How can we help?

You can also find more resources in our Help Center.

735 terms

NMLS Terms

Compucram glossary for the NMLS exam uploaded to quizlet! NOTE: I will never ever ever update these cards, because I'm lazy. If the definitions change it is YOUR responsibility to know that!
STUDY
PLAY
2-1 Buydown
A graduated payment buydown where the payments are subsidized for only two years, usually 2% the first year and 1% the second year.
3/7/3 Rule
A provision of the Truth in Lending Act related to required disclosures and waiting periods. Initial disclosure to be delivered within three business days of applying; earliest to close a loan is the seventh business day after disclosures are provided; a three business-day waiting period imposed after borrower receives redisclosures before a loan can close.
3-2-1 Buydown
A graduated payment buydown where the payments are subsidized for three years, usually 3% the first year, 2% the second year, and 1% the third year.
Abstractor
A person who prepares a summary (or abstract) of public records relating to title to a specific parcel of land.
Accelerate
Making a loan come due faster by having all payments become due immediately.
Acceleration Clause
A contract clause that gives the lender the right to declare the entire loan amount due immediately because of borrower's default, or other reasons as stated in the contract.
Acceptance
1. Agreeing to the terms of an offer to enter into a contract, thereby creating a binding contract. 2. Taking delivery of a deed.
Acknowledgment
When a person who has signed a document formally declares to an authorized official (usually a notary public) that he or she signed voluntarily. The official certifies that the signature is voluntary and genuine.
Acquisition Cost
The purchase price of a property, plus allowable buyer paid closing costs.
Act
A law enacted by a legislative body like the U.S. Congress.
Adjustable Rate Loan
A loan made by savings and loan associations similar to an adjustable rate mortgage. Also called ALM.
Adjustable Rate Mortgage
(ARM) A mortgage that permits the lender to periodically adjust the interest rate to reflect fluctuations in the cost of money.
Advancement
An improvement in one's employment position, given as a reason for changing employers (as opposed to job hopping for no reason).
Advertisements
Any public notification of property being offered for sale, which must follow guidelines of Regulation Z of the Truth In Lending Act.
Advertising
Required notification of foreclosure sale, notifying the public of the date and time of the sale, for three consecutive weeks in a general circulation newspaper in the county.
Affiliated Business Arrangement
A situation where a person in a position to refer settlement services-or an associate of that person-has either an affiliate relationship with or a direct or beneficial ownership interest of more than 1% in a provider of settlement services and who then refers business to that provider or in some way influences the selection of that provider.
Agreement
An agreement between two or more parties to do, or not do, a certain thing. The requirements for an enforceable contract are: capacity, mutual consent, lawful objective, and consideration. In addition, certain contracts must be in writing to be enforceable. See also, Contract.
Alienation
The transfer of ownership or an interest in property from one person to another, by any means.
Alienation Clause
A contract clause that gives the lender certain stated rights when there's a transfer of ownership in property. (Often called a due-on-sale clause.)
Alimony
Money paid to an ex-spouse as part of a divorce settlement. Alimony does not have to be revealed as a source of income if it's not counted to help repay the loan, but must be revealed as a debt obligation.
Alternative Financing
When real estate is financed with terms or financing concessions, other than those typical for conventional loans.
Alternative Financing Tools
Specific financing programs or methods, not typically used in conventional financing, to help get a loan approved.
Amortization
When a loan balance decreases because of periodic installments paid on the principal and interest. Compare to Negative Amortization. See Re-amortization.
Amortization Schedule
A table or chart that shows the periodic payments, interest and principal requirements, and unpaid loan balance for each period of the life of a loan.
Amortize
To calculate payments to pay off a debt by periodic installments, with payments going to pay principal and interest.
Amortized Loan
Loan with payments applied to principal and interest. Compare to Fully Amortized Loan and Partially Amortized Loan.
Annexation
The legal term for attaching or affixing personal property to real property.
Annexer
The person who owned the item as personal property and brought it onto the real property.
Annual Percentage Rate
(APR) Relationship between the cost of borrowing and the total amount financed, represented as a percentage.
Appraisal
An estimate or opinion of the value of a piece of property as of a certain date. Also called valuation.
Appraisal Management Company
A business entity that - for a management fee - administers a network of certified and licensed appraisers to fulfill real estate appraisal assignments on behalf of mortgage lending institutions.
Appurtenances
Rights that go with real property.
APR
(Annual Percentage Rate) Relationship between the cost of borrowing and the total amount financed, represented as a percentage.
Area Median Income
(AMI) Midpoint in the family-income range for a specific statistical area. The figure often is used as a basis to stratify incomes into low, moderate and upper ranges. These figures are adjusted for family size and calculated annually by the U.S. Department of Housing and Urban Development (HUD) for every region in the country.
ARM
(Adjustable Rate Mortgage) A mortgage that permits the lender to periodically adjust the interest rate to reflect fluctuations in the cost of money.
Arm's Length Transaction
A transaction occurring under typical market conditions with each party acting in his or her own best interests.
Assemblage
Combining two or more parcels of land into one larger parcel.
Assessments
Taxes levied only against properties that benefit from a public improvement (e.g., new sewer line).
Assets
Items of value; usually items owned by a borrower. See Liquid Assets.
Assign
1. To transfer a right or interest to another. 2. When a tenant transfers his or her right of possession, or other interest in leased property, to another person for the entire remainder of the lease term. Compare to Sublease.
Assumable
Any loan for which an assumption may be exercised.
Assumption
When one party takes over the responsibility for the loan of another party and the terms of the loan or note remain unchanged. (Usually lender approval is needed. Also, a release is needed or original party remains secondarily liable for the loan.)
Attachments
Things connected to the land, whether natural or man-made.
Attestation
When witnesses sign a legal document to affirm that the parties' signatures are real; the act of witnessing the execution of a legal document (such as a deed or will). Compare to Acknowledgment.
Automated Underwriting
Process where loan applicant information is entered into a computer and an evaluation comes back within minutes advising the lender to accept the loan, or refers the loan application for further review.
Automated Valuation Models
Computer programs that are able to provide a probable value range for properties by performing a statistical analysis of available data. Also referred to as AVMs.
Balance
When there are slightly more homes available than buyers.
Balloon Payment
A final payment at the end of a loan term to pay off the entire remaining balance of principal and interest not covered by payments during the loan term.
Basis Point
A unit that is equal to 1/100th of 1% and is used to denote the change in a financial instrument, commonly used for calculating changes in interest rates. The relationship can be summarized as 1% change = 100 basis points.
B-C Credit
Refers to credit condition of people with less-than-perfect credit or serious blemishes on their credit report. Also used to refer to Subprime Loans.
BEACON Score
Credit scoring where a number from 300-900 is assigned to a consumer's credit history. The lower the score, the greater the risk of default. Above 660 is an acceptable risk, 620-660 is a marginal risk, below 620 is a high risk. Another type of credit score is FICO Score.
Beneficiary
One who receives a benefit; refers to the lender in a trust deed.
Bill Consolidation
Borrowing a larger sum of money to pay off many smaller debts.
Bi-Weekly Mortgage
A fixed-rate mortgage, similar to a standard mortgage, but with payments made every two weeks instead of every month, thus making an extra payment each year.
Blanket Mortgage
1. Mortgage that covers more than one parcel of real estate. 2. Mortgage that covers an entire building or development, rather than an individual unit or lot.
Blockbusting
The illegal practice of inducing owners to sell their homes (often at a deflated price) by suggesting that the ethnic or racial composition of the neighborhood is changing, with implication that property values will decline as a result. Also called panic selling and panic peddling.
Board of Governors
A seven-member committee that controls the Federal Reserve System. Also called the Federal Reserve Board, or the Fed.
Bond-Type Securities
Mortgage backed securities issued by Ginnie Mae, which are long-term, pay interest semi-annually, and provide for repayment at a specified date.
Bonuses
Money paid to someone in addition to his or her regular salary and may only be counted as income if consistent.
Boot
Unlike properties added to a deal to balance the value and are taxable as part of an exchange. See Equity Exchange.
Bridge Mortgage
A mortgage that occurs between the termination of one mortgage and the commencement of another. When the next mortgage is taken out, the bridge is repaid.
Building Codes
Rules that set construction standards, requiring builders to use particular methods and materials.
Bundle of Rights
All real property rights conferred with ownership, including, but not limited to, the right of use, the right of enjoyment, and the right of disposal.
Business Cycles
General swings in business activity, resulting in expanding or contracting activity during different phases of the cycle.
Buydown
Additional funds in the form of points paid to a lender at the beginning of a loan to lower the interest rate and monthly payments.
Buyer's Market
A situation in the housing market where buyers have a large selection of properties from which to choose.
Call Provision
Clause that lets lenders demand full payment of a loan immediately. Also referred to as call a note.
Cancellation
Terminating an obligation, such as when a note is cancelled after payment, or when PMI is cancelled after certain conditions are met.
Capital Gain
Profit made from an investment.
Cash Flow
Money available to an individual after subtracting all expenses. See Residual Income.
Cash-Out Mortgage
A mortgage that a borrower gives to lenders so that the borrower can get cash for the equity that has built up in property (e.g., a home equity loan taken out for a non-house purpose, or an investor trying to recoup money invested in fixing up a property).
Certificate of Eligibility
A certificate issued by the Department of Veteran's Affairs to establish status and amount of a veteran's eligibility to qualify for loan guarantee.
Certificate of Reasonable Value
(CRV) A document issued by the VA which states the value of the subject property based on an approved appraisal. The VA loan amount cannot exceed the CRV.
Chain of Title
Chain of deeds passing title for land from owner to owner.
Character
Stability in job and responsibilities such that, even with setbacks, financial obligations will be honored by the borrower.
Child Support
Money paid to the parent or guardian of children as part of a divorce settlement. Child support does not have to be revealed as a source of income if it's not counted to help repay the loan, but it must be revealed as a debt obligation.
Civil Law
The body of law concerned with the rights and liabilities of one individual in relation to another.
Civil Rights
Fundamental rights guaranteed to all persons by the law. The term is primarily used in reference to constitutional and statutory protections against discrimination based on race, religion, sex, or national origin.
Civil Rights Act of 1866
Federal law prohibiting public and private racial discrimination in any property transaction in the U.S.
Civil Rights of 1968
Federal law prohibiting discrimination based on race, color, religion, sex, national origin, disability, or familial status. Also called Title VIII or Federal Fair Housing Act.
Clause
A paragraph or section of a contract or other document that defines or assigns specific rights and duties to the parties involved.
Clear Title
Property for which the seller has clear title, free of mortgages or other liens. See Unencumbered Property.
Clear to Close
All of the conditions necessary to make the loan have been satisfied and the lender gives the final approval to schedule the closing.
Closing
The final stage in a real estate transaction where ownership of real property is transferred from seller to buyer according to the terms and conditions set forth in a sales contract or escrow agreement. See Roundtable Closing and Escrow Closing.
Closing Costs
Expenses incurred in the transfer of real estate in addition to the purchase price; (e.g., the appraisal fee, title insurance premiums, broker's commission, transfer tax, etc.)
Closing Statement
A document that presents detailed accounting for a real estate transaction, listing each party's debits and credits and the amount each will receive or be required to pay at closing. Also called a closing statement or a HUD-1. See Settlement Statement.
Clouds on the Title
Encumbrances or outstanding claims that could affect the owner's title; problems or uncertainties with a title to real property.
Co-Borrower
A person who signs a note or other debt obligation with another party and thus accepts joint obligation to repay the note.
COFI
(Cost of Funds Index) Cost of Funds Index An index that reflects the cost of borrowing money as per the 11th District Federal Home Loan Bank. This index is used by Fannie Mae when purchasing ARM loans.
Collateral
Property pledged as security for a debt. See Hypothecate.
Commercial Banks
Financial institutions that provide a variety of financial services.
Commercial Real Estate Lenders
Lenders who loan money for commercial real estate projects.
