judgements, and other liens.
Subprime Loans (B-C Loans or B-C Credit)
Loans that have more risks than allowed in the conforming market.
Title Insurance
An insurance policy that protects lenders and homeowners against losses resulting from undiscovered title defects and encumbrances. Mortgage policies protect the lender’s interest.
Thing of Value
Anything (ex: item, object, payment, service) that is regarded as being worth something by another party.
Traditional Mortgage Product
Any 30-year fixed-rate loan, as defined by the SAFE Act.
Underwriter
An individual who assesses various risks of each mortgage loan and ensures the loan meets program guidelines before deciding to approve or decline the loan on behalf of the mortgage banker.
Underwriting
The process of evaluating documentation, borrower information, and various risk factors associated with a loan in order to make a loan decision.
Unique Identifier
A number (or other identifier) assigned by protocols established by the Nationwide Mortgage Licensing System and Registry (NMLS) to a single individual on a nationwide basis.
Yield Spread Premium (YSP, Lender Credits).
A higher interest rate in return for reducing closing costs. The premium is determined by the difference between the interest rate above the available PAR rate secured by a mortgage broker for a loan to a borrower. It results in lower closing costs for the borrower.
