Key Terms - Chapter 11 Flashcards
acceleration clause
A provision in a mortgage or deed of trust that permits the lender to declare the entire principal balance of the debt immediately due and payable if the borrower is in default
adjustable rate mortgage (ARM)
One in which the interest rate changes according to changes in a predetermined index.
alienation clause
A clause in a mortgage or deed of trust that entitles the lender to declare the entire principal balance of the debt due and payable immediately if the borrower sells the property during the mortgage term. This clause prohibits the ability of a borrower to assume the loan. Also known as a due-on-sale clause.
amortization
The gradual reduction of a mortgage loan through periodic payments of principal and interest over a specific term to satisfy a mortgage loan.
arrears
Delinquent in meeting an obligation. The payment of interest for a prior period as scheduled.
balloon payment
One in which the scheduled payment will not fully amortize the loan over the term. Therefore, it requires a final payment called a balloon payment, larger than the uniform payments, to satisfy the debt fully
beneficiary
The recipient of a gift of personal property by will. (4). The lender in a deed of trust.
buydown loan
A loan with a reduced interest rate that a seller, developer, or buyer has obtained by paying money up front.
certificate of reasonable value (CRV)
A document establishing the value of a property as the
basis for the loan guarantee by the Department of Veterans Affairs to the lender.
conforming loans
Those processed on uniform loan forms and according to FNMA/FHLMC guidelines.
Consumer Financial Protection Bureau (CFPB)
The government agency created by the Dodd-Frank Wall Street Reform and Consumer Protection Act (The Dodd-Frank Act) in July 2010
has broad authority to implement rules necessary for consumer protection in financial products
conventional loan
One in which the federal government does not insure or guarantee the payment to the lender.
deed in lieu of foreclosure
A conveyance of title to the lender by a borrower in default to avoid a record of foreclosure. Also called friendly foreclosure.
deed of trust
A form of security instrument pledging real property as security for the loan by conveying legal title to a third party, who is called a trustee until the loan is paid in full.
default
Failure to perform an mortgage obligation.
defeasance clause to defeat the mortgage
The clause in a mortgage or a deed of trust giving the borrower the right to redeem the title and have the mortgage lien released at any time prior to default by paying the debt in full.
deficiency judgment
A judgment obtained by a lender for the difference between the amount of foreclosure sale proceeds and the amount needed to satisfy the mortgage debt.
disintermediation
The loss of funds available to lending institutions for making mortgage loans caused by the withdrawal of funds by depositors for making investments that provide greater yields.
due-on-sale clause
A clause in a mortgage or deed of trust that entitles the lender to declare the entire principal balance of the debt due and payable immediately if the borrower sells the property during the mortgage term. This clause prohibits the ability of a borrower to assume the loan. Also known as a due-on-sale clause.
Equal Credit Opportunity Act (ECOA)
A federal law prohibiting discrimination in consumer loans.
equity
The difference between market value and what is owed on the property
equity of redemption
The borrower has the right to pay off the loan and receive his title back any time before the final foreclosure sale.
escrow account
(a) An account maintained by a real estate broker in an insured bank for the deposit of other people’s money; also called trust account. (2, 10)
(b) An account maintained by the borrower with the lender in certain mortgage loans, also known as an impound account or reserve account, to accumulate the funds to pay an annual insurance premium, a real property tax, and/or a homeowner’s association assessment. (11)
Federal Home Loan Mortgage Corporation
Freddie Mac
A secondary mortgage market institution (corporation) that only purchases conventional loans.
Federal Housing Administration (FHA)
The federal agency that insures mortgage loans to protect
lending institutions.
Federal National Mortgage Association (Fannie
Mae)
A privately owned corporation that purchases FHA, VA, and conventional mortgages.
FHA-insured loan
A mortgage loan in which the payments are insured by the Federal Housing Administration.
foreclosure
The legal procedure in which the lender sells the collateral in order to payoff the existing loan in the event of default by the borrower. The process used to terminate the borrower’s equity, or right, of redemption
foreclosure under power of sale
form of foreclosure that does not require court action to conduct a foreclosure sale. Also called foreclosure under
power of sale.
Government National Mortgage Association
Ginnie Mae
A government agency that purchases FHA and VA mortgages.
graduated payment mortgage (GPM)
One in which the payments are lower in the early years but increase on a scheduled basis until they reach an amortizing level
grantor
One who conveys title to real property by deed
home equity mortgages
The borrower uses a home as collateral establishing a line of credit that is left open and can be drawn on as necessary.
hypothecation
Pledging property as security for the payment of a debt without giving up possession
insured
The person who benefits from the insurance provided by the insurer.
interest
Money paid for the use of money. (11)
Also an ownership or right.
judicial foreclosure
A court proceeding to require that property be sold to satisfy a mortgage lien.
Know Before You Own
A booklet explaining the loan process and what the borrower’s rights and obligations are
lien theory
The legal theory that a mortgage creates a lien against the real property pledged in the mortgage to secure the payment of a debt.
liquidity
The ability to convert an asset into cash.
loan assumption
The transfer of loan obligations to a purchaser of the mortgaged property.
loan cap
The maximum amount of interest that can be charged on a adjustable rate mortgage (ARM) loan
loan-to-value ratio (LTV) ratio
The relationship between the amount of a mortgage loan or the sales price, whichever is lower and the lender’s opinion of the value of the property pledged to secure the payment of the loan.
loan underwriting
The process by which an underwriter reviews loan documentation and evaluates a buyer’s creditworthiness and the value of the property to be pledged as security for the payment of the note as well as to determine the ability of the loan to be sold within the secondary market
mortgage
A written instrument used to pledge a title to real property to secure the payment of a promissory note.
mortgage banker
A form of organization that makes and services mortgage loans from its own monies.
mortgage broker
One who arranges a mortgage loan between a lender and borrower for a fee.
mortgage insurance premium (MIP)
A fee charged by the Federal Housing Administration (FHA) to insure FHA loans. There is both an upfront fee, which can be added to the loan amount or paid in cash at closing, and an annual fee, which can be paid with the monthly payments.
mortgage note
An IOU (promissory note) that is backed by a mortgage or a deed of trust pledging the property as collateral for the loan
mortgagee
The lender in a mortgage loan receiving a mortgage from the borrower/mortgagor.
mortgagor
The borrower in a mortgage loan who executes and delivers a mortgage to the lender
negative amortization
When the loan payment amount is not sufficient to cover interest due, the shortfall is added back into principal, causing principal to grow larger after payment is made.
negotiable note
A written promise to pay a specified sum of money according to specified terms to the bearer or holder of the note.
nonconforming loans
Loans that do not meet the guidelines and standards of conforming loans.
nonjudicial foreclosure
A form of foreclosure that does not require court action to conduct a foreclosure sale. Also called foreclosure under power of sale
nonnegotiable note
A written promise to pay a specified sum of money according to specified terms to a particular individual or corporation thus limiting its ability to be sold on the secondary market.
nonrecourse note
A note in which the borrower has no personal liability for payment.
open-end mortgage
One that may be refinanced without rewriting the mortgage.
package mortgage
One in which personal property as well as real property is pledged to secure payment of the note.
periodic cap
The most the interest can be adjusted in any given period on a adjustable rate mortgage (ARM)