Commissions
The compensation paid to someone in lieu of, or in addition to, regular salary. Commissions may be a flat rate or percentage of sale price, but can only be counted as income if they are consistent.
Community Reinvestment Act
(CRA) Federal law emphasizing that regulated financial institutions have a continuing obligation to help meet the credit needs of the local communities in which they operate, especially in low-income neighborhoods.
Co-Mortgagor
A person who signs a mortgage with the primary mortgagor and thus accepts a joint obligation to repay the loan. Also called Co-Borrower or Co-Signer.
Comparables
Other similar properties that have sold recently in a certain area.
Condition
1. A provision in a contract, deed, law, regulation, guideline, etc., that makes the parties' rights and obligations depend on the occurrence, or non-occurrence, of a particular event. Also called a Contingency Clause. 2. A provision of a contract, law, regulation, guideline, etc., that allows, or does not allow, something else to occur based on whether or not certain other events occur or do not occur. 3. Other factors that reflect the general state of something as good or bad; (e.g., economic conditions of an area, property condition, etc.)
Condominium
A property developed for co-ownership, where each co-owner has a separate interest in an individual unit, combined with an undivided interest in common areas of the property. Compare to Cooperative.
Condominium Loan
The FHA-insured loan program for condominiums, available only for FHA qualified, single-family condos. The borrower must meet all FHA qualifying standards and property cost must not exceed the maximum FHA mortgage amounts. Also called Condominium FHA Loan Program. See Section 234(c) FHA Loan.
Confirmation of Sale
A document filed by the court finalizing the sale of property at foreclosure, and after which time the equitable right of redemption is no longer available to the original defaulting borrower.
Conforming Loans
Loans that meet Fannie Mae/Freddie Mac standards and which can be sold on the secondary market. Compare to Nonconforming Loans.
Conformity
Value characteristic that says a particular home achieves its maximum value when it's surrounded by homes similar in style and function. Conformity applies to neighborhoods as well.
Consideration
Anything of value, such as money, services, goods, or promises, given to induce another to enter into a contract. Sometimes called valuable consideration. Consideration for an option is option money.
Construction Mortgage
A temporary loan used to finance the construction of a building on land. Replaced with a takeout loan.
Contingency Clause
A provision in a contract, deed, law, regulation, guideline, etc., that makes the parties' rights and obligations depend on the occurrence, or non-occurrence, of a particular event. See Condition.
Contingent Interest
A term used to describe the lender's share of the appreciation paid on a shared appreciation mortgage (SAM) loan or other participation plan loan.
Contract
An agreement between two or more parties to do, or not do, a certain thing. The requirements for an enforceable contract are: capacity, mutual consent, lawful objective, and consideration. In addition, certain contracts must be in writing to be enforceable.
Contract Escrow
An approach used to ensure that payments are made on an existing mortgage, whereby an escrow account or servicing agreement is set up. Buyer makes payments into the escrow account; escrow agent then pays the existing mortgage and passes the surplus money to seller. Often used for land contracts with existing mortgages.
Contribution
A value theory that says a particular item or feature of a home is only worth what it actually contributes in value to the property.
Contributory Value
The actual amount that a particular item or feature of a property actually adds in value.
Conventional Financing
When real estate is paid for or financed with a conventional loan.
Conventional Loan
Loan not insured or guaranteed by a government entity.
Conventional Mortgage
A loan that is not insured or guaranteed by a government entity.
Conversion Option
A right the borrower has to convert from an adjustable rate mortgage to a fixed-rate mortgage one time during the loan term, provided certain conditions are met.
Convertible
Able to be changed or converted; such as with an ARM loan where the borrower can change from a variable rate to a fixed rate. Often stated in a conversion option clause.
Conveyance
The transfer of title to real property from one person to another by means of a written document, such as a deed.
Cooperative
A building owned by a corporation, where residents are shareholders in the corporation; each shareholder receives a proprietary lease on an individual unit and has the right to use common areas.
Co-Ownership
Any form of ownership where two or more people share title to real property, with each person having an undivided interest in the property.
Co-Signer
A person who signs a note or other debt obligation with another party and thus accepts joint obligation to repay the note. See Co-Borrower and Co-Mortgagor.
Cost Inflation
An increase in the cost of goods or services. Compare to Demand Inflation.
Cost of Funds Index
An index that reflects the cost of borrowing money as per the 11th District Federal Home Loan Bank. This index is used by Fannie Mae when purchasing ARM loans. Also called COFI.
Cost of Money
The interest rate people or businesses pay to use another's money for their own purposes.
Coupon Rate
The interest rate stated in a note. Also called Nominal Rate or Note Rate.
Covenant
1. A contract. 2. A promise. 3. A guarantee, expressed or implied, in a document such as a deed or lease. 4. A restrictive covenant. Typical covenants compel or prevent certain actions by the property owner or uses for the property.
CRA
(Community Reinvestment Act) Federal law emphasizing that regulated financial institutions have a continuing obligation to help meet the credit needs of the local communities in which they operate, especially in low-income neighborhoods
Credit
1. The availability of money; the ability to borrow money. 2. A sum of money to be received. See Rent Credit.
Credit History
A person's record of debt repayment detailing how a person paid credit accounts in the past. Credit history is used as a guide to how likely the borrower is to pay accounts on time and as agreed in the future.
Credit Report
A listing of a borrower's credit history, including amount of debt, record of repayment, job info, address info, etc.
Credit Scoring
A means by which the lender makes certain determinations regarding the creditworthiness of potential borrowers. This involves a lender assigning specified numerical values to different aspects of a borrower. See also BEACON Score.
Credit Unions
Financial institutions that are a type of cooperative organization where members share something in common (e.g., an employer), pool their deposits together, pay members better interest rates, and loan money to fellow members.
Creditor
A person or other entity, such as a bank, who is owed a debt.
CRV
(Certificate of Reasonable Value) A document issued by the VA which states the value of the subject property based on an approved appraisal. The VA loan amount cannot exceed the CRV.
Dealer
A person who holds property for the sole purpose of reselling it.
Debit
A sum of money that is owed.
Debt
Recurring monetary obligation that cannot be cancelled (e.g., monthly bills).
Debt Service Ratio
The relationship of a borrower's total monthly debt obligations, including housing and long-term debts with more than ten payments remaining, to income, expressed as a percentage. See Total Debt Service Ratio.
Debtor
A person or other entity who owes money to another.
Declining Market
A somewhat vague term used generally to describe areas where home prices are going down, due to any number of factors.
Deed in Lieu of Foreclosure
Deed given by borrower to lender to satisfy a debt, avoiding foreclosure. Also called Voluntary Conveyance.
Deed of Trust
An instrument held by a third party as security for the payment of a note. Also called a Trust Deed. Like a mortgage, it creates a voluntary lien on real property to secure repayment of a debt. Parties to a deed of trust are grantor or trustor (borrower), beneficiary (lender), and trustee (neutral third party). Unlike a mortgage, a trust deed has a power of sale, allowing trustee to foreclose non-judicially. Compare to Mortgage.
Deed Restrictions
Limitations on real property use, imposed by a former owner through language included in the deed. Also called restrictive covenants.
Default
Failure to fulfill an obligation, duty, or promise, as when borrower fails to make payments, tenant fails to pay rent, or party fails to perform a contract. Mortgage, note, or other document defines what constitutes default.
Defeasance Clause
1. Used to defeat or cancel a certain right upon the happening of a specific event (e.g., upon final payment, words of grant in a mortgage are void and the mortgage is thereby cancelled and title is re-vested to mortgagor). 2. Used to give a borrower the right to redeem real estate after default on a note by paying the full amount due plus fees and court costs. 3. Used in title theory states, whereby a mortgagee agrees to deed property back to the mortgagor after all contract terms have been performed as agreed.
Defenses
Reasons used to justify certain actions such as non-payment of a note.
Deferment
Permission to delay fulfillment of an obligation (e.g., paying taxes) until a later date.
Deferred Interest
Accrued interest that is not paid by regularly scheduled payments; interest that is accumulated during payment periods but is not paid until a later date. This can be an element of ARMs and may cause negative amortization to occur.
Deficiency Judgment
A court order stating that the debtor owes money to the creditor when the collateral property does not bring enough at foreclosure sale to cover the entire loan amount, accrued interest, and other costs.
Deficit Spending
When the government spends more money than it takes in from tax revenue.
Delayed Exchange
When value in a property is traded for value in another property. Properties must be of like kind, held for use in trade or business, or as investment to qualify for tax deferment. An equity exchange can also be a delayed exchange, with a promise to provide a replacement property. To qualify for tax deferment, the replacement property must be located within 45 days and closed within 180 days of the first exchange. See Equity Exchange.
Demand
Need or desire for a specific good or service by others. See Effective Demand.
Demand Deposits
Money that is immediately accessible and a customer may elect to withdraw from the bank at any time.
Demand Inflation
Too much money chasing too few goods.
Department of Veterans Affairs
Federal agency that oversees programs for veterans of the U.S. armed services, including the Veterans Benefits Administration and Veterans Health Administration.
Deposit
1. Money offered as an indication of good faith regarding the future performance of a purchase agreement. Also called earnest money. 2. A tenant's security deposit.
Depreciate
To decline in value.
Depreciation
1. A loss in property value for any reason. 2. For taxes, the expensing of the cost of business or investment property over a set number of years, determined by IRS to be an asset's useful life.
Derogatory Credit
Credit history showing previous problems in meeting financial obligations.
Desktop Underwriter®
(DU®) An electronic system that puts lenders in direct contact with Fannie Mae, providing a streamlined process of document submission, underwriting, and loan approval.
Direct Endorsers
Lenders authorized to underwrite their own FHA loan applications and who are responsible for the entire loan process through closing.
Disability Payments
Payments made as a result of an injury, illness, or other infirmary. The payments may be permanent if the disability is permanent, and thus may be counted as part of stable monthly income.
Disclosure Statement
A document required by law that reveals specific information. For example, federal law requires that lenders give buyers a disclosure statement detailing the actual cost of borrowing money from the lender. See Good Faith Estimate.
Disclosures
Points or facts that must be revealed. For example, the law requires certain financial disclosures, specific disclosures for ARMs, and disclosures under Truth-In-Lending Act.
Discount
The difference between the stated amount of an obligation and the amount paid.
Discount Points
An amount paid to a lender when a loan is made to make up the difference between the current market interest rate and the rate a lender gives a borrower on a note. Discount points increase a lender's yield, allowing the lender to give a borrower a lower interest rate. Also referred to as discounts or points. See Points.
Discount Rate
The interest rate charged by the Federal Reserve Banks on loans to member commercial banks. Also referred to as the Federal Discount Rate.
Discrimination
Violating civil rights law by treating people unequally because of their race, religion, sex, national origin, age, or some other characteristic of a protected class.
Disintermediation
The loss of deposits to competing investments that offer higher returns.
Disparate Impact
When a law that isn't discriminatory on its face has an adverse impact on a minority group.
Do Not Call Registry
National registry managed by the Federal Trade Commission that limits commercial telemarketers from phoning consumers who place their phone numbers on a list.
Dower
A special real property interest the law gives in many states as a statutory life estate to a spouse when a married person owns real property.
Down Payment
The amount of money a buyer pays to obtain a property in addition to the money that the buyer borrows.
Drive-by Appraisal
An appraisal performed according to USPAP guidelines, but with only an exterior inspection of the subject property.
Due on Sale Clause
Mortgage clause that prohibits assignment by making the entire mortgage balance due when property is sold.
Durability
(of stable monthly income) The likelihood or probability that a person's source of income will continue into the future.
Earnest Money
Money offered as an indication of good faith regarding the future performance of a purchase agreement.. See Deposit.
Earnest Money Agreement
A contract in which a seller promises to convey title to real property to a buyer in exchange for the purchase price. See Purchase Agreement.
Easement
A right to use another person's real property for a particular purpose.
