Glossary

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A
Term	Definition
A credit customers	Consumers with impeccable credit, who can obtain a loan from traditional lenders.
Abstract of title	A summary of recorded transactions concerning a particular property.
Acceleration Clause	Language in a lease that secures payments for the full term of the lease.
Accounts Payable	The amount of money a company owes for goods and services it has received; any outstanding debt that a company has.
Accounts Receivable	A collection of a company’s outstanding invoices (invoices which have not yet been paid by the company’s customers).
Accounts Receivable Aging Report	A report showing how long invoices from each customer have been outstanding.
Accrued interest	Interest earned but not yet paid.
Adjustable rate	An interest rate that changes periodically according to an index.
Adjustable-rate mortgage (ARM)	A mortgage with an interest rate that adjusts periodically based on a preselected index, causing interest rates and payments to rise and fall with the market.
Adjustment interval	The time between changes in the interest rate and monthly payments on an ARM.
Advance Rate	The percentage of the face amount of an income stream that a funding source will advance to a client.
Agent	One that acts for or represents another.
Agreement of sale	Also known as a “sales contract,” a written document in which a purchaser agrees to buy property under certain given conditions, and the seller agrees to sell under certain given conditions.
Alternative documentation	A method of documenting a loan file that relies on information the borrower is likely to be able to provide, instead of waiting on verification sent to third parties for confirmation of statements made in the application.
Amortization	The gradual, systematic payment of a debt, such as a mortgage or other loan, in installments of principal and interest for a definite time, so that at the end of that time, the debt will have been paid in full.
Amortization re-cast limitation	Amortization is most often “capped” at 110 or 125 percent of the original principal balance. Re-amortization typically occurs every 60 months and/or at such time as the balance reaches the pre-determined “cap.”
Amortization re-cast period	Pre-determined period of time (expressed either in a number of months and/or a percent of increase from original principal balance) after which any/all accumulated “negative amortization” (aka “deferred interest”) is accounted for in a re-amortization of the loan balance over the remaining term of the mortgage at the then prevailing rate of interest. Amortization is also re-casted at each adjustment even if no negative amortization. Typically, any payment cap that would otherwise factor in is disregarded in the event of re-casting.
Annual percentage rate (APR)	The annual cost of a loan, expressed as a yearly rate. APR takes into account interest, discount points, lender fees and mortgage insurance, so it will be slightly higher than the interest rate on the loan.
Application	Often referred to as a 1003, an initial statement of personal and financial information required to approve your loan.
Application fee	A fee charged by a lender to cover initial costs of processing a loan application, often including charges for property appraisal and a credit report.
Appraisal	A written estimate of a property’s current market value, based on recent sales information for similar properties, the current condition of the property and how the neighborhood might affect future property value.
Appraisal fee	A fee charged by a licensed, certified appraiser to render an opinion of market value as of a specific date.
APR	See Annual Percentage Rate.
ARM	See Adjustable-Rate Mortgage.
ARM assumbility	Some ARM products feature “assumability” to a qualified applicant. The assumability of an ARM loan may make it more attractive to an applicant who envisions selling their home at a later date. By incorporating an assumable mortgage product, they may be able to make their home more attractive to potential buyers.
ARM disclosure	An additional disclosure specific to adjustable-rate mortgages that must be prepared and presented to the consumer within three days of application whenever an adjustable-rate mortgage transaction is contemplated (Note home equity lines have their own unique disclosure).
ARM handbook	The Consumer Handbook to Adjustable-Rate Mortgages (“CHARM” booklet) must be presented to the consumer within three days of applying for an ARM loan (in addition to the ARM disclosure referenced above).
Articles of Incorporation	A document filed with a U.S. state by the founders of a corporation. After approving the articles, the state issues a Certificate of Incorporation; the two documents together become the Charter of Incorporation.
Assessment	A local tax levied against properties that have benefited from civil improvements such as road or sidewalk construction, a sewer or street lights.
Asset	Anything of monetary value that a person owns. Assets include real property, personal property and enforceable claims against others (including bank accounts, stocks, mutual funds and so on).
Assignability	The ability to assign (or sell) an income stream to another individual or business.
Assignee	The person or business entity who is given, obtains, or buys the right to an asset.
Assignment	The transfer of the rights, title or interest of any debt instrument that is properly owned by another party.
Assignor	The person giving or selling an asset, and subsequently, forfeiting rights to that asset.
Assumability	A feature of a loan allowing it to be transferred to the new purchaser of a home. Assumable mortgages can help attract buyers because assumption of a loan requires lower fees and/or qualifying standards than a new loan.
Assumption	Agreement between buyer and seller for the buyer to take over the payments on an existing mortgage.

