Helping Neighbors In Need - Glossary of Terms

-A-

Adjustable rate mortgage (ARM) - A loan with an interest rate that fluctuates according to the movements of a predetermined index. There are several types of ARMs, some change quicker than others.

Acceleration Clause - Provision in a mortgage that the entire remaining principal shall immediately become due and payable in the event of a default.

Amortization - Gradual debt reduction. In the beginning, almost all of the payment is applied towards interest, with more of the payment going towards the principal in later years.

Annual percentage rate (APR) - The annual, effective rate of interest for a loan, including points and additional fees.

Appraisal - A professional opinion of the market value of a property, typically performed by a licensed appraiser.

Appreciation - Difference between the increased value of a property and the original sales price.

Assessed Value - Valuation placed on property by a public tax assessor for taxation. This value may vary considerably from the actual market value of the property.

Assumable Mortgage - Allows a new buyer to pick up, or assume, the loan of the previous homeowner, saving closing costs and loan origination fees. Most loans are non-assumable.

-B-

Bankruptcy - A federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. See the “BANKRUPTCY” tab for more information.

Broker - A person who has a real estate broker's license, who may not only make real estate transactions for others in exchange for a fee, but also may operate a real estate business and employ salespeople and other brokers.

-C-

Capitalization - A type of loan modification where any delinquent payments are added into the remaining balance and the payment due date is updated. The loan is "recast."

Chronic Delinquents - An industry term referring to Homeowners who are repeatedly late with their mortgage payments and the lateness is not caused by extenuating circumstances.

Clear/marketable title - A title that does not have any liens or claims against it that would place the buyer in a position to sue for property rights, or be obligated for claims.

Closing costs - Costs incurred on closing day in addition to the down payment. Typically includes fees such as attorney, loan origination, appraisal, credit report, escrow, tax escrow and hazard insurance.

Compromise Sale - VA (Veterans Administration) pre-foreclosure sale program.

Conventional Mortgage - Any mortgage insured, or guaranteed, by the federal government.

Covenant - Clause in the mortgage that obligates or restricts the Homeowner and can result in foreclosure if violated.

-D-

Deed-in-Lieu - Homeowner voluntarily gives the property deed to the loan servicer in exchange for forgiveness of the debt. See the “DEED IN LIEU” tab for more information.

Deed - Legal document used to transfer property title from one owner to another.

Default - Failure to make timely mortgage payments or to otherwise comply with the requirements of the mortgage.

Delinquency - Loan for which a payment is overdue, but not yet in default.

Due-on-sale - Clause in the mortgage that allows the lender to demand payment in full if the Homeowner sells the property securing the mortgage.

-E-

Early Indicator - Risk scoring model used by Freddie Mac to identify high risk loans.

Equity - The difference between the fair market value of a home and the loan amount, and any liens against it (can be positive or negative).

Fannie Mae - Federal National Mortgage Association. Insures conventional mortgages.

Forbearance - Refraining from legal action when mortgagor is in arrears, and allowing mortgagor to make satisfactory arrangements to eliminate the arrearages. See the “FORBEARANCE” tab for more information.

Foreclosure - An action taken by the mortgagee, or lender, to take the property to repay the defaulted debt. See the “FORECLOSURE” tab for more information.

Freddie Mac - Federal Home Loan Mortgage Corporation. Insures conventional mortgages.

FHA-insured mortgage - A mortgage insured by the Federal Housing Administration.

Fixed rate mortgage - Interest rate is constant for the entire term of the loan.

-G-

Ginnie Mae - Government National Mortgage Association.

Guaranteed Loan - Loan backed by VA, FHA or other interested party.

-H-

HUD - U.S. Department of Housing and Urban Development

-I-

IRS Form 1099 - A form that must be completed by the lender when a debt is forgiven. Forgiven debt is viewed as income and the Homeowner may be responsible for taxes on forgiven debt.

Interest rate - Expressed as a percentage, this represents the additional expense a homeowner incurs to borrow money.

-L-

Lien - A legal claim against a property, which usually needs to be settled before the buyer can take title.

Lis Pendens- Also called a Notice of Default, this is the beginning of the foreclosure process when the lender files a public default notice claim against a property.

Loan Modification - A written agreement between the Homeowner and the loan servicer to temporarily, or permanently, alter one or more of the terms of the original agreements. Common types of loan modifications are: rate reduction, capitalization, term extension and one-time assumption. See the “LOAN MONDIFCATIONS” tab for more information.

Loan-to-value (LTV) ratio - Relationship between unpaid principal balance and appraised property value (or sales price) of the property.

Loan Type Conversion - Converting the existing loan type, generally from an adjustable rate mortgage to a fixed rate mortgage.

LTV - Loan to value ratio. Calculated by dividing the loan balance by the property value.

-M-

Market rate - The average rate charged by lenders for conventional, fixed-rate loans.

Metropolitan Regional Information Service (MRIS) - A computerized networking system in which a number of real estate firms share information about their client's homes that are for sale.