Easy Qualifier Loan
A conventional loan with a loan-to-value ratio (LTV) of 75% or less; a loan where lenders require the same documentation as other conventional loans, but relax qualifying standards due to increased equity the borrower is putting into the home. Lenders view this loan as less risky since borrower has more to lose and lenders can more easily recoup 75% of a home's value in foreclosure.
ECOA
(Equal Credit Opportunity Act) Federal law that prohibits discrimination in granting credit to people based on sex, age, marital status, race, color, religion, national origin, or receipt of public assistance.
Economic Base
The main business or industry that a community uses to support and sustain itself. A good economic base is critical for home values.
Effective Demand
When a prospective buyer has enough disposable income available to satisfy his or her needs or desires. Also called purchase ability.
EIS
(Environmental Impact Statement) Study required for all federal and federally related projects by the National Environmental Policy Act, which details a development project's impact on energy use, sewage systems, drainage, water facilities, schools, and other environmental, economic, and social areas.
Elements of Comparison
Any aspect of a property that causes a difference in value.
Eligibility for VA Loans
A certificate issued by the Department of Veteran's Affairs to establish status and amount of a veteran's eligibility to qualify for loan guarantee. See Certificate of Eligibility.
Eminent Domain
The government's constitutional power to take (appropriate or condemn) private property for public use, as long as the owner is paid just compensation.
Employment History
The stability of a person's job tenure at various companies, used on loan applications to help gauge income durability and reliability.
Encroachment
A physical object intruding onto neighboring property, often due to a mistake regarding the boundary.
Encumbered Property
Property with mortgages, liens, or other restrictions against it that prevent or restrict its transfer.
Encumbrance
A non-possessory interest in property; a lien, easement, or restrictive covenant burdening the property owner's title.
Entitlement
The dollar amount of loan guarantee to which an eligible veteran is entitled. See VA Entitlement.
Environmental Impact Statement
(EIS) Study required for all federal and federally related projects by the National Environmental Policy Act, which details a development project's impact on energy use, sewage systems, drainage, water facilities, schools, and other environmental, economic, and social areas.
Equal Credit Opportunity Act
(ECOA) Federal law that prohibits discrimination in granting credit to people based on sex, age, marital status, race, color, religion, national origin, or receipt of public assistance.
Equitable Lien
Written contract or court judgment placing a lien on property as collateral for a loan.
Equitable Right of Redemption
The right of a debtor to redeem property from foreclosure proceedings prior to confirmation of sale.
Equitable Title
An interest created in property upon the execution of a valid sales contract, whereby actual title is transferred by deed at a closing. The buyer's interest in property under a land contract. Also called an equitable interest.
Equity
The difference between market value of a property and the sum of the mortgages and liens against it.
Equity Exchange
When value in a property is traded for value in another property. Properties must be of like kind, held for use in trade or business, or as investment to qualify for tax deferment. An equity exchange can also be a delayed exchange, with a promise to provide a replacement property. To qualify for tax deferment, the replacement property must be located within 45 days and closed within 180 days of the first exchange. Also called Tax-Deferred Exchange, Tax-Free Exchange, Like Kind Exchange, or Section 1031 (from the section number of IRS law).
Equity Participation Mortgage
A mortgage that lets the lender share part of the earnings, income, or profits from a real estate project.
Escheat
When property reverts to the state after a person without a valid will and without heirs dies.
Escrow
The system in which things of value, like money or documents, are held on behalf of the parties to a transaction by a disinterested third party, or escrow agent, until specified conditions have all been met. Compare to Escrows.
Escrow Closing
A closing by a disinterested third party, often an escrow agent.
Escrow Instructions
The contract that authorizes an escrow agent to deliver items deposited in escrow once the parties have complied with specified conditions. This can be the purchase contract for real estate or a separate document.
Escrows
Prepayable expenses the lender requires a borrower to set aside prior to closing (e.g., property taxes and insurance). Also called Impounds. See Escrow.
Estate
A possessory interest in real property.
Estimated Closing Costs
An approximation of the amount of money a borrower will need to buy a particular property. See Good Faith Estimate.
Estoppel
A legal doctrine that prevents a person from asserting rights or facts that are inconsistent with earlier actions or statements when he or she failed to object or attempt to stop another person's actions.
Estoppel Letter
A lender's written consent to a sale acknowledging the transfer and waiving any right to accelerate the loan because of the sale.
Exclusionary Zoning
A zoning law that effectively prevents certain groups, such as minorities or the poor, from living in a particular community.
Execute
1. To sign. 2. To perform or complete.
External Obsolescence
Any influence that falls outside the actual property site and negatively affects a property's value.
Fair and Accurate Credit Transaction Act
(FACT Act) Amendment to the federal Fair Credit Reporting Act intended primarily to help consumers fight the growing crime of identity theft; includes provisions for fraud alerts and credit freezes.
Fair Credit Reporting Act
(FCRA) Federal law dealing with the granting of credit, access to credit information, the rights of debtors, and the responsibilities of creditors.
Fair Market Value
The price a property would sell for on the open market.
Familial Status
A protected class under the Federal Fair Housing Act and many state Civil Rights Laws, making it illegal to discriminate against a person because he or she is the parent or guardian of a child younger than 18 years of age.
Fannie Mae
The nation's largest, privately owned, investor in residential mortgages. See Federal National Mortgage Association.
Farmer's Home Administration
(FmHA) Former name of the program now called Rural Economic Community Development (RECD).
FCRA
(Fair Credit Reporting Act) Federal law dealing with the granting of credit, access to credit information, the rights of debtors, and the responsibilities of creditors.
FDIC
(Federal Deposit Insurance Corporation) A public corporation, established in 1933, that insures up to $250,000 for each depositor for most member commercial banks and S & Ls. FDIC has its own reserves and can also borrow from the U.S. Treasury.
Fed Funds Rate
The Federal Reserve's target for short-term interest rates.
Federal Advisory Council
A body of 12 members, elected one each by the 12 Federal Reserve Banks as district representatives. They meet quarterly with the Board of Governors to discuss business conditions and make policy recommendations.
Federal Budget Deficit
When federal government income is less than its expenditures.
Federal Deposit Insurance Corporation
(FDIC) A public corporation, established in 1933, that insures up to $250,000 for each depositor for most member commercial banks and S & Ls. FDIC has its own reserves and can also borrow from the U.S. Treasury.
Federal Discount Rate
The interest rate charged to banks by the Federal Reserve on loans to member commercial banks.
Federal Fair Housing Act
Common name for Title VIII of the Civil Rights Act of 1968.
Federal Funds Rate
The Federal Reserve's target for short-term interest rates.
Federal Home Loan Mortgage Corporation
(Freddie Mac) Nonprofit, federally chartered institution (now privately owned) that functions as buyer and seller of residential mortgages.
Federal Housing Administration
(FHA) Government agency that insures mortgage loans.
Federal Housing Finance Agency
(FHFA) Government agency that merged the powers and regulatory authority of the Federal Housing Finance Board (FHFB) and the Office of Federal Housing Enterprise Oversight (OFHEO), as well as the GSE mission office at the Department of Housing and Urban Development (HUD); the conservator of Fannie Mae and Freddie Mac.
Federal National Mortgage Association
(Fannie Mae) The nation's largest, privately owned, investor in residential mortgages.
Federal Open Market Committee
(FOMC) A body that controls the Fed's sale and purchase of government securities. The FOMC consists of the seven members of the Federal Reserve Board, plus the President of the Federal Reserve Bank of New York, and four other Federal Reserve Bank presidents.
Federal Regulations
Laws enacted by the federal government.
Federal Reserve Banks
Banks that provide services to financial institutions (e.g., check clearing), which have one main office in each Federal Reserve district. All nationally chartered commercial banks must join the Federal Reserve and buy stock in its district reserve bank.
Federal Reserve Board
(the Fed) The body responsible for U.S. monetary policy, maintaining economic stability and regulating commercial banks. Also referred to as Board of Governors, but most commonly called the Fed.
Federal Reserve System
Established by the Federal Reserve Act of 1913 with 12 Federal Reserve Banks as a lender of last resort.
Fee
1. An estate of inheritance; title to real property that can be willed or descend to heirs. 2. Charge made for services rendered.
Fee at Closing
Refers to a PMI payment due at closing. See Private Mortgage Insurance.
Fee Simple
The greatest estate one can have in real property. It is freely transferable and inheritable, and of indefinite duration, with no conditions on the title.
FHA
(Federal Housing Administration) Government agency that insures mortgage loans.
FICO Score
Credit scoring where a number from 300-900 is assigned to a consumer's credit history. The lower the score, the greater the risk of default. Above 660 is an acceptable risk, 620-660 is a marginal risk, below 620 is a high risk. Another type of credit score is BEACON Score.
Fiduciary
Person in a position of trust, held by law to high standards of good faith and loyalty.
Fiduciary Deeds
Deeds executed by a trustee, executor, or other fiduciary, conveying property the fiduciary doesn't own but is authorized to manage.
Finance Companies
Financial institutions that specialize in making higher-risk loans at higher interest rates.
Finance Instrument
A written document used in the borrowing or lending of money. The most common type is a promissory note.
Financial Institutions Reform, Recovery, and Enforcement Act
(FIRREA) A federal law passed in 1990 in response to the crisis in the savings and loan industry. It revised the regulation of thrifts (S & Ls) and created several new agencies, such as Office of Thrift Supervision (OTS) and Resolution Trust Corporation (RTC).
Financial Statement
A document that shows assets and liabilities for an individual, covering a specific period of time or a specific point in time.
Financing Statement
A brief document that, when recorded, gives constructive notice of a creditor's security interest in an item of personal property.
Financing Tools
Alternative financing methods that can help a borrower get approved for a loan more easily or with less of a down payment.
Finder's Fee
A referral fee paid for directing a buyer or seller to a certain company or provider.
FIRREA
(Financial Institutions Reform, Recovery, and Enforcement Act) A federal law passed in 1990 in response to the crisis in the savings and loan industry. It revised the regulation of thrifts (S & Ls) and created several new agencies, such as Office of Thrift Supervision (OTS) and Resolution Trust Corporation (RTC.
First Lien Position
The spot held by the lien with highest priority when there's more than one mortgage or other debt or obligation secured by the property.
First Mortgage
A security instrument with a first lien position, meaning the first mortgage holder is paid first from a foreclosure sale. One exception is a tax lien on the property, which always takes first lien position.
Fiscal Policy
The government's plan for spending, taxation, and debt management.
Fixed Disbursement Plan
A type of construction mortgage payout schedule where a percentage of funds is paid at a set time.
Fixed Rate Loan
Loan with a constant interest rate remaining for the duration of the loan.
Fixed Term
A period of time with a definite ending date.
Fixtures
Man-made attachments.
Flipping
Defined by Fannie Mae as the process of purchasing existing properties with the intention of immediately reselling them for a profit.
FOMC
(Federal Open Market Committee) A body that controls the Fed's sale and purchase of government securities. The FOMC consists of the seven members of the Federal Reserve Board, plus the President of the Federal Reserve Bank of New York, and four other Federal Reserve Bank presidents.
Foreclosure
When a lienholder causes property to be sold, so unpaid debt secured by the lien can be satisfied from the sale proceeds.
Foreclosure Action
A lawsuit filed by a creditor to begin foreclosure proceedings.
Forfeiture
Loss of a right or something else of value as a result of failure to perform an obligation or condition.
Forward Commitment Purchase Program
Program with a commitment made by Freddie Mac to buy mortgages for six to eight months, with delivery of mortgages at the option of the seller.
Fraud
An intentional or negligent misrepresentation or concealment of a material fact; making statements that a person knows, or should realize, are false or misleading.
Freddie Mac
(Federal Home Loan Mortgage Corporation) Nonprofit, federally chartered institution (now privately owned) that functions as buyer and seller of residential mortgages.
Freehold Estate
A possessory interest of uncertain duration; it may end, but no one knows when.