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B
Term	Definition
B through D credit customers	These consumers have less than perfect to bad credit and usually cannot qualify for traditional financing. Also called sub-prime credit customers.
Bad Debt	Any debt that is delinquent and has been written off as uncollectible.
Balance Sheet	A statement of financial condition at a given date.
Balloon	The balance of principal that is due and owing in its entirety at a specified point in time, but in any event, less than the time required to fully amortize the debt.
Bank check	See cashier’s check.
Bankruptcy	Proclamation by a court of an individual’s (or organization’s) state of insolvency, or inability, to pay debts. Petition may be brought by an individual or his creditors, with a goal of orderly and equitable settlement of obligations.
Basis point	A unit of measure 1/100th of one percent. For example, the difference between a 9.0 percent loan and a 9.5 percent loan is 50 basis points.
Bearer	The legal owner of a piece of property.
Beneficiary	The person or party entitled to receive the benefits, or proceeds, of the life insurance policy upon the death of the insured person.
Bequest	A gift of personal property by will.
Bill of Lading	A shipping document which gives instructions to the company transporting the goods.
Bill of Sale	A document used to transfer the title of certain goods from seller to buyer.
Biweekly mortgage	A payment plan under which one pays one-half of a monthly payment every two weeks, saving interest substantially over the life of the loan.
Bona fide	In good faith.
Bond	A document representing a right to certain payments on underlying collateral.
Borrower (Mortgagor)	An individual who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.
Broker	An individual who assists in arranging funding or negotiating contracts for a client, but does not loan money himself.
Business-based income streams	Cash flow instruments that are paid to a business by another business or government.
Buy-down	A situation in which the seller contributes money that allows the lender to give the buyer a lower rate and payment, usually in exchange for an increase in sales price. With a refinance, this could be paid by the borrower.
Buyer’s broker	An agent hired by a buyer to locate a property for purchase and to represent the buyer in negotiations with the seller’s broker for the best possible deal for the buyer.
Buyer’s market	Market conditions that favor buyers. With more sellers than buyers in the market, buyers have ample choice of properties and can negotiate lower prices.