Mortgage - Conveyance of an interest in real property given to secure payment of the debt.

Mortgagee -Person to whom property is conveyed as security for the loan, i.e. the lender.

Mortgagor - Person borrowing money and providing deed of trust on real property to secure the loan, i.e. the homeowner.

Mortgage bankers - They provide funds for real estate loans.

Mortgage brokers - Typically act as loan-referral agents and usually do not have money of their own to lend.

Multiple listing service (MLS) - A networking system, frequently on computer, in which a number of real estate firms share information about their client's homes that are for sale.

-N-

Negative amortization - An increase in the outstanding balance of a loan created when the payment isn't large enough to cover the interest charged.

Notice of Default - Notice recorded under a deed of trust or mortgage after default occurred. Recorded at the courthouse by the third party who insured or guaranteed the loan.

-O-

One-Time Assumption - A type of loan modification that permits the loan to be assumed by a new Homeowner in order to hasten the sale of the property.

-P-

Partial Payment - Payment on a mortgage that is less than the standard monthly payment.

PITI - Principal, interest, taxes and hazard or homeowner's insurance.

Pre-Foreclosure Sale - Servicer allows the Homeowner to sell the home within a 2 to 4 month time frame to avoid foreclosure. Often referred to as a “short sale” because the sales price typically falls short of the loan balance. See the “SHORT SALE” tab for more information.

Principal - The amount of money owed on a mortgage, excluding interest payments.

Private mortgage insurance (PMI) - With conventional financing, lenders require the Homeowner to purchase PMI protecting the lender against default on loans with less than 20% down payment. This is NOT homeowners insurance.

-R-

Rate Reduction Modification - A type of loan modification that either temporarily, or permanently, reduces the interest rate associated with the loan. Typically lowers the Homeowner's monthly payment.

REALTOR® - A collective membership mark that may be used only by real estate professionals who are members of the National Association of Realtors and subscribe to its strict code of ethics.

Receiver - Court appointee who collects rents and protects the interest of the lender and any other creditors during foreclosure or other litigation procedures.

Redemption Period - A time period in some states, where the mortgagor can buy the property back by paying the amount owed on the foreclosed mortgage.

Refinancing - Paying off the current mortgage with a new mortgage. See the “REFINANCING” tab for more information.

Release of Liability - Lender agrees to terminate mortgagor's personal obligation to repay the debt. Approval from regulatory agencies can be required (i.e. FHA and VA).

REO - Real Estate Owned, the common term for properties lost through foreclosure and now owned by the lender.

RESPA - Real Estate Settlement Practices Act.

Risk Profiler - A scoring system used by Fannie Mae to identify high risk loans.

-S-

Secondary market - Mortgage investors, including Fannie Mae and Freddie Mac, which set underwriting guidelines for most loans and buy many of them from the original lenders.

Short Sale - Prior to the sale of the property, the servicer agrees that the amount received from the sales proceeds will satisfy the debt even when that amount is less than what the Homeowner owes on the loan. See the “SHORT SALE” tab for more information.

SLMP - VA Service Loss Mitigation Program

SSCRA - Soldiers' and Sailors' Civil Relief Act

SCRATitle - A document showing the buyer has clear ownership of property.

Strategic default - when a borrower makes a business decision to stop paying a mortgage, even though they could continue to make payments, when continuing to do so would result in a financial loss. Click Here to receive a FREE report explaining why "Strategic Defaults are NOT Strategic."

-T-

TILA - Truth in Lending Act

Term Extension - A type of loan modification that involves extending the term of the mortgage, thus lowering the Homeowner's payment. For example, a 15-year mortgage is extended to 30 years or a 30-year mortgage is extended to 40 years.

Temporary Indulgence - Homeowner is given up to 30 days to tender all payments due.

Title insurance - Insurance required by lender to protect their interests from any future claims on the title. Homeowners can also purchase title insurance to protect their interests.

Title search - The process of checking all records relating to the title. It determines whether the seller can transfer the title free of liens.

Treasury securities - Treasury securities and T-bills are common indexes for adjustable-rate loans.

Trustor - The term for the homeowner in states where loans are secured by a “deed of trust” instead of a mortgage.

-U-

Universal default - a practice where a particular lender changes the terms of a loan from the normal terms to the default terms (i.e. the terms and rates given to those who have missed payments on a loan) when that lender is informed that their customer has defaulted with another lender, even though the customer has not defaulted with the first lender.

-V-

VA - Veterans Administration

VA loan - Veterans Administration guarantees a portion of a home loan, thus allowing veterans an opportunity to be granted a loan with little or no down payment required.

VARO - Veteran Affairs Regional Office

-W-

Workout - Alternative action to foreclosure that may include a loan modification, shortsale, or various forms of forbearance.

-U-

Underwriting - The process of deciding whether to make a loan, based on a property appraisal, as well as a review of the Homeowner's income, ability and apparent willingness to make timely payments.

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