Freely Transferable
When the lender or creditor can obtain immediate cash by selling the note (e.g., when real estate notes are sold to the secondary market).
Frontage
The dimension across the access side of a parcel of land. When referring to lot size, frontage is the first number. For example, if a lot size is 150' x 100', the frontage is 150'.
FSLIC
The Federal Savings and Loan Insurance Corporation, which formerly provided deposit insurance to S & Ls, but was abolished in 1990 with the passage of FIRREA. S & L deposit insurance is now provided by FDIC.
Fully Amortized Loans
Loans where the total payments over the life of the loan pay off the entire balance of principal and interest due at the end of the loan term.
Fully Amortized Note
A note that calls for regular payments of principal and interest, calculated to pay off the entire balance of the loan by the end of the loan term.
Fully Amortized Second Mortgage
A second mortgage that is a fully amortized loan. See Fully Amortized Loans.
Functional Obsolescence
Loss in property value resulting from changes in tastes, preferences, or market standards.
Funding Fee
A fee charged on VA-guaranteed loans in place of mortgage insurance.
Garnishment
Legal process by which a creditor gains access to a debtor's personal property or funds in the hands of a third party. If a debtor's wages are garnished, the employer pays part of them directly to the creditor.
GEM
(Growth Equity Mortgage) A fixed-rate mortgage set up like a 30-year conventional loan, but payments increase regularly like an ARM. Also called a Rapidly Amortizing Mortgage.
General Brochure
A booklet lenders are required to give loan applicants under Regulation Z of the Truth-In Lending Act. A lender may comply with this by giving potential borrowers Consumer Handbook on Adjustable Rate Mortgages prepared by the Federal Reserve and the Federal Home Loan Bank Board.
General Lien
A lien that attaches to all of the debtor's property.
General Partner
A partner who has unlimited liability for the obligation of a partnership.
General Partnership
Voluntary association of two or more people as co-owners in a for-profit organization.
General Real Estate Tax
An annual tax levied on the value of real property.
Ginnie Mae
(Government National Mortgage Association) Government-owned corporation that guarantees payment of principal and interest to investors who buy its mortgage backed securities on the secondary market.
GLA
(Gross Living Area) Residential space that's finished, heated, and above grade. Garages, finished basements, and storage areas don't count in GLA.
Good Faith Estimate
(GFE) The lender's estimate of closing costs the borrower must pay for a real estate loan. The lender must give this to the borrower within three business days of loan application is made. Also called a Good Faith Statement.
Government Financing
Real estate loans that are insured, guaranteed, or in some other way sponsored by government programs on the federal level. Traditionally, this does not refer to involvement of the government in the secondary markets.
Government National Mortgage Association
(Ginnie Mae) Government-owned corporation that guarantees payment of principal and interest to investors who buy its mortgage backed securities on the secondary market.
Government-Sponsored Enterprise
(GSE) A group of financial services corporations created by the United States Congress to enhance the flow of credit to targeted sectors of the economy and to make those segments more efficient and transparent.
GPM
(Graduated Payment Mortgage) Payment structure that allows the borrower to make smaller payments in the early years of the mortgage, with payments increasing on a scheduled basis at a predetermined point until they are sufficient to fully amortize the loan over the remainder of its term.
Graduated Payment Buydown
A temporary buydown plan where payment subsidies in the early years of a loan keep payments low, but payments increase each year until they're sufficient to fully amortize the loan.
Graduated Payment Loans
The FHA-insured graduated payment loan program, which makes payments lower in the early years of the loan. The borrower must meet all FHA qualifying standards and property cost cannot exceed maximum FHA mortgage amounts. See Section 245 Loans (FHA Loan Program).
Graduated Payment Term
The number of years during which payments may be adjusted in a graduated payment mortgage.
Gramm-Leach-Bliley Act
Also known as the Financial Modernization Act of 1999, includes provisions in Title V to protect and regulate the disclosure of consumers' personal financial information. See Privacy Rule.
Grantee
Person receiving a grant of real property; the seller in a typical real estate transaction.
Grantor
Person who grants an interest in real property to another; the buyer in a typical real estate transaction.
Gross Income
Income before taxes and other expenses have been deducted.
Gross Living Area
(GLA) Residential space that's finished, heated, and above grade. Garages, finished basements, and storage areas don't count in GLA.
Growth Equity Mortgage
(GEM) A fixed-rate mortgage set up like a 30-year conventional loan, but payments increase regularly like an ARM. Also called a Rapidly Amortizing Mortgage..
Guardian
A person appointed by a court to administer the affairs of a minor or an incompetent person.
Hard Money Mortgage
A mortgage where the borrower receives cash (e.g., cash out mortgage).
Highest and Best Use
The most profitable, legally permitted, feasible, and physically possible use of a piece of property.
HMDA
(Home Mortgage Disclosure Act) A law requiring all institutional mortgage lenders with assets of more than $10 million to make annual reports of all mortgage loans made in a given geographic area where they have at least one office. This law is designed to help the government detect patterns of redlining.
Holder in Due Course
One who acquires a negotiable instrument in good faith and for consideration, and thus has certain rights above the original payee.
Home Equity Line of Credit
(HELOC) Available money that can be borrowed by a homeowner, secured by a second mortgage on the principal residence. Home equity lines of credit can be accessed at any time up to a predetermined borrowing limit and are often used for non-housing expenditures. Compare to Home Equity Loan.
Home Equity Loan
A loan taken by a homeowner, secured by a second mortgage on the principal residence. Home equity loans are usually a one-time loan for a specific amount of money and obtained for a specific, and often non-housing, expenditure. Compare to Home Equity Line of Credit.
Home Mortgage Disclosure Act
A law requiring all institutional mortgage lenders with assets of more than $10 million to make annual reports of all mortgage loans made in a given geographic area where they have at least one office. This law is designed to help the government detect patterns of redlining.
Home Ownership Equity Protection Act
(HOEPA) Part of Regulation Z Truth in Lending Act establishing disclosure requirements and prohibiting equity stripping and other abusive practices associated with high cost loans.
Home Valuation Code of Conduct
(HVCC) Intended to set standards on solicitation, selection, compensation, conflicts of interest, and appraiser independence with a primary goal of ensuring that real estate appraisers are not coerced in any way into establishing a pre-determined or desired valuation on a property.
Homeowners Protection Act
(HPA) Federal law that requires lenders or servicers to provide certain disclosures and notifications concerning private mortgage insurance on residential loan transactions.
Homestead Protection
Limited protection for a debtor against claims of judgment creditors; applies to property of the debtor's residence.
Housing and Economic Recovery Act of 2008
(HERA) Major federal law designed to assist with the revitalization of the U.S. housing market; includes provisions related to foreclosure prevention and consumer protections, as well as establishing minimum standards for licensing and registration of mortgage loan originators. See the Secure and Fair Enforcement for Mortgage Licensing Act.
Housing Expense Ratio
The relationship of a borrower's total monthly housing expense to income, expressed as a percentage.
HUD
The Department of Housing and Urban Development; government agency that deals with housing issues.
HUD Uniform Settlement Statement
(HUD-1) A settlement statement, required under RESPA, that details all costs associated with closing a loan, showing how much was paid, to what companies or parties, and for what purpose.
Hypothecate
To make property security for a loan without giving up possession of it, as with a mortgage. Compare to Pledge.
Illegal Flipping
Property purchased at a low price, appraised at a high value without valid reason, and resold at the higher price.
Immediate Delivery Program
A Freddie Mac program whereby sellers have up to 60 days to deliver mortgages that Freddie Mac has agreed to buy on the secondary market.
Immobility
A physical characteristic of real estate referring to the fact that it can't move from one place to another.
Impounds
Prepayable expenses the lender requires a borrower to set aside prior to closing (e.g., property taxes and insurance). Also called Escrows.
Improvement
A major fixture that impacts the value of the property, such as a building.
Incapacity
When someone is not able to sign a note or enter into any other kind of contract (e.g., because of age or mental incompetence).
Income
The money one receives from a job, investment, or other use of skills or capital.
Income Qualifying Standards
The criteria used to evaluate the quality and durability of a borrower's source of income, in conjunction with an assessment of the borrower's housing expense ratio and total debt service ratio.
Income Ratios
The relationship of a borrower's total monthly housing expense to income, expressed as a percentage See Total Debt Service Ratio.
Indemnify
1. To protect another against loss or damage. 2. To compensate a party for loss.
Independent Contractors
Self-employed individuals paid based on jobs completed rather than hours worked, and who are responsible for setting their own hours and paying their own taxes.
Indestructibility
A physical characteristic of real estate referring to the fact that it cannot be destroyed.
Index
A statistical report that is generally a reliable indicator of the approximate change in the cost of money, and is often used to adjust the interest rate in ARMs.
Indicated Value Range
A range of possible values for a property based on the data analyzed by the appraiser.
Inflation
An increase in the cost of goods or services; or, too much money chasing too few goods.
Initial Premium
The first insurance premium paid for PMI. See Private Mortgage Insurance.
Installment Note
A note that calls for periodic payments of principal and/or interest during the term of the note.
Installment Sales Contract
A real estate installment agreement where a buyer makes payment to a seller in exchange for the right to occupy and use property, but no deed or title transfers until all, or a specified portion of, payments have been made. Also called land contract, installment sales contract, land sales contract, real estate contract, and other names.
Instrument
Any document that transfers title (such as a deed), creates a lien (such as a mortgage), or gives a right to payment (such as a note or contract).
Insurance Companies
Institutions with large sums of stable, long-term investment capital, looking for high return investments, such as long-term commercial real estate projects; investors in secondary mortgage markets.
Interest
1. A right or share in something, such as a piece of real estate. 2. A charge a borrower pays to a lender for the use of the lender's money. Compare to Principal.
Interest Only Loan
A loan where scheduled payments only pay accrued interest and not any portion of the principal. A balloon payment equal to the entire principal amount of the loan is due at the end of the loan term.
Interest Only Second Mortgage
A second mortgage that is an interest-only loan.
Interest Rate
The rate which is charged or paid for the use of money, generally expressed as a percentage of the principal.
Interest Rate Cap
A limit on the amount of interest rate increase that can occur with an adjustable rate mortgage
Interest Shortfall
Any accumulated interest accrued, but not collected, through regular payments because of the adjustable rate or graduated payment feature of a loan.
Interest Yielding Investments
Investments that pay interest or other dividends as a form of income to the holder or bearer. These earnings may be counted as stable monthly income if the payments are consistent and do not deplete the principal amount of the investment.
Interim Loan
A temporary loan used to finance the construction of a building on land. Replaced with a takeout loan.
Intermediary
A person or institution that originates and/or services loans on behalf of another party (e.g., a mortgage broker).
Invalid
Not legally binding or legally effective; not valid.
Investment
A use of capital designed to produce income and/or profit.
Involuntary Alienation
The transfer of an interest in property against the will of the owner, or without action by the owner, occurring through operation of law, natural processes, or adverse possession.
Involuntary Lien
A lien that arises by operation of law without the consent of the property owner. Also called a statutory lien.
Judgment Creditor
One who has received a judgment for money from a judgment debtor.
Judgment Debtor
One against whom a judgment has been issued by a court for money owed.
Judicial Foreclosure
A lawsuit filed by a lender or other creditor to foreclose on a mortgage or other lien; a court ordered sheriff's sale of the property to repay the debt.
Jumbo Loans
Loans that exceed the maximum loan amount that Fannie Mae/Freddie Mac will buy, making them nonconforming. As of 2006, the limit is $417,000 on a single-family home.
Junior Lienholder
Secured creditor with a lower priority lien than another lien on the same land.
Junior Mortgage
Any mortgage that has a lower lien position than another mortgage.
Junk Fees
Charges assessed to a borrower by a loan originator that serve little if any function and are often hidden in mortgage documents.
Just Compensation
Appropriate or fair value for private land taken by the government for public use. See Eminent Domain.
