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Office of Thrift Supervision (OTS)
The regulatory and supervisory agency for federally chartered
savings institutions. Formally known as Federal Home Loan
Bank Board
One-year adjustable
Mortgage whose annual rate changes yearly. The rate is usually
based on movements of a published index plus a specified margin,
chosen by the lender.
Origination Fee
The fee charged by a lender to prepare loan documents, make
credit checks, inspect and sometimes appraise a property;
usually computed as a percentage of the face value of the
loan.
Owner Financing
A property purchase transaction in which the party selling
the property provides all or part of the financing.
Payment Change Date
The date when a new monthly payment amount takes effect on
an adjustable-rate mortgage (ARM) or a graduated-payment mortgage
(GPM). Generally, the payment change date occurs in the month
immediately after the adjustment date.
Periodic
Payment Cap
A limit on the amount that payments can increase or decrease
during any one adjustment period.
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Periodic Rate Cap
A limit on the amount that the interest rate can increase
or decrease during any one adjustment period, regardless of
how high or low the index might be.
Permanent Loan
A long term mortgage, usually ten years or more. Also called
an "end loan."
PITI
Principal, Interest, Taxes and Insurance. Also called monthly
housing expense.
Pledged account Mortgage (PAM)
Money is placed in a pledged savings account and this fund
plus earned interest is gradually used to reduce mortgage
payments.
Points (loan discount points)
Prepaid interest assessed at closing by the lender. Each point
is equal to 1 percent of the loan amount (e.g., two points
on a $100,000 mortgage would cost $2,000).
Power
of Attorney
A legal document authorizing one person to act on behalf of
another.
Pre-Approval
The process of determining how much money you will be eligible
to borrow before you apply for a loan.
Prepaid
Expenses
Necessary to create an escrow account or to adjust the seller's
existing escrow account. Can include taxes, hazard insurance,
private mortgage insurance and special assessments.
Prepayment
A privilege in a mortgage permitting the borrower to make
payments in advance of their due date.
Prepayment
Penalty
Money charged for an early repayment of debt. Prepayment penalties
are allowed in some form (but not necessarily imposed) in
many states.
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Primary Mortgage Market
Lenders, such as savings and loan associations, commercial
banks, and mortgage companies, who make mortgage loans directly
to borrowers. These lenders sometimes sell their mortgages
to the secondary mortgage markets such as to FNMA or GNMA,
etc.
Principal
The amount borrowed or remaining unpaid. The part of the monthly
payment that reduces the remaining balance of a mortgage.
Principal Balance
The outstanding balance of principal on a mortgage not including
interest or any other charges.
Principal,
Interest, Taxes, and Insurance (PITI)
The four components of a monthly mortgage payment. Principal
refers to the part of the monthly payment that reduces the
remaining balance of the mortgage. Interest is the fee charged
for borrowing money. Taxes and insurance refer to the monthly
cost of property taxes and homeowners insurance, whether these
amounts that are paid into an escrow account each month or
not.
Private Mortgage Insurance (PMI)
In the event that you do not have a 20 percent down payment,
lenders will allow a smaller down payment - as low as 3 percent
in some cases. With the smaller down payment loans, however,
borrowers are usually required to carry private mortgage insurance.
Private mortgage insurance will usually require an initial
premium payment and may require an additional monthly fee
depending on your loan's structure.
Qualifying
Ratios
Calculations used to determine if a borrower can qualify for
a mortgage. They consist of two separate calculations: a housing
expense as a percent of income ratio and total debt obligations
as a percent of income ratio.
Rate Lock
A commitment issued by a lender to a borrower or other mortgage
originator guaranteeing a specified interest rate and lender
costs for a specified period of time.
Realtor®
A real estate broker or an associate holding active membership
in a local real estate board affiliated with the National
Association of Realtors.
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Real Estate Agent
A person licensed to negotiate and transact the sale of real
estate on behalf of the property owner.
Real Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to give borrowers
advance notice of closing costs.
Recission
The cancellation of a contract. With respect to mortgage refinancing,
the law that gives the homeowner three days to cancel a contract
in some cases once it is signed if the transaction uses equity
in the home as security.
Recording Fees
Money paid to the lender for recording a home sale with the
local authorities, thereby making it part of the public records.
Refinance
Obtaining a new mortgage loan on a property already owned.
Often to replace existing loans on the property.
Renegotiable Rate Mortgage
A loan in which the interest rate is adjusted periodically.
See adjustable rate mortgage.
RESPA
Short for the Real Estate Settlement Procedures Act. RESPA
is a federal law that allows consumers to review information
on known or estimated settlement cost once after application
and once prior to or at a settlement. The law requires lenders
to furnish the information after application only.
Reverse Annuity Mortgage (RAM)
A form of mortgage in which the lender makes periodic payments
to the borrower using the borrower's equity in the home as
collateral for and repayment of the loan.