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C
Term	Definition
Call option	A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason.
Call Report	All regulated financial institutions in the United States are required to file periodic financial and other information with their respective regulators and other parties. For banks in the U.S., one of the key reports required to be filed is the quarterly Report of Condition and Income, generally referred to as the call report. Specifically, every National Bank, State Member Bank and insured Nonmember Bank is required by the Federal Financial Institutions Examination Council (FFIEC) to file a call report as of the close of business on the last day of each calendar quarter, i.e. the report date with the exception of the nation’s largest banks with foreign offices who are permitted five extra days.
Caps	Limits on changes in ARM interest rates or monthly payments, either in an adjustment period or over the life of the loan.
Caps (Payment)	Consumer safeguards may limit the amount monthly payments on an adjustable-rate mortgage may change. Because they do not limit the amount of interest the lender is earning, they may cause negative amortization.
Cash flow	The flow of cash through a business or household. In business terms, cash flow involves the flow of cash into a company in the form of revenues, and out of the company in the form of expenses.
Cash flow broker	Professional whose primary purpose is to unite income stream sellers with funding sources. They may operate as referral sources or as the primary liaison for cash flow transactions.
Cash flow industry	The buying, selling, and brokering of privately held debt in the secondary marketplace; the marketplace where businesses and individuals get help managing their cash flow needs.
Cash flow instrument	Future payment or series of payments. Also called a debt instrument or income stream.
Cash flow specialist	A cash flow professional who brokers cash flow transactions or buys cash flow instruments.
Cash flow transaction	Occurs whenever a funding source pays cash to an individual or business in exchange for an income stream.
Cash-out	A refinance for more than the balance of the original mortgage, with the extra money is taken out of the equity in the property.
Cashier’s check (or bank check)	A check whose payment is guaranteed because it was paid for in advance and is drawn on the bank’s account instead of the customer’s.
CC&Rs	See Covenants, Conditions and Restrictions.
Ceiling	The maximum allowable interest rate of an adjustable-rate mortgage.
Certificate of eligibility	Document issued by the Veterans’ Administration to qualified veterans that entitles them to VA guaranteed loans. This certificate can be obtained through local VA office by submitting form DD-214 (Separation Papers) and VA form 1880 (request for Certificate of Eligibility).
Certificate of occupancy	Document issued by local government agency stating that a property meets the requirements of health and building codes.
Certificate of reasonable value (CRV)	A property appraisal performed by a VA-approved appraiser that establishes the limit on the principal of the VA loan.
Certificate of title	Written opinion of the status of title to a property, given by an attorney or title company. This certificate does not offer the protection given by title insurance.
Certificate of veteran status	Document given to veterans or reservists who have served 90 days of continuous active duty (including training time) which enables them to obtain lower down payments on certain FHA-insured loans. Obtainable through local VA office by submitting form DD-214 (Separation Paper) with form 26-8261A (request for Certificate of Veteran Status).
Certified check	A check drawn on the issuer’s account for funds that have been segregated by the bank, guaranteeing payment.
CFPB	See Consumer Financial Protection Bureau.
Chain of title	The chronological order of conveyance of a property from the original owner to the present owner.
Charge-Offs	Charge-offs, charge-downs, write-downs, write-offs are deductions that a banks makes to the value of an asset on their books. You may be familiar with credit card charge-offs.In the case of credit cards, typically, the balance is so small the lender write the entire balance off. This isn’t the case with real estate. Charge-offs in real estate happen a bit at a time and adjust the value of the asset on the bank’s books. Banks with late and nonaccrual loans and REO but with no charge-offs on their real estate are probably not prepared to sell. The bank will usually prepare the asset for disposition by writing it down to get it in line with market value.
Chattel mortgage	A mortgage on personal property, given to secure a debt. Typically used in the sale of a business. Also called a security agreement.
Clear title	A marketable title, free of clouds and disputes.
Closing (or settlement)	Meeting between the buyer, seller and lender or their agents at which property and funds legally change hands.
Closing costs	Fees incurred in a real estate or mortgage transaction and paid by borrower and/or seller during a mortgage loan closing. These typically include a loan origination fee, discount points, attorney’s fees, title insurance, appraisal, survey and any items that must be prepaid, such as taxes and insurance escrow payments. The cost of closing is usually about 3 to 6 percent of the mortgage amount.
Closing Disclosure	The computation of costs payable at closing that determines the seller’s net proceeds and the buyer’s net payment.
Closing statement	A financial disclosure statement that lists the funds received and expected at the closing.
Cloud on title	An outstanding claim or encumbrance that, if valid, would affect or impair the owner’s title.
CLTV	See Combined loan-to-value.
COFI	See Cost of funds index.
Collateral	Something of value (land, a home, a car, etc.) that is pledged as security to ensure the payment of a debt. Collateral is promised to a lender until a loan is repaid. If the borrower defaults, the lender has the right, by law, to seize the collateral.
Collateral-based income streams	Cash flow instruments that are secured by collateral.
Collectibility	Refers to the funding source’s ability to collect future income stream payments once they are purchased.
Combined loan-to-value (CLTV)	The ratio of the total mortgage liens against the subject property to the lesser of either the appraised value or the sales price.
Commission	Money paid to a real estate agent or broker by the seller (usually 6 to 7 percent of a home’s sale price).
Commitment	A formal offer by a lender to make a loan under certain terms or conditions to a borrower.
Condominium	A form of property ownership in which the homeowner holds title to an individual dwelling unit and an interest in common areas and facilities of a multi-unit project.
Conforming loan	A mortgage loan under the maximum amount of loans that FNMA and FHLMC are legally allowed to buy. Maximum loan amount varies by county.
Consumer Financial Protection Bureau (CFPB)	A federal agency that enforces laws that protect consumers of financial products and services such as mortgages, credit cards and deposit accounts.
Consumer-based income streams	Cash flows in which the party that owes payments is a consumer, a private individual.
Contingency	A condition that must be satisfied before a contract is legally binding before a sale can close.
Contingency-based income streams	Cash flows in which the recipient is not necessarily legally entitled to receive payments, or in which the amount of the payment is uncertain or contingent upon outside factors.
Contract of sale	The agreement between the buyer and seller on the purchase price, terms and conditions of a sale.
Conventional loan	A mortgage not insured by the FHA or guaranteed by the VA.
Conversion	The process of converting a qualified prospect into an active client.
Conversion clause	A provision in some ARMs allowing you to change an ARM to a fixed-rate loan, usually after the first adjustment period. The new fixed rate is set at current rates, and there may be a charge for the conversion feature.
Conversion option	Many “short-term” ARM products feature a conversion option. This option allows a consumer, subject to certain restrictions, to convert the loan from an adjustable to a fixed-rate mortgage.
Convertible ARMs	ARMs with the option of conversion to a fixed loan during a given time period.
Conveyance	The transfer of a deed or possibly a lease or mortgage.
Corporation	A legal entity, chartered by a U.S. state or the federal government, and separate and distinct from the persons who own it. It is regarded by the courts as an artificial person; it may own property, incur debts, sue or be sued.
Cost of funds index (COFI)	An index of the weighted-average interest rate paid by savings institutions for sources of funds, usually by members of the 11th Federal Home Loan Bank District.
Covenants, conditions and restrictions (CC&Rs)	A document defining the use, requirements and restrictions of a property.
Credit report	A report detailing the credit history of a prospective borrower, used when determining creditworthiness.
Credit risk	The possibility that the borrower may default on financial obligations.
Creditor	One who is owed payments on a debt by a debtor.
CRV	See Certificate of reasonable value.