Kickbacks
Fees or other compensation given for services not performed, but as a means of undisclosed commission for business referrals. Kickbacks are prohibited by RESPA.
Land Contract
A real estate installment agreement where a buyer makes payment to a seller in exchange for the right to occupy and use property, but no deed or title transfers until all, or a specified portion of, payments have been made. Also called installment land contract, installment sales contract, land sales contract, real estate contract, and other names.
Land Use Controls
Public or private restrictions on how land may be used (e.g., zoning).
Landlord
An owner who leases property to a tenant. Also called the lessor.
Law of Decreasing Returns
Theory that says that beyond a certain point, added value of a feature, addition, repair, etc., is less than the actual cost of that item. Also called law of diminishing returns.
Law of Increasing Returns
Theory that says that the added value of a feature, addition, repair, etc., is more than the actual cost of that item.
Lease
A contract where one party pays the other rent in exchange for possession of real estate; a conveyance of a leasehold estate from the fee owner to a tenant.
Lease/Option
When a seller leases property to someone for a specific term, with an option to buy the property at a predetermined price during the lease term, usually with a portion of the lease payments applied to the purchase price. See Lease and Option.
Lease/Purchase
When a seller leases property to someone for a specific term, with the tenant agreeing to buy the property at a set price during or following the lease term.
Leasehold Estate
An interest that gives the holder a temporary right to possession of the estate without title.
Lender First and Lender Second
When a lender holds two different mortgages on the same property, often at different interest rates.
Lender's Yield
The total amount of money that can be made from an investment . See Yield.
Lessee
A person who leases property from another; a tenant.
Lessor
A person who leases property to another; a landlord.
Level Payment
A buydown plan where the interest rate reduction, and hence the payment, is constant throughout the buydown period.
Liabilities
Financial obligations or debt. Any money that is owed. Compare to Debt.
LIBOR
(London InterBank Offering Rate) An index used by lenders when making ARM loans; the rate (in Euros) that international banks charge each other for loans.
License
A revocable, non-assignable permission to enter another's land for a particular purpose.
Lien
A non-possessory interest in property, giving a lienholder the right to foreclose if the owner does not pay a debt owed to the lienholder; a financial encumbrance on the owner's title.
Lien Priority
The order in which liens are paid out of the proceeds of a foreclosure sale. For example, tax liens always have the highest priority and a first mortgage would have the next highest priority.
Lien Theory States
States where a mortgagee holds only a lien against property (not actual title) until the loan is repaid. The mortgagor holds the actual title. Compare to Title Theory States.
Life Estate
A freehold estate that lasts only as long as a specified person lives, thus a life estate cannot be willed.
Life Tenant
The holder of a life estate.
Like Kind Property
The same type of property (such as real estate for real estate), as a necessary condition for a tax-free exchange.
Line of Credit
Available money that a borrower can access at any time up to a predetermined borrowing limit. If the loan is secured by a second mortgage on the borrower's principal residence, it is referred to as a home equity line of credit.
Line of Credit Loan
One type of reverse equity mortgage where an elderly homeowner mortgages the home to the bank in exchange for the ability to borrow money up to a maximum number of times or a maximum dollar amount. The line of credit is repaid only when the borrower dies, sells, or moves.
Liquid Assets
Cash and any other assets, such as stocks or bonds, that can quickly be converted to cash.
Loan Application
The form lenders require potential borrowers to complete, listing all pertinent information about the borrower and property.
Loan Fee
Fee charged by lender to cover the administrative costs of making a loan, usually based on a percentage of the loan amount (1% = 1 point). See Loan Origination Fee.
Loan Flipping
Refinancing a loan over and over.
Loan Origination Fee
Fee charged by lender to cover the administrative costs of making a loan, usually based on a percentage of the loan amount (1% = 1 point).
Loan Originator
One who is responsible for working with a prospective borrower to gather information, assist with completing applications, and otherwise making or initiating a new loan.
Loan Processor
One who is responsible for verifying information contained in a prospective borrower's loan file and for coordinating aspects of the loan process.
Loan Prospector®
An electronic system that puts lenders in direct contact with Freddie Mac, providing a streamlined process of document submission, underwriting, and loan approval.
Loan Service Fee
Fee charged by lender to cover the administrative costs of making a loan, usually based on a percentage of the loan amount (1% = 1 point). See Loan Origination Fee.
Loan-to-Value Ratio
(LTV) The amount of money borrowed compared to the value or price of the property.
Local Market
When lenders make mortgage loans directly to borrowers. This is also referred to simply as Primary Markets. See Primary Mortgage Market.
Location
Exact position of a piece of real estate.
Location Survey
A survey that determines if a property's buildings encroach on adjoining property, or if any adjoining property's buildings encroach on the subject property.
London InterBank Offering Rate
(LIBOR) An index used by lenders when making ARM loans; the rate (in Euros) that international banks charge each other for loans.
Long-term
Loans in real estate that have payments spread over 25-30 years.
Lot
A parcel of land; a parcel in a subdivision.
LTV
(Loan-to-Value Ratio) The amount of money borrowed compared to the value or price of the property.
Maintenance Payments
Money paid as part of a divorce settlement. Maintenance payments do not have to be revealed as a source of income if not counted to help repay a loan, but must be revealed as a debt obligation.
Maker
One promising to pay money in a note.
Margin
The difference between the index value and the interest rate charged to the borrower with an ARM loan (i.e., the lender's profit).
Market Area
Group of houses or properties that shares common characteristics. Also called a Neighborhood.
Market Price
The price for which a piece of real estate actually sold.
Market Value
The most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale.
Marketable Title Record
Unbroken chain of recorded titles going back a set number of years.
Matched Pair Analysis
The process of determining the value of specific property characteristics or features by comparing pairs of similar properties. Also called paired data analysis.
Materialman
A person who supplies materials, equipment, etc., for construction projects. Compare to Mechanic.
Materialman's Lien
Similar to a mechanic's lien, but based on a debt owed to someone who supplied materials, equipment, or fuel for a project rather than labor.
Maximum Guarantee Amount
The maximum amount that can be guaranteed by a VA loan.
Maximum Mortgage Amount
The maximum amount that can be financed by an FHA loan.
Mechanic
A person who performs work (construction, remodeling, repairs, or demolition) on real property. Compare to Materialman.
Mechanic's Lien
A specific lien claimed by someone who performed work on the property (construction, repairs, or improvements) and has not been paid. This term is often used in a general sense, referring to materialman's liens as well as actual mechanics' liens.
Member Banks
The 5,000+ commercial banks across the U.S. that are subject to the rules and policies implemented by the Fed.
Merger
The uniting of two or more separate properties by transferring ownership of them all to one person.
Military Eligibility
A certificate issued by the Department of Veteran's Affairs to establish status and amount of a veteran's eligibility to qualify for loan guarantee. See Certificate of Eligibility.
Minor
A person who has not yet reached the age of majority.
MIP
(Mortgage Insurance Premium) The fee charged for FHA mortgage insurance coverage. The initial premium can be financed, and there may be a renewal premium. Also called Upfront Mortgage Insurance Premium (UFMIP).
Misrepresentation
A false or misleading statement. See Fraud.
Monetary Policy
Means by which the government exerts control over the supply and cost of money.
Monthly Income
Income received on a monthly basis. See Income.
Moral Suasion
Trying to use persuasive influences on the public and financial markets so they will perceive credit in a specific way.
Mortgage
An instrument that creates a voluntary lien on real property to secure repayment of a debt. The parties to a mortgage are the mortgagor (borrower) and mortgagee (lender).
Mortgage Backed Security
(MBS) A Fannie Mae security that represents an undivided interest in a group of mortgages. Principal and interest payments from the individual mortgage loans are grouped and paid out to the MBS holders.
Mortgage Banker
One who originates, sells, and services mortgage loans, and usually acts as the originator and servicer of loans on behalf of large investors, such as insurance companies, pension plans, or Fannie Mae.
Mortgage Broker
One who, for a fee, places loans with investors, but typically does not service such loans.
Mortgage Companies
Institutions that function as intermediaries between borrowers and lenders. Mortgage companies are resources of service and expertise more than sources of actual lending capital.
Mortgage Disclosure Improvement Act
(MDIA) An amendment to the Truth in Lending Act enacted in 2009 that adds additional disclosure requirements, APR tolerances, and waiting periods on closing mortgage loans, as well as limiting fees that can be charged prior to disclosure.
Mortgage Fraud
Any misrepresentation or concealment used to obtain a mortgage loan.
Mortgage Insurance
Insurance offered by private companies (PMI) or the government through the FHA (MIP) to insure a lender against default on a loan by a borrower. See Private Mortgage Insurance (PMI) and Mortgage Insurance Premium (MIP).
Mortgage Insurance Premium
(MIP) The fee charged for FHA mortgage insurance coverage. The initial premium can be financed, and there may be a renewal premium. Also called Upfront Mortgage Insurance Premium (UFMIP).
Mortgage Payment Adjustment Period
The interval at which a borrower's actual mortgage payments change with an ARM.
Mortgage Payment Cap
A limit on the amount of mortgage payment increase that can occur with an adjustable rate mortgage.
Mortgagee
A lender who accepts a mortgage as security for repayment of the loan.
Mortgagor
A person who borrows money and gives a mortgage to the lender as security.
Mrs. Murphy Exemption
An exemption to the Federal Fair Housing Act, which holds that the rental of a unit or a room in an owner-occupied dwelling containing four units or less is exempt from the Fair Housing Law, provided rental ads are not discriminatory and a real estate agent is not used to locate tenants. Some states do NOT recognize this exemption.
Mutual Mortgage Insurance Fund
Name of FHA residential mortgage insurance program.
Mutual Savings Banks
State-chartered banks, located mostly in the northeastern U.S., owned by depositors and operated for their benefit. Usually, a large portion of their assets are mortgages.
National Market
The private investors and government agencies that buy and sell real estate mortgages.
Natural Attachments
Plants growing on the land.
Negative Amortization
When a loan balance grows because of deferred interest.
Negative Amortization Cap
A limit on the amount of negative amortization that can occur with an adjustable rate mortgage.
Negligence
Unintentional breach of a legal duty. It's a tort if it causes harm.
Negotiable Instrument
Promissory note or other finance instrument that is freely transferable.
Neighborhood
Group of houses or properties that shares common characteristics. Also called a market area.
Net and Gross Adjustment Theory
A means of limiting total adjustments that may be made to comparable sales to determine how closely they resemble the subject.
Net Income
Income after expenses.
Net to Seller
An estimate of the money a seller should receive from a real estate transaction, based on a certain selling price after all costs and expenses have been paid.
Net Worth
The value of a person's assets, determined by subtracting liabilities from assets.
No Document Loan
A loan where a borrower has good credit, but trouble providing income documentation, so the loan is decided on other merits. These loans may be offered at a lower LTV, and the lender may still require tax returns. Also called Stated Doc or No Ratio.
Nominal Rate
The interest rate stated in a note. Also called Coupon Rate or Note Rate.
Nonconforming Loans
Loans that do not meet Fannie Mae/Freddie Mac standards, and thus cannot be sold to them but can be sold to other secondary markets. Compare to Conforming Loans.
Non-judicial Foreclosure
Foreclosure by a trustee under the power of sale clause in a deed of trust, without the involvement of a court. (Not used in some states, such as Ohio.)
Nontraditional Mortgage Product
As defined by the SAFE Act, anything other than a 30-year fixed rate loan.
Notary Public
An official whose primary function is to witness and certify the acknowledgment made by one signing a legal document.
Note
A written, legally binding promise to repay a debt. Also called a Promissory Note.
Note Rate
The interest rate stated in a note. Also called Coupon Rate or Nominal Rate.
Notice
Knowledge or information about a fact, often used with regard to public documents.
Notice of Default
The first step in the foreclosure process, a letter or other communication stating that the borrower has failed to meet the debt obligation and demanding payment is made in full.