Revolving
Liability
A credit arrangement, such as a credit card, that allows a
customer to borrow against a preapproved line of credit when
purchasing goods and services.
Satisfaction of Mortgage
The document issued by the mortgagee when the mortgage loan
is paid in full. Also called a "release of mortgage."
Second Mortgage
A mortgage made subsequent to another mortgage and subordinate
to the first one.
Secondary Mortgage Market
The place where primary mortgage lenders sell the mortgages
they make to obtain more funds to originate more new loans.
It provides liquidity for the lenders.
Security
The property that will be pledged as collateral for a loan.
Seller Carry-back
An agreement in which the owner of a property provides financing,
often in combination with an assumable mortgage. See owner
financing.
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Servicer
An organization that collects principal and interest payments
from borrowers and manages borrowers’ escrow accounts. The
servicer often services mortgages that have been purchased
by an investor in the secondary mortgage market.
Servicing
All the steps and operations a lender performs to keep a loan
in good standing, such as collection of payments, payment
of taxes, insurance, property inspections and the like.
Settlement/Settlement Costs
see closing/closing costs
Shared Appreciation Mortgage (SAM)
A mortgage in which a borrower receives a below-market interest
rate in return for which the lender (or another investor such
as a family member or other partner) receives a portion of
the future appreciation in the value of the property. May
also apply to mortgage where the borrowers shares the monthly
principal and interest payments with another party in exchange
for part of the appreciation.
Simple Interest
Interest which is computed only on the principle balance.
Standard Payment Calculation
The method used to determine the monthly payment required
to repay the remaining balance of a mortgage in substantially
equal installments over the remaining term of the mortgage
at the current interest rate.
Step-Rate Mortgage
A mortgage that allows for the interest rate to increase according
to a specified schedule (i.e., seven years), resulting in
increased payments as well. At the end of the specified period,
the rate and payments will remain constant for the remainder
of the loan.
Survey
A measurement of land, prepared by a registered land surveyor,
showing the location of the land with reference to known points,
its dimensions, and the location and dimensions of any buildings.
Sweat Equity
Equity created by a purchaser performing work on a property
being purchased.
Third-party Origination
When a lender uses another party to completely or partially
originate, process, underwrite, close, fund, or package the
mortgages it plans to deliver to the secondary mortgage market.
Title
A document that gives evidence of an individual's ownership
of property.
Title Insurance
A policy, usually issued by a title insurance company, which
insures a home buyer against errors in the title search. The
cost of the policy is usually a function of the value of the
property, and is often borne by the purchaser and/or seller.
Policies are also available to protect the lender's interests.
Title Search
An examination of municipal records to determine the legal
ownership of property. Usually is performed by a title company.
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Total Expense Ratio
Total obligations as a percentage of gross monthly income
including monthly housing expenses plus other monthly debts.
Truth-In-Lending
A federal law requiring disclosure of the Annual Percentage
Rate to home buyers shortly after they apply for the loan.
Also known as Regulation Z.
Two-Step Mortgage
A mortgage in which the borrower receives a below-market interest
rate for a specified number of years (most often seven or
10), and then receives a new interest rate adjusted (within
certain limits) to market conditions at that time. the lender
sometimes has the option to call the loan due with 30 days
notice at the end of seven or 10 years. also called "Super
Seven" or "Premier" mortgage.
Underwriting
The decision whether to make a loan to a potential home buyer
based on credit, employment, assets, and other factors and
the matching of this risk to an appropriate rate and term
or loan amount.
Usury
Interest charged in excess of the legal rate established by
law.
VA Loan
A long-term, low- or no-down payment loan guaranteed by the
Department of Veterans Affairs. Restricted to individuals
qualified by military service or other entitlements.
VA Mortgage Funding Fee
A premium of up to 1-7/8 percent (depending on the size of
the down payment) paid on a VA-backed loan. On a $75,000 fixed-rate
mortgage with no down payment, this would amount to $1,406
either paid at closing or added to the amount financed.
Variable Rate Mortgage (VRM)
see adjustable rate mortgage
Verification
of Deposit (VOD)
A document signed by the borrower's financial institution
verifying the status and balance of his/her financial accounts.
Verification of Employment (VOE)
A document signed by the borrower's employer verifying his/her
position and salary.
Warehouse Fee
Many mortgage firms must borrow funds on a short term basis
in order to originate loans which are to be sold later in
the secondary mortgage market (or to investors). When the
prime rate of interest is higher on short term loans than
on mortgage loans, the mortgage firm has an economic loss
which is offset by charging a warehouse fee.
Wraparound mortgage
Results when an existing assumable loan is combined with a
new loan, resulting in an interest rate somewhere between
the old rate and the current market rate. The payments are
made to a second lender or the previous homeowner, who then
forwards the payments to the first lender after taking the
additional amount off the TOP.
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