A credit mortgages: Mortgages which generally meet the credit underwriting guidelines of Fannie Mae, Freddie Mac, FHA, VA or major jumbo purchasers. Those who have credit ratings or other qualification deficiencies would be rated as B, C or D credit.

Abandonment: The intentional relinquishment of claim or title to personal or real property.

Above par: When a mortgage is sold for more than its face value because it has an above market interest rate. For example, a $100,000 mortgage may be sold for 101.00 or $101,000.

Abstract of title: A written history of ownership of a parcel of land, summarizing the material parts of any occurrence affecting title of said land.

Acceleration clause: A common provision of a mortgage which allows the holder to demand the entire outstanding mortgage balance due and payable in the event of a breach of the mortgage contract.

Accident and health premium: A portion of the amount paid by a borrower for the mortgage insurance that ensures the continuance of mortgage payments in the event of a mortgagor’s disability or illness

Accommodation party (endorser): A person who lends his name to guarantee a loan for another by signing a promissory note, bill, or other negotiable instrument; the endorser becomes the guarantor of the loan and is therefore responsible for its repayment.

Accredited Residential Originator (ARO): Professional designation awarded by the Mortgage Bankers Association of America, in recognition of excellence in residential mortgage loan origination.

Accredited Residential Underwriter (ARU): Professional designation awarded by the Mortgage Bankers Association of America, in recognition of excellence in residential underwriting.

Accrued interest: Interest earned for the period of time elapsed since interest was last paid.

Acquittance: A document evidencing payment in full of a debt obligation. One example would be a satisfaction of mortgage.

Add-on-interest: The full amount of interest calculated on the original principal for the term of the loan. This interest is added to the original principal, thereby becoming a part of the face amount of the promissory note.

Adjustable rate mortgage (ARM): A mortgage loan or deed of trust which allows the lender to adjust the interest rate in accordance with a specified index periodically and as agreed to at the inception of the loan. Also called variable rate mortgages (VRM).

Adjusted basis: The original cost of a property, plus the value of any capital expenditures for improvements to the property, minus any depreciation taken.

Adjustment interval: On an adjustable rate mortgage (ARM), the interval of time between changes in the interest rate of monthly payment, typically one, three or five years, depending on the index.

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

Adjustment period cap: The amount that the interest rate is allowed to increase or decrease at the time of adjustment of an adjustable rate mortgage. A one year adjustable would have an annual cap, since the adjustment period is every year.

Ad valorem taxes: Real estate taxes on the assessed value of property.

Alienation clause: A type of acceleration clause that demands payment of the entire balance upon sale or other transfer of title; also called a “due-on-sale” clause.

All-inclusive trust deed (AITD): A refinancing technique involving the creation of a new deed of trust that includes the balance due on the existing note plus new funds advanced; also known as a wraparound mortgage.

Alternative mortgage instrument: A mortgage that differs from the typical mortgage instrument either in the amount of principal, the interest rate, the periodic or monthly payments, or terms for repayment.

Amortization: Repayment of mortgage debt with periodic payments of both principal and interest, calculated to retire the obligation at the end of a fixed period of time.

Amortization schedule: A table showing the amounts of principal and interest due at regular intervals and the unpaid mortgage balance after each payment is made.

Annual mortgage statement: A report prepared by the lender or servicing agent for the mortgagor, stating the amount of taxes, insurance, and interest that was paid during the year, and the outstanding principal balance.

Annual percentage rate (APR): A term defined in section 106 of the federal Truth in Lending Act (15 USC 1606), which expresses on an annualized basis the charges imposed on the borrower to obtain a loan (defined in the Act as “finance charges”), including interest, discount and other costs.

Appraisal: An opinion or estimate of value. Also refers to the process by which a value estimate is obtained.

Appraiser: One qualified by education, training and experience to estimate the value of real and personal property.

Appreciation: An increase in value for any reason, except inflation.

Appurtenance: Anything belonging to or attached to land such as a barn, garage, or easement, that is part of the property and is therefore included in a sale or transfer.

Arbitrage: The simultaneous buying and selling of any securities including mortgages, mortgage-backed securities, or futures contracts in different markets for the purpose of realizing a profit from differences in price.

Arrears: The situation in which mortgage interest and real estate taxes are paid at or after the end of the period for which they are levied. Late payment is also described as being in arrears.

Assessed valuation: The value that a taxing authority places upon real property that becomes the base for computing local property taxes.

Assessment: A value factor assigned to real property and used to determine real property taxes.

Asset: A property or right owned, tangible or intangible, that has monetary value and is capable of providing future benefits to its owner.

Assumption: The act of taking over the previous borrower’s obligation of a mortgage note. Assumptions may be advantageous if the terms of the mortgage are advantageous and they are not changed by the lender when the mortgage is assumed.