Nuisance
Interference with the quiet enjoyment of land from the outside.
Office of Thrift Supervision
(OTS) The government entity that regulates Savings and Loans in the same manner the Federal Reserve regulates commercial banks.
One-Time Premium
The initial fee paid for private mortgage insurance, with no renewal premium. See Private Mortgage Insurance.
Open Market Operations
When the Federal Reserve Board sells or buys government securities (bonds) as a means of controlling the supply of, and demand for, money. The Fed can also buy and sell U.S. dollars on the international market.
Open-End Mortgage
A mortgage where the borrower can request more funds from the lender, up to a certain pre-defined limit, even re-borrowing part of the debt that's been repaid (at lender's discretion) without having to renegotiate the loan. (Note: Most mortgage documents say open-end mortgage, but it's rare for lenders to loan more money without re-assessing the borrower and renegotiating the loan. Borrowers usually need to get a line of credit because it has an adjustable interest rate.)
Option
A contract giving one party the right to do something within a designated time period, without obligation to do so. Also called Option Contract.
Option Money
Cash consideration given for an option contract.
Option to Purchase
A contract giving the optionee the right, but not the obligation, to buy property owned by the optionor at an agreed price during a specified period.
Optionee
Person to whom an option is given.
Optionor
Person who gives an option.
Order of Execution
A court order directing a public officer (often the sheriff or marshal) to seize and/or sell property to regain possession for the owner and/or satisfy a debt. Also called an Order of Attachment.
Origination
The process of making or initiating a new loan.
Origination Fee
Fee charged by lender to cover the administrative costs of making a loan, usually based on a percentage of the loan amount (1% = 1 point). See Loan Origination Fee.
OTS
(Office of Thrift Supervision) The government entity that regulates Savings and Loans in the same manner the Federal Reserve regulates commercial banks.
Over-improvement
A property or feature for which the cost exceeds market value.
Overtime
Money paid to someone for hours worked beyond their normal workday or week. Overtime may only be counted as income if consistent.
Package Mortgage
A mortgage where personal property (e.g., appliances) is included in a real estate sale and financed with one contract.
Panic Peddling
The illegal practice of inducing owners to sell their homes (often at a deflated price) by suggesting that the ethnic or racial composition of the neighborhood is changing, with implication that property values will decline as a result. Also called Blockbusting.
Panic Selling
The illegal practice of inducing owners to sell their homes (often at a deflated price) by suggesting that the ethnic or racial composition of the neighborhood is changing, with implication that property values will decline as a result. Also called Blockbusting.
Par
The pricing for a mortgage loan that involves neither a discount nor a premium.
Partial Amortization Schedule
A table or chart that shows the periodic payments, interest and principal requirements, and unpaid loan balance for each period of the life of a loan. See Amortization Schedule.
Partial Release
A contract clause that obligates the creditor to release part of the property from lien and convey title to that part back to the debtor once certain provisions of the note or mortgage have been satisfied.
Partially Amortized Loans
Loans where payments are applied to principal and interest, but the payments do not retire the debt when the agreed upon loan term expires, thus requiring a balloon payment at the end of the loan term.
Partially Amortized Note
A note that calls for periodic payments of principal and/or interest during the loan term, with a balloon payment at the end of loan term to pay off balance due. Also called Installment Note with Balloon.
Partially Amortized Second Mortgage
A second mortgage that is a partially amortized loan. See Partially Amortized Loans.
Participation Loan
A loan for which the buyer and another investor (or seller, lender, etc.,) enter into a partnership, with the buyer paying an equity share in a deal in lieu of interest.
Participation Plan
A loan for which the buyer and another investor (or seller, lender, etc.,) enter into a partnership, with the buyer paying an equity share in a deal in lieu of interest. Also called a Shared Equity Plan.
Part-time Earnings
Money paid to someone for a job that is not considered full time. Part-time earnings may only be counted as income if consistent.
Pass-Through Securities
Mortgage-backed securities issued by Ginnie Mae, which are more common and pay interest and principal payments on a monthly basis.
Payee
The one promised payment in a note.
Payment Adjustment Period
The interval at which a borrower's actual mortgage payments change with an ARM.
Payment Cap
A limit on the amount of mortgage payment increase that can occur with an adjustable rate mortgage.
Pension Funds
Sources of large sums of capital looking for high return investments, which are now playing a bigger role in real estate finance via secondary markets and mortgage brokers.
Pensions
Money paid to someone as part of their retirement benefits. Pensions may only be counted as income if consistent.
Periodic Re-Amortization
When the payments on a loan are recalculated at a specific time based on the loan balance at that time so the new payments will fully amortize the loan over the remaining loan term.
Permanent Buydown
When points are paid to a lender to reduce the interest rate and loan payments for the entire life of the loan.
Permanent Construction Loan
A special type of construction loan where there is only one loan and one closing, with no take-out loan.
Personal Property
Tangible items that usually are not permanently attached to, or part of, the real estate. Also called personalty or chattel.
PITI
A typical mortgage payment that includes principle, interest, taxes, and insurance.
Planned Unit Development
(PUD) A special type of subdivision that may combine nonresidential uses with residential uses, or otherwise depart from ordinary zoning and subdivision regulations; some PUDs have lot owners co-own recreational facilities or open spaces as tenants in common.
Pledge
The deposit of personal property by a debtor with a creditor as security for a debt.
Plottage
An increase in value, over the cost of acquiring the separate parcels, by successful assemblage, usually due to a change in use.
PMI
(Private Mortgage Insurance) Insurance offered by private companies to insure a lender against default on a loan by a borrower.
Points
One percent of the loan amount. Points are charged for any reason, but are often used for buydowns (where they may also be called Discount Points). Points are used to increase the lender's yield on a loan.
Police Power
The constitutional power of state and local governments to enact and enforce laws that protect the public's health, safety, morals, and general welfare.
Portfolio
The collection of mortgages and other securities held by a lender and not sold on the secondary market.
Portfolio Lenders
Financial institutions that make real estate loans that they keep and service in house instead of selling them on the secondary markets.
Possessory Interest
Entitles holder to possession of property, now or in the future.
Power of Sale Clause
A clause that allows the trustee to sell trust deed property, without court supervision, when terms of the trust deed are not kept.
Pre-Approval
Process by which a lender determines if potential borrowers can be financed through the lender, and for what amount of money.
Predatory Lending
Loans that take advantage of ill-informed consumers through excessively high fees, misrepresented loan terms, frequent refinancing that does not benefit the borrower, and other prohibited acts.
Predudicial Error
An error which warrants an appellate court reversing a judgment previously issued.
Prepayment Clause
A contract clause that gives a lender the right to charge the borrower a penalty for paying off a loan early.
Prepayment Penalties
Additional money charged by a lender for the borrower paying a loan off early.
Pre-Qualification
Process of pre-determining how large of a loan a potential homebuyer might be eligible to borrow. Pre-qualification is typically done by an agent or lender, but it doesn't guarantee approval.
Price
What one person paid for something. Compare to Value.
Primary Mortgage Market Lenders
Lenders who make loans directly to borrowers (e.g., neighborhood banks).
Primary Mortgage Markets
When lenders make mortgage loans directly to borrowers. This is also referred to simply as Primary Markets. Compare to Secondary Mortgage Markets.
Prime Rate
The lowest interest rate that banks charge their best commercial customers.
Principal
1. With regard to a loan, the amount originally borrowed. Compare to Interest. 2. A person who grants another person (an agent) authority to represent him or her in dealing with third parties. 3. One of the parties to a transaction (such as the buyer or seller), as opposed to those who are involved as agents or employees (such as a broker or escrow agent).
Privacy Rule
Provision of the federal Gramm-Leach-Bliley Act that regulates the handling and disclosure of private financial information of consumers.
Private Mortgage Insurance
(PMI) Insurance offered by private companies to insure a lender against default on a loan by a borrower.
Profit
The difference between the money made from an investment and the money actually invested.
Promisee
A person who has been promised something; a person who is supposed to receive the benefit of a legally binding contractual promise (e.g., with a promissory note).
Promisor
A person who has made a contractual promise to another (e.g., in a promissory note).
Promissory Note
An instrument that's evidence of a promise to pay a specific debt; a written, legally binding promise to repay a debt.
Property
Something that is owned, real or personal, and includes the rights of ownership in that thing.
Property Tax
An annual tax levied on the value of real property.
Public Auction
An auction held at the courthouse where anyone can bid on property that is in foreclosure proceedings.
Purchase Agreement
A contract in which a seller promises to convey title to real property to a buyer in exchange for the purchase price. Also called a purchase and sale agreement, a purchase contract, or an earnest money agreement.
Purchase and Sale Agreement
A contract in which a seller promises to convey title to real property to a buyer in exchange for the purchase price.
Purchase Contract
A contract in which a seller promises to convey title to real property to a buyer in exchange for the purchase price.
Purchase Money Mortgage
A mortgage where the seller finances all or part of the sale price of a piece of property for a buyer.
Purchase Money Second Mortgage
A purchase money mortgage that's in a second lien position.
Qualifying
The process of determining whether or not a borrower is likely to default on a loan and that the property is worth enough to satisfy the debt if the borrower does default.
Qualifying a Buyer
Evaluating a borrower's creditworthiness.
Qualifying Standards
Guidelines used to measure the quality of a borrower and property.
Quality Control
The secondary mortgage market's effort to standardize mortgages.
Quality of Stable Monthly Income
The dependability of a borrower's income. See Stable Monthly Income.
Quitclaim Deeds
Deeds that convey any interest in a piece of real property the grantor has at the time the deed is executed. A quitclaim deed makes no warranties regarding the title, if any, held by the grantor.
Racial Discrimination
Treating people unequally because of their race, ancestry, or national origin in violation of civil rights law.
RAM
(Rapidly Amortizing Mortgage) A fixed-rate mortgage set up like a 30-year conventional loan, but payments increase regularly like an ARM..
Rate Adjustment
The interval at which a borrower's actual interest rate changes with an ARM.
Real Estate Contract
1. A purchase agreement. 2. A land contract. 3. Any contract having to do with real property.
Real Estate Cycles
General swings in real estate activity, resulting in increasing or decreasing activity, and property values, during different phases of the cycle.
Real Estate Investment Trust
(REIT) A real estate investment business with at least 100 investors, organized as a trust.
Real Estate Owned
(REO) Property acquired by a lending institution through foreclosure and held in inventory.
Real Estate Settlement Procedures Act
(RESPA) Federal law dealing with real estate closings that provides specific procedures and guidelines for the disclosure of settlement costs.
Real Property
Physical land and everything attached to it, plus the rights of ownership (bundle of rights) in real estate. Also called realty.
Realty
Real property.
Re-amortization
When payments on a loan are recalculated so the new payment will fully amortize the loan over the remaining loan term.
Recast
When payments on a loan are recalculated so the new payment will fully amortize the loan over the remaining loan term. See Re-amortization.
Recertification of Value
(Recert) Action taken to validate that any "subject to" conditions of an original appraisal have been met and that the original opinion of value is still valid; as when construction or renovations are complete. Also called a Completion Report.
Reconciliation
Analyzing the values derived from the different appraisal approaches to arrive at a final opinion of value.
Recording
The act of filing a document at the county recorder's office so it will be placed in the public record.
Red Flag Rules
Section 114 of the Fair and Accurate Credit Transaction Act requiring financial institutions to implement identity theft prevention programs.
Redemption
The right of a debtor to redeem property from foreclosure proceedings prior to confirmation of sale.
Redlining
When a lender refuses to make loans secured by property in a certain neighborhood because of the racial or ethnic composition of the neighborhood.
Reduction Option Mortgage
A fixed-rate mortgage that gives the borrower a limited opportunity to reduce the interest rate one time during the course of the loan, provided certain conditions are met.
Refinance Mortgage
A mortgage that a borrower gives to a lender to redo or expand the loan on the property, usually to get a better interest rate or pay off other debts.