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D
Term	Definition
Debt instrument	Future payment or series of payments, or a debt that one party owes to another party. Also known as income streams or cash flow instruments.
Debt-to-income ratio	The ratio, expressed as a percentage, that results when a borrower’s monthly payment obligation on long-term debts is divided by monthly income.
Debtor	One who owes something and makes payments to a creditor.
Deed	A legal document that transfers a property from one owner to another. The deed contains a description of the property, and is signed, witnessed and delivered to the buyer at closing.
Deed of trust	Agreement to pledge property as security for a loan, used in many states in place of a mortgage. In this arrangement, the borrower transfers legal title to a trustee who holds the property in trust as security for the repayment of the debt. The deed of trust becomes void if the debt is repaid, but if the borrower defaults on the loan, the trustee may sell the property to pay the debt.
Deed-in-lieu	Short for “Deed in lieu of foreclosure.” This is when a borrower turns the property over to the bank instead of being foreclosed on.
Default	The omission or failure to perform or fulfill a legal duty, obligation, or promise (i.e. to pay a debt).
Deferred interest	Interest added to the balance of a loan when monthly payments are not sufficient to cover it. (See Negative amortization.)
Delinquency	Failure to make payments on time.
Deposit	Cash paid when a formal sales contract is signed. The deposit is usually held by a third party until the sale is complete.
Depreciation	When the value of property declines.
Discount points (or Points)	Money paid to a lender at closing in exchange for lower interest rates. Each point is equal to 1 percent of the loan amount.
Documentary stamps	A state tax, in the forms of stamps, required on deeds and mortgages when a real estate title passes from one owner to another.
Down payment	Money paid for a house from one’s own funds at closing. The down payment will be the difference between the purchase price and mortgage amount.
Due diligence	Exhaustive research on a transaction, income stream, client, and/or payor. Due diligence may involve credit checks, appraisals, UCC searches, lien searches, or on-site visits with clients.
Due-on-sale clause	Provision in a mortgage or deed of trust allowing the lender to demand immediate payment of the loan balance upon sale of the property.

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E
Term	Definition
Earnest money	Deposit made by a buyer in evidence of good faith when the purchase agreement is signed.
ECOA	See Equal Credit Opportunity Act.
Effective interest rate	The cost of a mortgage expressed as a yearly rate, usually higher than the interest rate on the mortgage since this figure includes up-front costs.
Encumbrance	A legal right or interest in a property that affects title and lessens the property value. Encumbrances can take the form of claims, liens, unpaid taxes and so on. These will usually have to be taken care of before a buyer may purchase a property.
Equal Credit Opportunity Act (ECOA)	Federal law requiring creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
Equity	The percentage of property value held by the owner; the difference between the current market value of a property and the outstanding mortgage balance.
Equity loan	A loan based on the borrower’s equity in his home.
Escrow	The system by which money documents, personal property, or real property is held in trust for another party by a disinterested third party until the terms and conditions of the escrow instructions are completed or terminated.
Escrow account	Account held by a lender containing funds collected as part of mortgage payments for annual expenses such as taxes and insurance, so that the homeowner does not have to pay a large sum when these fall due.
Escrow waiver	Escrow Waiver is waiver of the requirement to fund an escrow account with lender and instead pay insurance and taxes separately. This waiver may require a fee and is not available with all loan programs.

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F
Term	Definition
Face value	The current principal balance on an income stream.
Factor	A funding source that specializes in funding accounts receivable.
Factoring	The purchase of a business’ accounts receivable at a discount.
Fair Housing Act (FHAct)	Prohibits discrimination in real estate transactions because of race, color, religion, sex, handicap, familial status (families with children), or national origin. It applies to mortgage lending as well as other aspects of real estate transcations, including sales and rentals, real estate brokerage, and appraisals.
Fannie Mae	See Federal National Mortgage Association.
Farmer’s Home Administration (FMHA)	An agency within the U.S. Department of Agricultur that provides financing for homes and farms in small towns and rural areas.
Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac)	Quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.
Federal Housing Administration (FHA)	A government agency, division of the Department of Housing and Urban Development, that insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.
Federal National Mortgage Association (FNMA or Fannie Mae)	A quasi government agency created by Congress that buys and sells residential loans.
Federal Reserve	The central bank of the United States and major regulatory agency for many commercial banks.
Fee simple	Absolute ownership of real property.
FHA	See Federal Housing Administration.
FHA Loan	A loan insured by the FHA open to all qualified home purchasers.
FHAct	See Fair Housing Act
FHLMC	See Federal Home Loan Mortgage Corporation.
FIAR	Fully Indexed Accrual Rate (Index + Margin).
Fictitious name	A legal statement filed when a person uses a name other than his or her own to operate a business.
First mortgage	A mortgage that is in first lien position, taking priority over all other liens. In the case of foreclosure, the first mortgage will be repaid before any other mortgages.
Fixed rate	An interest rate that is fixed for the term of the loan.
Fixed-rate mortgage	A mortgage with an interest rate that doesn’t change for the life of the loan, guaranteeing fixed payments.
Flood insurance	A form of hazard insurance required by lenders to cover properties in flood zones.
Floor	The minimum rate of interest payable on an adjustable-rate mortgage.
Floor (Interest – ARM)	A pre-determined amount that establishes the minimum interest rate life of a loan. This can be expressed as a percentage below the start rate, as a rate of interest independent of the start rate, or, quite typically, the “Floor” may be established as being equal to the Margin.
FMHA	See Farmer’s Home Administration.
FNMA	See Federal National Mortgage Association.
Forbearance	Grace period given when a lender postpones foreclosure to give the borrower time to catch up on overdue payments.
Foreclosure	A legal proceeding in court to seize property given as security for a debt that is in default.
Freddie Mac	See Federal Home Loan Mortgage Corporation.
Funding source	An individual investor or an investment company that buys income streams.