Assumption agreement: A written agreement by one party to pay an obligation originally incurred by another.

Assumption fee: The amount paid a lender for the paperwork and processing of records necessary to approve and document a new debtor.

Assumption of mortgage: A buyer’s acceptance of primary liability for payment of an existing note secured by a mortgage or deed of trust. The seller remains secondarily liable, unless specifically released by the lender.

Balloon mortgage: A mortgage with periodic installments of principal and interest that do not fully amortize the loan. The balance of the mortgage is due in a lump sum at a specified date, usually at the end of the term.

Balloon payment: A scheduled payment on a mortgage that is larger than other, periodic payments, usually the unamortized final payment.

Bankruptcy: Court proceedings to relieve the debts of an individual or business unable to pay its creditors. Bankruptcy may be declared under one of several chapters of the federal bankruptcy code: Chapter 7, which covers liquidation of individual or business assets; Chapter 11, which covers reorganization of bankrupt businesses; Chapter 12, which covers certain farm bankruptcies; and Chapter 13, which covers workouts or debts by individuals.

Beneficiary statement: The lender’s statement under a deed of trust, detailing the remaining principal balance, monthly payment, and interest rate on loan. Also called a “bene statement,” “offset statement,” or “estoppel certificate.”

Bill of sale: A document signed by a seller that certified a transfer of ownership of personal property.

Biweekly mortgage: A mortgage with payments due every two weeks, totally 26 payments a year.

Binder: Temporary hazard or title insurance granted prior to the issuance of a permanent policy. In real estate, a preliminary agreement between a buyer and seller than includes the price and terms of the contract.

Blanket mortgage: A mortgage that covers more than one parcel of real estate owned by the mortgagor.

Bond: An obligation written under seal. For example, the obligation may be to make good if a third party defaults (performance bond), or betrays a trust (fidelity bond), or an obligation to pay interest and principal as specified. The latter type of bond is a debt instrument which may be secured by a mortgage or pool of mortgages.

Borrower: One who receives funds in the form of a loan with the obligation of repaying the loan in full with interest.

Borrower/guarantor full recourse: An agreement wherein the borrower/guarantor has personally agreed to fully repay all amounts owed under a mortgage loan, irrespective of whether the collateral is adequate to retire the debt. This agreement gives the holder of the note, or other negotiable instrument, the right to recover against the borrower/guarantor personally, including any and all assets of the borrower/guarantor.

Borrower/guarantor partial recourse: An agreement wherein the borrower/guarantor has personally agreed to repay a set dollar amount, all amounts exceeding a stated dollar amount, or a percentage of the outstanding balance of the mortgage loan. This agreement gives the holder of the note, or other negotiable instrument, the right to recover against the borrower/guarantor personally, including any and all assets of the borrower/guarantor, but only to the extent specified. For example, a borrower/guarantor may agree to pay the first $1 million of a $5 million loan or the top 25% of the loan.

Bow-tie loan: A variable-rate loan that attempts to smooth the impact of rate increases on borrowers by deferring a portion of high interest rates until maturity. Usually, all interest above a certain rate is deferred to maturity.

Bridge loan: A loan which enables a homeowner to get financing to make a down payment on pay closing costs on a new home before selling the present house. Also called “gap financing.”

Broker: An individual employed on a fee or commission basis as agent to bring buyers and sellers together and assist in negotiating contracts between them.

Buy-down mortgage: A mortgage with a below-market interest rate made by a lender in return for an interest rate subsidy in the form of additional discount points paid by the builder, seller or buyer.

Caps (interest): Consumer safeguards on an adjustable-rate mortgage which limit the amount the interest rate may change per year and over the life of the loan.

Caps (payment): Consumer safeguards on an adjustable-rate mortgage which limit the amount monthly payments may change.

Cash out refinancing: When the principal amount of a new mortgage involved in refinancing is greater than the principal amount outstanding of the existing mortgage being refinanced, and all or a portion of the equity is converted to cash.

Certificate of claim: A contingent promise to reimburse an insured mortgagee for certain costs incurred during foreclosure of an insured mortgage, provided the proceeds from the sale of the property are sufficient to cover the lender’s claim.

Certificate of completion: A document issued by an architect or engineer stating that construction is completed in accordance with the terms, conditions, approved plans and specifications.

Chain of title: A chronology of documents that have transferred title to a parcel of real property from the original owner to the present owner.

Clear title: Unencumbered title to real property, free of liens or defects. Also, “free and clear.”

Closed-end mortgage: A mortgage under which the mortgagor is prohibited from borrowing additional funds under the same mortgage.

Closed period: The interval of time under a mortgage during which the loan cannot be prepaid.

Closing: In real estate, the delivery of a deed, the signing of note, and the disbursement of funds necessary to consummate a sale or loan transaction.

