Glossary

Adjustable Rate Mortgage: A mortgage in which the interest rate changes at certain intervals during the term of the mortgage.

Adjustment Period: The length of time which dictates interest rate adjustments on an adjustable rate mortgage. A six month ARM would have an adjustment every six moths.

Amortization Schedule: A table which shows the principal changes of a mortgage balance on a monthly or annual basis.

Application Fee: Fee charges by a lender at the time of loan application. This fee may include the cost of an appraisal, credit reports, lock-in fee or other closing costs which are incurred during the process or the fee may be in addition to other charges.

Appraisal: An estimate of value- in this case for real property. For residential properties the appraiser would utilize the Uniform Residential Appraisal report, or URAR .

Balloon: A mortgage which does not fully amortize over the term of the mortgage. The principal remaining at the end of the term is called a balloon payment.

Cash Out Refinance: A refinance in which the borrower takes cash, or equity out of the property.

Combined Loan-to-value: The principal balance of all mortgages on the property (including second and third trusts) divided by the value of the property.

Comparables: Properties utilized in an appraisal to determine the value of the property being appraised.

Conforming Mortgage: A mortgage which can be purchased by Fannie Mae or Freddie Mac.

Conventional Mortgage : A mortgage not guaranteed by VA or insured FHA, FMHA, or State Bond Agencies .

Cost of Funds Index: An index which is made up of the cost to depository institutions of acquiring funds.

Discount Point: A charge by a lender levied to buy down the interest rate.

Escrow: Money held by a third party on behalf of the first party to be utilized for requirements of second party. A servicer is a third party which holds an escrow on behalf of a borrower to pay taxes and insurance payments to the applicable entities when they become due.

Federal Home Loan Mortgage Corporation (Freddie Mac): A quasi-governmental agency which is a publicly traded corporation. It was originally chartered by Congress and oversight is located within the Department of Housing and Urban Development. The purpose of the entity is to help facilitate the access of mortgage money by creating a secondary market for conventional mortgages. Conventional mortgages purchased by Freddie mac are called conforming mortgages.

Federal National Mortgage Association (Fannie Mae): A quasi-governmental agency which is publicly traded corporation. It was originally chartered by Congress and oversight is located within the Department of Housing and Urban Development. Conventional mortgages purchased by Fannie Mae are called conforming mortgages.

Federal Housing Administration (FHA): Government agency located within the Department of Housing and Urban Development.

Fee Simple: Unrestricted ownership of real property.

First Mortgage: The primary or original loan secured upon real estate.

Fixed Rate Mortgage: A mortgage in which the interest rate (and usually the payment) does not change over the term of the mortgage.

Fixed Payment Mortgage: A mortgage in which the payment does not change over the term of the mortgage. This is usually due to the interest rate being fixed.

Float: A loan application in which the lender has not committed to lend at a particular interest rate (the rate is not locked-in).

Floor: The lowest interest rate of an adjustable rate mortgage

Index: An indicator which is typically measured by an average of a variable over a certain period of time

Interest Only Mortgages: Mortgage programs which require no repayment of principal. Typical of bridge loans, which will balloon at the end of their term.

Interest Rate Cap: A limit on interest rate increases and/or decreases during each interest rate adjustment (adjustment period cap) or over the term (life cap) of the mortgage.

IRS 4506/Request for Copy of Tax Form: IRS Form required by lenders on self-employed loan applications (and FHA when alternative documentation is utilized). This form allows the lender to pull tax returns on the borrower directly from the IRS, usually accomplished as a quality control check on a certain number of cases after closing.

Jumbo Mortgage: A mortgage which is larger than the legislated purchase limits of Fannie Mae and Freddie Mac.

LIBOR Index: London Interbank Offered Rates, which is the average rate of interest that major London banks are willing to pay each other for U.S. dollar deposits for various terms.

Life Cap: The amount of interest rate is allowed to increase during the term of the mortgage.