Refinancing
When a borrower redoes or expands the loan on a property, usually to get a better interest rate or pay off other debts.
Regulation
1. A rule adopted by an administrative agency. 2. Any governmental order having the force of law.
Regulation Z
Federal guidelines under the Truth in Lending Act that require full disclosure of all credit terms for consumer loans.
Rehabilitation Loans
The FHA-insured loan program that allows a buyer to buy property and borrow extra money to repair it. Borrower must meet all FHA qualifying standards and must spend at least $5,000 in rehab costs; property cannot exceed maximum FHA mortgage amounts and must be brought up to FHA standards. See Section 203(k) FHA Loan.
REIT
(Real Estate Investment Trust) A real estate investment business with at least 100 investors, organized as a trust.
Release
1. A document in which one gives up a legal right. 2. To give up a legal right. Also called Release From Liability.
Renewal Premium
Recurring fee to continue an insurance policy, such as PMI.
Rent
Consideration paid by a tenant to a landlord in exchange for possession and use of property.
Rent Credit
When part of a rent payment is applied against the purchase price of a property, especially with lease/purchase contracts.
Rental Income
Money paid to someone for the right to use a property. Rental income may only be counted as income if it is consistent. Only the part of the rental income that is over and above expenses (net rental income) may be counted.
REO
(Real Estate Owned) Property acquired by a lending institution through foreclosure and held in inventory.
Rescind
Take back or withdraw an offer or contract. See Right to Rescind.
Reserve Requirements
The percentage of customers' deposits that commercial banks are required to keep on deposit, either on hand at the bank or in a bank's own accounts. The money a bank cannot lend to other people.
Reserves
Cash on deposit or other highly liquid assets a borrower must have in order to cover two months of PITI mortgage payments, after they make the cash down payment and pays all closing costs.
Residual Income
The income a borrower has left after subtracting taxes, housing expense, and all recurring debts and obligations (used for VA loan qualifying). Also called the cash flow analysis method.
Resolution Trust Corporation
(RTC) An agency formed to manage the disposition of bankrupt Savings and Loans.
RESPA
(Real Estate Settlement Procedures Act) Federal law dealing with real estate closings that provides specific procedures and guidelines for the disclosure of settlement costs.
Restrictive Covenants
Limitations on real property use, imposed by a former owner through language included in the deed. Also called Deed Restrictions.
Retirement Benefits
Money paid to someone as part of their retirement benefits. Pensions may only be counted as income if consistent. See Pension.
Reverse Mortgage
When a homeowner age 62 or over, with little or no outstanding liens, mortgages his or her home to a lender and, in return, receives a monthly check. See Term Loan, Split Term Loan, Tenure Loan and Line of Credit Loan.
Reversible Error
An error which warrants an appellate court reversing a judgment previously issued. See Error, Prejudicial.
Right of Disposal
Confers upon the owner the ability to transfer all or some property rights to others.
Right of Enjoyment
Confers upon the owner the freedom to use land without undue interference from the outside.
Right of Use
Confers upon the owner the right to make the land productive.
Right of Way
(ROW) An easement that grants access.
Right to Rescind
The right of a consumer to rescind any credit transaction, except a mortgage, involving their principal residence as collateral, up to midnight of the third business day.
Root of Title
The deed or other document of transfer that was the most recently recorded, going back as of the time required by the state.
Roundtable Closing
A closing conducted with all parties present.
RTC
(Resolution Trust Corporation) An agency formed to manage the disposition of bankrupt Savings and Loans.
Rural Development
A government agency under the Department of Agriculture that guarantees or makes loans to help buyers of homes and farms in rural areas or small towns. Formerly the Farmer's Home Administration. (FmHA)
Rural Properties
The FHA-insured loan program for rural properties. There are no income limits on this type of loan. The borrower must meet all FHA qualifying standards and the property may include up to 2.5 acres of land but may only be 75% of maximum FHA mortgage amounts. See Section 203(i) FHA Loans.
S & Ls
Institutions that specialize in taking savings deposits and making mortgage loans. Also called Savings and Loan Associations.
SAFE Act
Secure and Fair Enforcement for Mortgage Licensing Act - A key element of the Housing and Economic Recovery Act of 2008 (HERA) designed to enhance consumer protection and reduce fraud by requiring states to establish minimum standards for the licensing and registration of mortgage loan originators.
SAIF
(Savings Association Insurance Fund) A fund under the control of the Federal Deposit Insurance Corporation (FDIC), which insures deposits in Savings and Loan associations. This takes the place of the former Federal Savings and Loan Insurance Corporation (FSLIC).
Sales Comparison Approach
An appraisal method that estimates the value of real property by comparing it with other, recently sold properties in the same area. Also called Market Approach.
SAM
(Shared Appreciation Mortgage) A mortgage where the lender charges below-market interest rates in exchange for a share of the borrower's equity.
Satisfaction of Mortgage
The document a mortgagee gives the mortgagor when a mortgage debt has been paid in full, acknowledging that the debt has been paid and the mortgage is no longer a lien against the property.
Savings and Loan Associations
Institutions that specialize in taking savings deposits and making mortgage loans.
Savings Association Insurance Fund
A fund under the control of the Federal Deposit Insurance Corporation (FDIC), which insures deposits in Savings and Loan associations. This takes the place of the former Federal Savings and Loan Insurance Corporation (FSLIC).
Scarcity
Physical characteristic of real property referring to the limited supply of real estate.
Second Mortgage
A security instrument in a second lien position.
Secondarily Liable
When a party is not completely released from liability on an obligation; thus if the lender cannot recover the loan amount from the new party, the original party, who is secondarily liable, may still be pursued.
Secondary Financing
When a buyer borrows money from another source in addition to the primary lender to pay for part of the purchase price or closing costs.
Secondary Liability
When a party is not completely released from liability on an obligation; thus if the lender cannot recover the loan amount from the new party, the original party, who is secondarily liable, may still be pursued.
Secondary Mortgage Markets
The private investors and government agencies that buy and sell real estate mortgages. Compare to Primary Mortgage Markets.
Section 1031
When value in a property is traded for value in another property. Properties must be of like kind, held for use in trade or business, or as investment to qualify for tax deferment. An equity exchange can also be a delayed exchange, with a promise to provide a replacement property. To qualify for tax deferment, the replacement property must be located within 45 days and closed within 180 days of the first exchange. Also called Tax-Deferred Exchange, Tax-Free Exchange, Like Kind Exchange, Equity Exchange.
Section 203(b) FHA Loan
The standard FHA-insured loan program. There are no income limits on this type of loan. The borrower must meet all FHA qualifying standards and the property cost must not exceed the maximum FHA mortgage amounts. Also called the Standard FHA Loan Program.
Section 203(i) FHA Loan
The FHA-insured loan program for rural properties. There are no income limits on this type of loan. The borrower must meet all FHA qualifying standards and the property may include up to 2.5 acres of land but may only be 75% of maximum FHA mortgage amounts. Also called Rural Properties FHA Loan Program.
Section 203(k) FHA Loan
The FHA-insured loan program that allows a buyer to buy property and borrow extra money to repair it. Borrower must meet all FHA qualifying standards and must spend at least $5,000 in rehab costs; property cannot exceed maximum FHA mortgage amounts and must be brought up to FHA standards. Also called Rehabilitation Loan FHA Loan Program.
Section 234(c) FHA Loan
The FHA-insured loan program for condominiums, available only for FHA qualified, single-family condos. The borrower must meet all FHA qualifying standards and property cost must not exceed the maximum FHA mortgage amounts. Also called Condominium FHA Loan Program.
Section 245 FHA Loan
The FHA-insured graduated payment loan program, which makes payments lower in the early years of the loan. The borrower must meet all FHA qualifying standards and property cost cannot exceed maximum FHA mortgage amounts. Also called Graduated Payment Loan FHA Program.
Section 251 FHA Loan
An FHA-insured ARM loan with rate adjustments limited to 1% annually and 5% over the life of loan. No negative amortization is permitted. Borrower must meet FHA qualifying standards and property cost can't exceed maximum FHA mortgage amounts. The number of ARMs that may be insured by the FHA is limited to 10 percent of the total number of all Title II mortgages insured during the previous fiscal year. Also called FHA ARM Loan Program.
Secure and Fair Enforcement for Mortgage Licensing Act
(SAFE Act) A key element of the Housing and Economic Recovery Act of 2008 (HERA) designed to enhance consumer protection and reduce fraud by requiring states to establish minimum standards for the licensing and registration of mortgage loan originators.
Secured Creditor
A creditor with a lien on specific property, which enables foreclosures and collection of debt from the sale proceeds, if not otherwise paid.
Securities
Instruments that pledge assets as security for a debt (e.g., mortgages and trust deeds), or documents that serve as evidence of ownership (e.g., stocks and bonds).
Securitization
Act of pooling mortgages and then selling them as mortgage-backed securities.
Security Agreement
Instrument that creates a voluntary lien on property to secure repayment of a loan. See Security Instrument.
Security Instrument
An instrument that gives a creditor the right to sell collateral to satisfy a debt if the debtor fails to pay according to the terms of the agreement.
Security Interest
The interest a creditor may acquire in the debtor's property to ensure that the debt will be paid.
Self-Employment Income
Money someone earns working independently, either doing freelance work, as an independent contractor, or as the owner of a company. Self-employment income may only count as income if it's consistent. Tax returns are usually required proving consistency.
Self-liquidating
Describes a fully amortized loan where the total payments over the life of the loan pay off the entire balance by the end of the loan's term.
Seller Financing
When a seller extends credit to a buyer to finance the purchase of the property, which can be instead of or in addition to the buyer obtaining a loan from a third party, such as an institutional lender.
Seller-paid Items
Closing costs paid by the seller instead of the buyer. This usually refers to items normally paid by the buyer, but in some instances are paid by the seller to help close the sale. FHA and VA loans limit this.
Seller's Market
Situation in the housing market where there are more buyers than sellers. This allows sellers to choose from a large number of buyers looking for property in a specific area.
Senior Mortgage
A mortgage that has a higher lien position than another mortgage.
Servicer
The person or organization responsible for the ongoing management and maintenance of a loan.
Servicing
The process of collecting payments, keeping records, and handling defaults for loans.
Settlement Statement
A document that presents detailed accounting for a real estate transaction, listing each party's debits and credits and the amount each will receive or be required to pay at closing. Also called a closing statement or a HUD-1.
Severalty
Ownership of real property by one person.
Shared Appreciation Mortgage
(SAM) A mortgage where the lender charges below-market interest rates in exchange for a share of the borrower's equity.
Shared Equity Loan
A loan for which the buyer and another investor (or seller, lender, etc.,) enter into a partnership, with the buyer paying an equity share in a deal in lieu of interest..
Shared Equity Plan
A loan for which the buyer and another investor (or seller, lender, etc.,) enter into a partnership, with the buyer paying an equity share in a deal in lieu of interest..
Sheriff's Deed
A deed issued by the court to a purchaser of property from a foreclosure sale.
Sheriff's Sale
A foreclosure sale held after a judicial foreclosure. Sometimes called an execution or an execution sale.
Simple Interest
Interest calculated as a percentage of the principal only. Compare to Compound Interest.
Social Security Income
Money one receives from the government under the Social Security program. Social Security payments may be counted as income only if they are consistent.
Soft Money Mortgage
A mortgage where the borrower receives credit instead of actual cash (e.g., a purchase money mortgage).
Specific Lien
A lien that attaches only to a particular piece of property as opposed to a general lien.
Specific Tax Policies
Tax laws that encourage or discourage a particular behavior or activity.
Speculation
Investing or optioning with the anticipation that something will go up in value.
Split-term Loan
A type of reverse mortgage loan that provides for monthly advances to qualified senior citizens, which doesn't need to be repaid until the borrower moves, dies, or sells the house.
Stable Income
Income expected to continue in the future.