Closing statement: A financial disclosure giving an account of all funds received and expected at closing, including escrow deposits for taxes, hazard insurance and mortgage insurance. All FHA, VA and most conventional-financed loans use a uniform settlement statement called the “HUD-1.”

Co-borrower: Second or additional personal equally responsible for payments on a mortgage. A co-borrower does not have to take title to the property, but usually has to sign the mortgage note.

Collection: The servicing procedure followed to bring a delinquent mortgage current and to file the required notices to begin foreclosure when necessary.

Commitment fee: Any fee paid by a potential borrower to a potential lender for the lender’s promise to loan money at a specified date in the future. The lender may or may not expect to fund the commitment.

Co-mortgagor: A second borrower who signs a mortgage loan with a mortgagor. The co-mortgagior;s income, assets and debts are combined with the mortgagor’s for underwriting and ratio analysis purposes. The co-mortgagor’s name must appear on the FHA Certificate of Commitment and the Mortgage or Deed of Trust.

Comparables: Properties used for comparative purposes in the appraisal process that have similar characteristics to the subject property.

Compensating factor: A positive characteristic of a mortgage applicant which may offset a negative factor.

Compound interest: Interest computed on both the original principal and accrued interest.

Conditional right to refinance: A provision of a balloon mortgage, which, at the time of the scheduled balloon payment, allows the borrower to covert to a fixed rate for a fixed period which will fully amortize the mortgage.

Conduit: An entity that issues mortgage-backed securities backed by mortgages that were originated by other lenders.

Conforming mortgage loan: A mortgage loan which meets all requirements (size, type, and age) to be eligible for purchase or securitization by federal agencies.

Constant payment: Periodic payment of a fixed amount that includes interest and principal. As the loan amount reduces, the portion of the payment applied to the principal increases. Standard home mortgages are constant payment loans.

Contract of sale of contract for deed: A contract between a purchaser and seller of real property to convey title after certain conditions have been met and payments have been made.

Conventional financing: Mortgage financing which is not insured or guaranteed by a government agency.

Conversion feature: A feature of a mortgage which allows the conversion to another interest rate, mortgage term, or type of mortgage instrument.

Convertible mortgage: A type of adjustable-rate mortgage that may be converted to a fixed-rate mortgage at specified intervals during a pre-determined time period.

Convey: The act of transferring title to real property from one party to another.

Conveyance: The document, such as a deed, lease, or mortgage, used to effect a transfer.

Co-signer: One who agrees to assume a debt obligation if the principal borrower defaults on mortgage payments. A co-signer assumes only personal liability and has no ownership interest in the property: his or her income and obligations are used in the underwriting process to reinforce the credit of the principal borrower.

Covenant: A legally enforceable promise or restriction in a mortgage. For example, the borrower may covenant to keep the property in good repair and adequately insured against fire and other casualties. A breach of covenant in a mortgage usually creates a default as defined by the mortgage, and can be the basis for foreclosure.

Credit rating: A rating given to a person or company that establishes creditworthiness based upon present financial condition, experience, and past credit history.

Credit report: A report run by an independent credit agency which verifies certain information concerning an applicant’s credit standing.

Cure: When borrowers bring the loan current by paying back any missing installments, refinancing the loan or selling the property.

Decree of foreclosure and sale: In a judicial foreclosure, the court decree of judgment that establishes the amount of the mortgage debt and orders the property sold to satisfy the debt.

Deed: The document by which title to real property is transferred from one party to another.

Deed-in-lieu: A deed given by a borrower/mortgagor to a lender/mortgagee to satisfy a debt and avoid foreclosure.

Deed of reconveyance: The transfer of legal title from the trustee to the trustor (borrower) after the trust deed is paid in full.

Deed of trust: A type of security instrument in which the borrower conveys title to real property to a third party (trustee) to be held in trust as security for the lender, with the condition that the trustee shall reconvey the title upon payment of the debt, and conversely, will sell the land and pay the debt in the event of a default by the borrower.

Default: The non-payment of a mortgage or other loan in accordance with the terms as specified in the note.

Default interest rate: The interest rate stipulated by certain mortgage documents which is triggered by a breach or nonperformance of the terms of a note, the covenants of a mortgage, or the terms of other loan documents.

Default letter: A letter sent to the borrower indicating that a breach or nonperformance of the terms of a note, the covenants of a mortgage, or the terms of other loan documents has occurred. This letter also advises the borrower of the rights of the lender under the note/mortgage and requires that the default be cured.

Defeasance: A provision in a mortgage which allows the debtor to reclaim property that has been foreclosed, if certain conditions are met.

Delinquency: Failure of a borrower to make timely payments specified under a loan agreement.

Delinquency ratio: The ratio of number of past due loans to total number of loans serviced.