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G
Term	Definition
Ginnie Mae	See Government National Mortgage Association.
GNMA	See Government National Mortgage Association.
Government National Mortgage Association (GNMA or Ginnie Mae)	A government agency that provides funds for VA and FHA loans.
Government-based income streams	Cash flows paid by a government entity, either directly or through an insurance company.
GPM	See Graduated Payment mortgage.
Grace period	Period of time during which a loan payment may be made after its due date without incurring a late penalty.
Graduated Payment Mortgage (GPM)	A mortgage with initial low payments (with potential negative amortization) that increase regularly for several years and then level off.
Gross	Before taxes.
Gross income	Total income before taxes or expenses are deducted.
Gross monthly income	The total amount earned by a borrower each month.
Guarantee	To assume liability for another’s debts in the event of default.
Guaranty	A promise by one party to pay a debt or perform an obligation contracted by another in case of that person’s default.

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H
Term	Definition
Hazard insurance	Protects the insured against loss due to fire or other natural disaster in exchange for a premium paid to the insurer.
Home equity loan	A loan secured by equity in a property. These are sought for a variety of purposes, including home improvements, major purchases or expenses and debt consolidation. Interest paid is usually tax-deductible.
Homeowners warranty	A type of insurance that covers repairs to specified parts of a house for a specific period of time.
Housing and Urban Development (HUD)	A U.S. government agency established to implement federal housing and community development programs; oversees the Federal Housing Administration.
Housing code	Local government ordinance that sets minimum standards of safety and sanitation for existing residential buildings.
Housing expense-to-income ratio	The ratio, expressed as a percentage, that results when a borrower’s housing expenses are divided by his/her monthly income.
HUD	See Housing and Urban Development.
Hypothecation	Borrowing funds from a lender, investing those funds in a debt instrument, and giving the lender a security interest in the debt instrument as the collateral for the loan.

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I
Term	Definition
Impound (or reserves)	A portion of a borrower’s monthly payments held by the lender to pay for taxes, insurance and other items as they become due.
Impound account	Savings account for accumulating that portion of a borrowers monthly payments designated for future payments of taxes and insurance. (Required by certain lenders or with certain types of financing.)
Income stream	A future payment or series of payments, or a debt that one party owes to another party. Also known as a debt instrument or cash flow instrument.
Index	A published rate used by lenders to calculate interest adjustments on ARMs (Index + Margin = Interest Rate). Some indexes are more volatile than others.
Index (ARM)	Established at loan origination, the index is a widely published financial indicator that, combined with the Margin, works to establish the effective rate of an adjustable-rate mortgage (“Index + Margin = Rate”).
Initial rate	The rate charged during the first interval of an ARM.
Insolvency	Condition of a person who is unable to pay his debts as they fall due.
Institutional lenders	Savings and loan associations, local and regional banks, mortgage companies, finance companies, and commercial lenders.
Insurance-based income streams	Cash flows stemming from insurance companies and paid to individuals or businesses.
Intangible personal property	Something that has value but is not a tangible asset, for example, a trademark, copyright, patent, or trade secret.
Interest	Charge paid for borrowing money, calculated as a percentage of the amount borrowed.
Interest rate	The periodic charge, expressed as a percentage, for use of credit.
Interest rate cap	A safeguard built into ARMs to prevent drastic changes in interest rates.
Interest rate change date	Dates upon which the rate of interest is subject to change. Initial change date and subsequent change dates may feature different terms.
Investment-to-value ratio	A measure of how secure a creditor’s position is and how likely the creditor is to recoup all of his or her money in the event of a foreclosure.

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J
Term	Definition
Joint liability	Liability shared among two or more people, each of whom is liable for the full debt.
Joint tenancy	The ownership of property by two or more persons with the survivor taking the share of the deceased.
Joint venture	A business entity established for a specific task, operation, or goal.
Jumbo loan	A mortgage larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

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L
Term	Definition
Late charge	Penalty paid by a borrower when a payment is made after the due date.
Lead	A piece of information of possible use in the search for a prospective client.
Lender	The bank, mortgage company or mortgage broker offering a loan.
Leverage	The ratio of debt to total assets.
LIBOR (London Interbank Offered Rate)	The interest rate charged among banks for short-term Eurodollar loans, and a common index for ARMs.
Lien	A claim by one person on the property of another for payment of a debt.
Life cap (Interest)	A pre-determined amount that establishes the maximum interest rate life of loan. This can be expressed as a percentage above the start rate or as a rate of interest independent of the start rate.
Limited liability company	A form of business structure designed to combine the best of corporate and partnership attributes into one entity.
Loan administration	The collection of mortgage payments from borrowers and related responsibilities (such as handling escrows for property tax and insurance, foreclosing on defaulted loans and remitting payments to investors).
Loan application	A document required by lenders prior to loan approval containing detailed information about the borrower and property.
Loan application fee	A fee a prospective buyer pays a lender when applying for a mortgage.
Loan Estimate	This document sets out the costs associated with a mortgage, including the interest rate, lender fees, title charges, pre-paid interest and insurance. The government requires that your lender give you a Loan Estimate within three days of receiving your loan application. The Loan Estimate is only an estimate; some fees can change before closing. Lender fees and the interest rate (if you have locked your rate) may not increase, and certain other costs may not increase by more than 10 percent.
Loan origination fee	A fee a lender charges to process a mortgage, usually expressed as a percentage of the loan (or points), which pays for the work in evaluating and processing the loan.
Loan servicing	See Loan administration.
Loan to value ratio (LTV)	The percentage of the property value borrowed. (Loan amount/property value=LTV)
Loan-to-value ratio	A measure of how heavily mortgaged a property is and how likely the owner is to default on his or her debts.
Lock or lock-in	A lender’s guarantee of an interest rate for a set period of time, usually between loan application and loan closing. This protects borrowers against rate increases during that time.
LTV	See Loan to Value Ratio.