Standard FHA Program
The standard FHA-insured loan program. There are no income limits on this type of loan. The borrower must meet all FHA qualifying standards and the property cost must not exceed the maximum FHA mortgage amounts. See Section 203(b).
Steering
Illegal activity of channeling prospective buyers or tenants to particular neighborhoods based on their race, religion, national origin, or ancestry.
Step Rate Loan
The number of years during which payments may be adjusted in a graduated payment mortgage. See Graduated Payment Buydown.
Stipulations
Conditions that must be met before a loan can close.
Straight Note
A note that calls for payments of interest only during the term of the note, with a balloon payment at the end to pay off the principal balance.
Straw Buyer
A person who receives payment from for the use of that person's name and credit history to apply for a loan, generally as part of a mortgage fraud scheme.
Strict Foreclosure
Foreclosure with a strict deadline, past which a mortgagor can no longer reclaim interest in real property from the foreclosure proceedings by bringing the mortgage current.
Subdividing
Splitting a larger parcel of land into several smaller parcels.
Subject
The property being appraised or for which a value opinion is being sought.
Subject to
When property is transferred to a buyer along with an existing mortgage or lien, but without the buyer accepting personal responsibility for the debt. The buyer must make the payments to keep the property, but only loses his or her equity in the event of default. Also called Subject to Existing Mortgage. Compare to Assumption.
Subordination Clause
A contract clause that gives a mortgage recorded at a later date the right to take priority over an earlier recorded mortgage.
Subprime Loans
Loans that have more risks than allowed in the conforming market. Also called B-C Loans or B-C Credit.
Substitution
Value characteristic that says an informed buyer will not pay more for a home than a comparable substitute.
Supply and Demand
Law of economics that says when supply exceeds demand for all products, goods, and services, prices will fall and when demand exceeds supply, prices will rise.
Table Funding
When a lender provides the funds for closing and typically closes the loan in the lender's name. The broker receives a fee on the settlement statement for placing the loan.
Take-out Loan
A loan used to pay off a construction loan when construction is complete.
Tax Lien
A lien on real property to secure the payment of taxes.
Taxation
The process of a government levying a charge on people or things.
Tax-deferred Exchange
When value in a property is traded for value in another property. Properties must be of like kind, held for use in trade or business, or as investment to qualify for tax deferment. An equity exchange can also be a delayed exchange, with a promise to provide a replacement property. To qualify for tax deferment, the replacement property must be located within 45 days and closed within 180 days of the first exchange. See Equity Exchange.
Tax-free Exchange
When value in a property is traded for value in another property. Properties must be of like kind, held for use in trade or business, or as investment to qualify for tax deferment. An equity exchange can also be a delayed exchange, with a promise to provide a replacement property. To qualify for tax deferment, the replacement property must be located within 45 days and closed within 180 days of the first exchange. See Equity Exchange.
TCM
Treasury Constant Maturity - (one-year index) An Index used for ARM loans.
Teaser Rates
A low initial rate on an ARM. The rate usually returns to normal at the first adjustment date.
Temporary Buydown
When points are paid to a lender to reduce the interest rate and payments early in a loan, with interest rate and payments rising later.
Tenant
Someone in lawful possession of real property. Someone who is leasing property from the owner. Also called sublessee or lessee.)
Tenure Loan
A type of reverse mortgage loan that provides monthly advances to qualified senior citizens for as long as they occupy the house as principal residence. Monthly payments are less because there's no set repayment date.
Term
A prescribed period of time; especially, the length of time a borrower has to pay off a loan, or the duration of a lease.
Term Loan
A type of reverse mortgage loan that provides monthly advances to qualified senior citizens for a fixed period of time, usually 3-12 years. At the end of the period, all principal advances plus interest are due. This plan has limited success because borrowers fear having to sell their home at the end of the term.
The Fed
(Federal Reserve Board) The body responsible for U.S. monetary policy, maintaining economic stability and regulating commercial banks. Also referred to as Board of Governors.
Title
Lawful ownership of real property. Also, in informal usage, the deed or other document that is evidence of ownership.
Title Insurance
Insurance that indemnifies against losses resulting from undiscovered title defects and encumbrances.
Title Theory States
States where a mortgagee holds actual title to property until the loan is repaid. Compare to Lien Theory States.
Title VIII
Part of the Civil Rights Act of 1968; prohibits discrimination based on race, color, religion, sex, national origin, disability, or familial status. Also referred to as the Federal Fair Housing Act.
Torrens System
A system of title registration that is an alternative to the recording system.
Tort
A breach in standards of reasonable conduct imposed by law that causes harm to another person.
Total Debt Service Ratio
The relationship of a borrower's total monthly debt obligations, including housing and long-term debts with more than ten payments remaining, to income, expressed as a percentage.
Trade Fixtures
Any equipment or personal property a tenant installs for business purposes.
Transferability
The ability to freely buy, sell, encumber, or dispose of property in any way the owner sees fit.
Treasury Constant Maturity
(one-year index) An Index used for ARM loans.
Trespass
A physical invasion of land by another person with no lawful right to enter the land.
Trust
A legal arrangement in which title to property or funds is vested in one or more trustees, who manage the property or invest the funds on behalf of the trust's beneficiaries, in accordance with instructions set forth in the document establishing the trust.
Trust Deed
An instrument held by a third party as security for the payment of a note. Also called a Trust Deed. Like a mortgage, it creates a voluntary lien on real property to secure repayment of a debt. Parties to a deed of trust are grantor or trustor (borrower), beneficiary (lender), and trustee (neutral third party). Unlike a mortgage, a trust deed has a power of sale, allowing trustee to foreclose non-judicially. Compare to Mortgage.
Trustee
A person appointed to manage a trust on behalf of the beneficiaries; in a trust deed, an independent third party that holds the trust instrument.
Trustor
The borrower in a trust deed.
Truth In Lending Act
(TILA) Act that requires lenders to disclose credit costs in order to promote informed use of consumer credit.
Truth In Lending Statement
(TIL) Disclosure of the true costs associated with a residential loan, including the annual percentage rate, that is required to be given to prospective borrowers within three business days of applying for a loan.
Typical Buyer
A buyer who is acting in his or her own best interests.
UCC
(Uniform Commercial Code) A body of law that governs transactions involving personal property and sets requirements for negotiable instruments.
Underwriter
Individual who evaluates a loan application to determine its risk level for a lender or investor; final decision maker on a loan application.
Underwriting
The process of evaluating and deciding whether to make a new loan.
Underwriting Standards
The criteria an underwriter uses to determine if a borrower or property qualifies for a loan.
Undivided Interest
Legal doctrine that gives co-owners the right to possession of the whole property and not just part of it.
Unemployment
Money paid to someone for support, compensation, or temporary income after losing a job. Unemployment compensation may be counted as income only if it's consistent.
Unencumbered Property
Property for which the seller has clear title, free of mortgages or other liens.
Uniform Commercial Code
A body of law that governs transactions involving personal property and sets requirements for negotiable instruments.
Uniform Residential Appraisal Report
(URAR) Standard appraisal report form used by lenders and appraisers. The URAR was developed and approved by Fannie Mae (Form 1004) and Freddie Mac (Form 70).
Uniform Standards of Professional Appraisal Practice
(USPAP) Professional appraisal standards promulgated by The Appraisal Foundation and recognized throughout the United States as the accepted standards of appraisal practice.
Uniqueness
Characteristic of real property that says that every piece of land, every building, and every house is said to be a different piece of real estate. Also called non-homogeneity.
United States Treasury Department
The part of the executive branch of the federal government that's the fiscal manager of the nation. The U.S. Treasury is responsible for carrying out the nation's fiscal policy by doing the actual spending, taxing, and debt financing via an account it keeps with the Federal Reserve.
URAR
(Uniform Residential Appraisal Report) Standard appraisal report form used by lenders and appraisers. The URAR was developed and approved by Fannie Mae (Form 1004) and Freddie Mac (Form 70).
USPAP
(Uniform Standards of Professional Appraisal Practice) Professional appraisal standards promulgated by The Appraisal Foundation and recognized throughout the United States as the accepted standards of appraisal practice.
Usury
Charging an interest rate that exceeds legal limits.
Utility
The ability of a good or service to satisfy human wants, needs, or desires.
VA
Department of Veterans Affairs - Federal agency that oversees programs for veterans of the U.S. armed services, including the Veterans Benefits Administration and Veterans Health Administration.
VA Automatic Endorsers
Lenders authorized to underwrite their own VA loan applications and who are responsible for the entire mortgage process through closing.
VA Entitlement
The dollar amount of loan guarantee to which an eligible veteran is entitled.
VA Guarantee
The dollar amount of loan that will be paid by the VA in the event of borrower default.
Valid
The legal classification of a contract that is binding and enforceable in a court of law.
Valuable Consideration
Anything of value, such as money, services, goods, or promises, given to induce another to enter into a contract. See Consideration.
Value
The amount of goods or services offered in the marketplace in exchange for something else.
Value Range
A range of possible values for a property based on the data analyzed by the appraiser.
Variable Balance Mortgage
(VBM) A mortgage with an adjustable interest rate, but with payments that never change. Instead, as the rate goes up or down, the balance due on the mortgage changes.
Variable Funding Fee
A fee charged on VA-guaranteed loans in place of mortgage insurance.
Variable-rate Mortgage
(VRM) Any loan in which the interest rate may change, whether it is tied to an index or not. VRMs are now obsolete and replaced by ARMs.
Vendee
A buyer or purchaser; particularly, someone buying property under a land contract.
Vendor
A seller; particularly, someone selling property by means of a land contract.
Verification of Deposit
A form sent by a lender directly to a bank verifying the borrower's accounts.
Veteran's Benefits Administration
Government agency, part of the U.S. Department of Veteran's Affairs, that guarantees mortgage loans for eligible veterans.
Void
Having no legal force or effect.
Voluntary Alienation
When an owner voluntarily transfers an interest to someone else.
Voluntary Conveyance
When a debtor returns property to the lender in lieu of foreclosure. Generally, the debtor does not receive any compensation for surrendering title to the property, but does avoid foreclosure.
Voluntary Lien
A lien placed against property with the consent of the owner; a mortgage, or, in other states, a deed of trust.
Voucher System
A disbursement plan for construction mortgage payouts whereby the contractor pays his or her own bills and then submits bills to the lender for reimbursement.
Waiver
The voluntary relinquishment or surrender of a right.
Warehouse Lending
When a mortgage broker uses his own funds to fund the mortgage loan and then sells the loan to the lender immediately after closing. The broker usually has a guarantee the lender will buy the loan and receives an additional fee for funding the mortgage loan.
Warrant System
A disbursement plan for construction mortgage payouts whereby the lender directly pays bills presented by the various suppliers and laborers on the project.
Warranty Deeds
Deeds that carry warranties of clear title and the grantor's right to convey title.
Waste
Use or abuse of property in any way that permanently damages it or reduces its market value.
Welfare
Money paid to someone from the government for support. Welfare may only be counted as income if it's consistent or permanent.
Wild Deed
A deed outside the chain of title.
Words of Conveyance
Deed language that clearly states the grantor's intention to transfer the real property.
Wraparound Financing
When a seller keeps an existing loan and continues to pay on it, while giving the buyer another mortgage.
Wraparound Mortgage
When an existing loan on a property is retained, while the lender (or seller) gives the buyer another, larger loan. Often the seller keeps the existing mortgage, still pays on it, and gives the buyer another mortgage.
Writ of Execution
A court order directing a public officer, often the sheriff or marshal, to seize and/or sell property to regain possession for the owner and/or satisfy a debt.
Yield
The total amount of money that can be made from an investment.
Yield Spread Premium
(YSP) A tool that allows a borrower to accept a slightly higher interest rate in exchange for lowering fees and closing costs; may be paid to a mortgage broker for originating such a loan.
Zoning Laws
Local ordinances dividing a city, county, etc., into zones, allowing different types of land use in different areas.