Loan-to-Value (LTV): The principal amount of a mortgage on a property divided by the value of that property.

Lock-in: The process by which a lender commits to lend at a particular rate as long as the mortgage transaction closes within a specified time period. The document which specifies the terms of the lock-in is call a rate commitment or lock-in agreement.

Margin: The amount added to the index on an adjustable rate mortgage to determine the interest rate at each adjustment.

Mortgage: A loan secured against real estate as opposed to personal property. States which are not Trust States utilize a mortgage as the legal instrument to secure the lien against the real estate which means that the owner holds title rather than a trustee.

Mortgagee: The lender of money which is secured by real estate.

Mortgagor: The borrower of money which is secured by real estate.

Mortgagee Clause: Verbiage in the homeowners and title insurance policies which identifies the mortgage holder and it's successors and/or assigns.

Mortgage Insurance: Insurance which protects the lender against default . Insurance can be issued by private sources (private mortgage insurance) or the Federal Housing Administration.

Negatively Amortized Mortgage (Negative Amortization): A mortgage whose balance may increase with all or certain payments.

Non-conforming Mortgage: A mortgage which cannot be sold to Fannie Mae or Freddie Mac.

Note: A legal instrument which specifies the terms of any debt. When someone borrows money secured against real estate, a note will be signed.

Origination Fee: A charge by a lender for the costs of originating a mortgage. Usually equal to one point, or 1% of the mortgage amount.

Payment Cap: The limitation on increases or decreases in the payment amount of an adjustable rate mortgage or fixed rate hybrid.\

PITI: Total mortgage payment assuming an escrow fund is set up by the lender for real estate taxes (T) and insurance (I). The PI is the principal and interest, or loan payment.

POC: A charge which is paid outside of closing. This would include closing costs such as the appraisal and credit report which an applicant pays up-front to the lender.

Point: A charge by a lender. One point is equal to 1% of the mortgage amount.

Potential Negative Amortization: An adjustable rate mortgage which may have principal balance increases at some time during the mortgage term, depending upon the future direction of the index upon which rate adjustments are based.

Prepaids: Closing costs which are actually paid at closing for charges which will occur in the future. One example would be prepaid interest which is for interest which will accrue after the closing date until the starting date of the note.

Prepayment: To apply a payment to the principal of the mortgage balance before the payment is actually due under the terms of the mortgage.

Prepayment Penalty: A charge specified in the note which is levied if a mortgage is paid off before the end of the mortgage term.

Right of Recission: Period of three full days after closing in which the consumer is allowed to negate an owner occupied refinance transaction.

Sales Concession: Something a seller pays of value to a purchaser in order to entice the purchaser to buy the home. Another term for seller contribution.

Second Mortgage: A loan which is secured by real estate which is already secured by another loan referred to as the first mortgage.

Second Trust: Another term for a second mortgage .

Secondary Market: A market which exists for the purchase and sale of mortgages and servicing rights as commodities.

Servicing: The process by which a lender collects monthly mortgage payments and forwards applicable portions of the payments to the investor, local government and insurance agencies.

Settlement Agent: A person or entity which coordinates or conducts a closing or settlement.

Settlement: Another term for closing.

Term: The period or life over which a mortgage exists.

Title: Ownership record of the property. A settlement agent will conduct a title search to make sure the seller has clear title to the property before conducting settlement. If there is not clear title, it is said that the title has defects. Title Insurance is typically required to cover the lender against such defects.

Truth-In-Lending Act: Federal law which requires a truth-in-lending statement to be disclosed for consumer loans. This statement would include disclosure of the annual percentage rate, or APR , as well as other facets of the mortgage program. The law also requires the right of recission period which follows the closings of refinances.

Uniform Residential Loan Application Form (Fannie Mae/Freddie Mac 1003/FHA 2900/VA 1802): Form which is accepted by all major mortgage sources for application of residential mortgages.

Uniform Settlement Statement (HUD-1): Settlement summary form required by RESPA to be used by closing agents .