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M
Term	Definition
Margin	The number of percentage points added to an index to calculate the interest rate on an ARM at each adjustment.
Marginal credit customers	Consumers who may have had some slow pay problems, but generally pay their bills.
Market rate	The average rate charged by lenders for a loan.
Market value	The price at which a ready, willing, and informed person would buy something; the price property would command in the current market.
Marketable title	A title free and clear of liens, clouds or other defects that would prevent the sale of the property.
Marketing	The process of identifying and communicating with qualified prospects.
MIP (Mortgage insurance premium)	Insurance purchased by borrower to insure against default on a FHA loans.
Monthly housing expense	Total monthly expense of principal, interest, taxes and insurance.
Mortgage	A document that creates a lien on a property as security for the payment of a debt.
Mortgage banker	A professional that originates mortgage loans, funding them with his own money.
Mortgage broker	A specialist that arranges financing for borrowers, but places loans with lenders rather than funding them with their own money.
Mortgage loan	A loan for which real estate serves as collateral to provide for repayment in case of default.
Mortgage note	A legal document that obligates a borrower to repay a loan at a stated interest rate during a specified period of time. The agreement is secured by a mortgage.
Mortgagee	The lender in a mortgage loan transaction.
Mortgagor	The borrower in a mortgage loan transaction.

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N
Term	Definition
Negative amortization	An increase in principal balance that occurs when monthly payments are not large enough to pay all interest due on a loan, usually caused when payment caps prevent sufficient payment increases. Unpaid deferred interest is added to the loan balance, causing the borrower to owe more than the loan’s original amount.
Net	After taxes.
Net effective income	Gross income minus estimated federal income tax.
Non-assumption clause	A statement in a mortgage contract forbidding the assumption of the mortgage by another borrower without the prior approval of the lender.
Non-conforming loan	A conventional loan that can not be sold to Fannie and Freddie Mac. Often, these loans are larger than the conforming loan amount.
Non-dischargeable debt	Debt, such as taxes, that cannot be forgiven in a bankruptcy liquidation.
Non-Performing Assets	Include non-performing loans and REO
Non-Performing Loans	Non-performing loans are any loans which are no longer being repaid according to terms or which are impaired due to some other factor that violates the covenants or terms within the note. For example if the loan is “underwater” or if the property (collateral) has been negatively impacted. There are other reasons a loan may be “criticized”.
Nonaccrual	Loans on a banks books for which they can no longer recognize interest. Loans in the nonaccrual stage are deemed to have no hope of being repaid according to terms.
Note	Legal document stating the terms of a debt and a promise to repay it.
Notice of default	Written notice to a borrower that a default has occurred and that legal action may be taken.
Notice of Pre-lien	A document notifying the owner of real property that materials or services are being furnished to his real property, putting him on notice that the one sending it will look to have a lien against the real property if those materials or services are not paid for.

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O
Term	Definition
Office of Comptroller Currency	The federal financial regulatory body that oversees the nation’s federally chartered banks and savings institutions.
OREO (REO)	OREO stands for Other Real Estate Owned, it is frequently shortened to REO. OREO refers to real estate that has been acquired through the process of foreclosure. Generally speaking a bank may hold OREO for five years.
Origination fee	A fee that a lender charges, usually expressed as a percentage of the loan (or points) for evaluating and processing the loan.
Owner financing	A type of financing in which the seller of a tangible item accepts a promissory note as a portion of the purchase price. Also called seller financing.

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P
Term	Definition
Partial	Any part of a payment stream that is less than the full amount due.
Partnership	A common form of joint ownership of a business.
Payee	Person or business that has the right to receive a payment or series of payments and is interested in selling that income stream for cash. (Also called the seller or client.)
Payment cap	Limit on the amount by which a borrower’s ARM payments may increase, regardless of rise in interest rates. This may result in negative amortization.
Payment cap (ARM)	A pre-determined amount that establishes the maximum by which the payment can increase, irrespective of increases to the interest rate.
Payment change date	Dates upon which the payment amount is subject to change. Products featuring “negative amortization” typically will include a payment change date which differs from the interest rate change date in frequency.
Payor	The person, company, or government responsible for making payments on an income stream.
Per diem interest	Interest calculated per day. Depending on the day of the month on which closing takes place, you’ll have to pay interest from the date of closing to the end of the month.
Periodic interest cap	An interest cap that restricts how much adjustable-rate mortgage rates may increase or decrease on pre-determined change dates.
Permanent loan	A long-term mortgage of 10 years or more.
Personal guaranty	A contractual agreement between a funding source and a seller, whereby the seller assumes personal responsibility and liability for the obligations of the income stream.
PITI	Also called “monthly housing expenses,” principal, interest, taxes and insurance are the components of a monthly mortgage payment.
PMI	See Private Mortgage Insurance.
Points (or Discount points)	Interest prepaid to the lender at closing. Each point is equal to 1 percent of the loan amount. Paying more points at closing generally reduces a loan’s interest rate and monthly payments..
Portfolio	A group or package of income streams of the same type.
Power of attorney	Legal document authorizing one person to act on behalf of another.
Pre-payment penalty	Some ARM loans contain a provision against pre-payment without penalty. Terms of pre-payment penalty clauses vary from product to product, investor to investor, and state to state. Many states and even local municipalities have, or are contemplating, enacting legislation against pre-payment penalties.
Prepaid expenses	Taxes, insurance and assessments paid in advance of their due dates, including at closing.
Prepaid interest	Charged to a borrower at closing to cover interest on the loan between the closing date and the end of that month.
Prepayment	A full or partial payment of the principal before the due date. This might occur if the borrower makes extra payments, sells the property or refinances the existing loan.
Prequalification	The process of determining how much money a prospective homebuyer may borrow, prior to application for a loan.
Primary mortgage market	Includes banks, savings and loans, credit unions, and mortgage bankers who make mortgage loans directly to borrowers. These lenders sometimes sell their mortgages to lenders such as FNMA in the secondary mortgage market.
Prime rate	Lowest commercial interest rate charged by a bank on short-term loans to its most credit-worthy customers.
Principal	The amount of debt, not counting interest, left on a loan.
Private Mortgage Insurance (PMI)	Insurance purchased by a buyer on a conventional loan when a down payment is less than 20 percent of the purchase price to protect the lender against default.
Privately held	Owed to a private individual or business rather than to a bank or other financial institution.
Profit and loss statement	A financial statement that shows a historical record of a business’ income and expenses.
Promissory note	A written promise to pay a specified amount to a specified party over a certain period of time.
Property tax	A government tax based on the market value of a property.
Purchase agreement	A contract signed by buyer and seller stating the terms and conditions of a home sale.

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Q
Term	Definition
Qualifying rate	Adjustable-rate mortgages often employ a “qualifying fate” that differs from the “start rate.” The qualifying rate may be a pre-determined percentage of interest (i.e. “8 percent”), expressed as the “highest possible rate of interest at the beginning of the 2nd year”, based on the start rate (i.e. “start rate + 2 percent), expressed as the “Fully Indexed Accrual Rate” (“FIAR”) or another amount.
Qualifying ratio	A comparison of a borrower’s expenses (housing or total debt) to his income.

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R
Term	Definition
Real Estate Agent	A real estate professional who is a member of the National Association of Realtors.
Real estate broker	An agent representing a buyer or seller in a real estate transaction.
Real Estate Settlement Procedures Act	A law that governs acceptable practices and fees in real estate transactions.
Real property	Land and everything that is permanently affixed to it.
Reclamation	The right of the person with title to a property to recover it from the debtor in case of a bankruptcy.
Reconveyance	The transfer of property back to the owner when a mortgage is fully repaid.
Recording	The act of entering documents concerning title to a property into public records.
Recording fee	Money paid to an agent for entering the sale of a property into the public records.
Refinancing	The process of paying off one loan with the proceeds from a new loan secured by the same property.
Rent with option to buy	See Lease-purchase mortgage loan.
Replevin	A legal proceeding in court to seize property (other than real estate) given as security for a debt that is in default.
Repossession (or foreclosure)	Legal process by which the lender forces the sale of a property because the borrower has not met the mortgage terms.
Rescission	The cancellation of a contract, permitted by law within three days of signing a mortgage not used to purchase a home.
Reserve	An amount a funding source holds in its account to cover potential payment defaults. After a certain time period has passed, the funding source rebates the reserve to the client less any fees or charges for delinquency. Also called a bad debt reserve.
Reserves	See Impound.
RESPA	See Real Estate Settlement Procedures Act.

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S
Term	Definition
Sale agreement	A contract signed by buyer and seller stating the terms and conditions under which a property will be sold.
Satisfaction	The discharge of an obligation by paying a party what is due (i.e., the satisfaction of an IRS lien or the satisfaction of a mortgage).
Seasoning	The length of time payments have been made on a note or other debt instrument.
Second mortgage	A subordinate mortgage made in addition to a first mortgage.
Secondary market	The marketplace where individuals and businesses can sell privately held income streams to funding sources for cash.
Secondary mortgage market	The market into which primary mortgage lenders sell the mortgages they make to obtain funds to originate more new loans. This includes investors such as Fannie Mae and Freddie Mac.
Securitization	The bundling and resale of debt instruments to investors; permitted only for parties licensed and regulated by the SEC.
Security interest	An interest in property, other than real estate, which is given as security for a debt or other obligation. A security interest is created by execution of a security agreement and one or more financing statements under the Uniform Commercial Code.
Seller	The person or company that is holding a debt instrument and wants to sell it.
Seller’s broker	An agent hired by a seller to represent him/her in negotiations to sell property.
Seller’s market	Market conditions that favor sellers. With more buyers than sellers in the market, sellers have the negotiating power as demand exceeds supply.
Servicing	The collection of payments of interest and principal, and trust fund items such as fire insurance, taxes, etc., on a note by the borrower in accordance with the terms of the note. Servicing by the lender also consists of operational procedures covering accounting, bookkeeping, insurance, tax records, loan payment follow-up, delinquent loan follow-up and loan analysis.
Servicing (or Loan administration)	The collection of mortgage payments from borrowers and related responsibilities (such as handling escrows for property tax and insurance, foreclosing on defaulted loans and remitting payments to investors).
Settlement (or Closing)	A meeting between the buyer, seller and lender (or their agents) where property and funds legally change hands.
Settlement cost (HUD guide)	A booklet given to consumers after applying for a loan that provides an overview of the lending process.
Settlement costs	See Closing costs.
Simple interest	Interest that is computed only on the principal balance.
Sole proprietorship	A business owned and operated by an individual.
Special Servicers	Companies that have processes in place and the responsibility for dealing with problem loans.
Start rate	A pre-determined rate of interest that will be applied to the loan until the date of the first interest rate change.
Subordination	The act of a creditor acknowledging in writing that a debt due him or her by a debtor shall be inferior to the debt due another creditor by the same debtor.
Subsidized second mortgage	Alternative financing option for low- and moderate-income households that also includes a down payment and a first mortgage, with funds for the second mortgage provided by city, county or state housing agencies, foundations or nonprofit corporations. Payment on the second mortgage is often deferred and carries low interest rates (if any). Part of the debt may be forgiven for each year the family remains in the home.
Survey	A measurement of land, prepared by a licensed surveyor, showing a property’s boundaries, elevations, improvements and relationship to surrounding tracts.
Sweat equity	Value added to a property by improvements made by the owner.

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T
Term	Definition
Tail	The payment stream and/or balloon payment of an income stream subsequent to another party’s right and interest in the income stream. Usually the back half of the payment stream when another party has purchased the front half.
Tangible personal property	Personal property other than real estate, such as cars, boats, or other assets.
Tax impound	Money paid to and held by a lender for annual tax payments. See Impound Account.
Tax lien	Claim against a property for unpaid taxes.
Tax sale	Public sale of property by a government authority as a result of nonpayment of taxes.
Term	The number of years until a loan is due to be paid in full.
Time value of money	Concept that addresses the way the value of money changes over a period of time.
Title	A document that gives evidence of ownership of a property, as well as rights of ownership and possession.
Title commitment	A commitment on the part of the insurer, once a title search has been conducted, to provide the proposed insured with a title insurance policy upon closing.
Title company	A company that insures the title to a property.
Title insurance	Insurance that protects the lender (lender’s policy) or buyer (owner’s policy) against loss due to disputes over property ownership.
Title policy	An insurance policy that insures a party against loss due to a defective title.
Title search	Examination of municipal records to ensure that the seller is the legal owner of a property and that there are no liens other claims against the property.
Transfer tax	Tax paid when a title passes from one owner to another.
Trial balance printout	A spreadsheet that lists all loans in a portfolio and their payment schedule. Usually required for a portfolio transaction.
Trust account	An account maintained by a broker or escrow company to handle all money collected for clients.
Trustee	Someone given legal responsibility to hold property in the best interest of another.
Truth-in-Lending Act	A federal law requiring written disclosure of the terms of a mortgage (including APR and other charges) by a lender to a borrower after application.

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U
Term	Definition
Underwriting	The process of verifying data and evaluating a loan application. The underwriter gives the final loan approval.
Uniform Commercial Code (UCC)	Standardized set of guidelines protected by law that set down how business transactions must be conducted.
Unseasoned	A lease or note that has had few, if any, payments made.

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V
Term	Definition
VA Loan	A home loan available to veterans with little or no down payment and guaranteed by the U.S. Veterans’ Administration.
Variable rate	An interest rate that changes periodically in relation to an index.
Variable rate mortgage	See Adjustable-rate mortgage.
Verification of deposit (VOD)	A document signed by the borrower’s bank or other financial institution that verifies the borrower’s account balance and history.
Verification of employment (VOE)	A document signed by the borrower’s employer that verifies the borrower’s position and salary.

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W
Term	Definition
Waiver	Voluntary relinquishment or surrender of some right or privilege.
Walk-through	A final inspection of a home to check for problems that may need to be corrected before closing.
Warehouse fee	Mortgage firms often borrow funds from a warehouse lender on a short-term basis in order to originate loans that will later be sold to investors in the secondary mortgage market. Lenders may charge a warehouse fee to cover an expense charged by the warehouse lender.

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Z
Term	Definition
Zoning ordinances	Local laws that establish building codes and usage regulations for properties in a specified area. This creation of districts specifies different types of property uses, such as commercial or residential.

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