Demand letter: Correspondence sent to the borrower indicating that unless the loan is made current within a certain time frame, the lender can, by virtue of a default, declare the entire principal balance outstanding as well as all interest due under the note to be due and payable.

Demand note mortgage: A note or mortgage that the lender can call due at any time and without prior notice.

Department of Veterans Affairs (VA): A cabinet-level agency of the federal government. The Servicemen’s Readjustment Act of 1944 authorized the agency to administer a variety of benefit programs designed to facilitate the adjustment of returning veterans to civilian life. Among the benefit programs is the VA Home Loan Guaranty program, which encourages mortgage lenders to offer long term, low down payment financing to eligible veterans by partially guaranteeing the lender against loss upon foreclosure.

Disbursements: Actual payment of monies. Used to describe construction loan draws.

Disclosure: Information relevant to specific transactions that is required by law.

Dispossess: To obtain physical possession of property by due process of law.

Down Payment: A portion of the sales price paid a seller by a buyer to close a sales transaction, with the understanding that the balance will be paid at settlement. Also, the difference between the sale price of real estate and the mortgage amount.

Due date: Date which the borrower must pay the interest and/or the principal and interest due on his or her mortgage, as stated in the note, as well as any escrow payment.

Due diligence review: An examination by a purchaser of a servicing portfolio. Generally the reviewer will look at credit quality and underwriting of the loan collateral underlying the servicing rights; correctness and completeness of the loan documents; the seller’s servicing practices and methodologies; and the accuracy of the portfolio offering document.

Due-on-sale: A clause in a mortgage stating that if the mortgagor sells, transfers, or in any way encumbers the property, then the mortgagee has the right to implement an acceleration clause making the balance of the obligation due.

Eminent domain: The right of government bodies, public utilities and public service corporations to take private property for public use (e.g., schools and roads) upon payment of its fair market value.

Endorsement: A signature on a negotiable instrument by which title to the property mentioned therein is assigned and transferred. Also, a notation added to an instrument after execution to charge or clarify its contents. In insurance, coverage may be restricted or enlarged by endorsing a policy. In FHA loans, a notation placed on the note by the FHA indicating that the loan is insured under the National Housing Act.

Equity: The net value of an asset. In the case of real estate, it would be the difference between the present value of the property and the mortgage amount on that property.

Escrow: An item of value, money or documents, deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate. In some parts of the country, escrows of taxes and insurance premiums are called impounds or reserves.

Escrow account: The segregated trust account in which escrow funds are held.

Escrow analysis: The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance and other bills when due.

Escrow coverage/shortage: The difference, determined by escrow analysis, between escrow funds on deposit and escrow funds required to make a payment when it becomes due.

Escrow payment: The portion of a mortgagor’s monthly payments held by a lender or servicer to pay taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also called “impounds” or “reserves” in some states.

Estate: The ownership interest an individual has in real property. The sum total of all the real and personal property owned by an individual at the time of death.

Estoppel certificate: A written statement setting forth certain facts which cannot later be repudiated (frequently given by a lender or a tenant relative to a loan or lease, respectively).

Evidence of title: Proof of ownership of property.

Exculpatory clause: A clause in a contract holding a specified party harmless in the event of default. For example, the provision in a note that the debtor will not be held personally liable in the event of default.

Extension: Continuation past original maturity date; continuation of a commitment.

Fair market value: The price at which property is transferred between a willing buyer and a willing seller, each of whom has a reasonable knowledge of all pertinent facts and neither being under any compulsion to buy or sell.

Fannie Mae (FNMA): The nation’s largest mortgage investor created in 1968 by an amendment to Title III of the National Housing Act supports the secondary market in mortgages on residential property with mortgage purchase and securitization programs.

Federal Bond Subsidy Act: Federal legislation empowering state and local governments to issue tax free bonds to fund mortgages for lower and middle income borrowers.

Federal Home Loan Bank Board (FHLBB): The FHLBB was a regulatory and supervisory agency for federally-chartered savings institutions and was abolished by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA). It oversaw the operations of the Federal Savings and Loan Insurance Corporation and the Federal Home Loan Mortgage Corporation (FHLMC).

Federal Housing Administration (FHA): A federal agency within the Department of Housing and Urban Development (HUD) that provides mortgage insurance for residential mortgages and sets standards for construction and underwriting. The FHA does not lend money, nor does it plan or construct housing.

Federal National Mortgage Association (FNMA): Supports the secondary market in mortgages on residential property with mortgage purchase and securitization programs. Also called Fannie Mae.

FHA loan: A loan made through an approved lender and insured by the Federal Housing Administration. While there are limits to the size of FHA loans, they are intended to finance moderately priced homes.

Final closing: The date upon which the permanent mortgage lender funds the mortgage loan.

First mortgage: A mortgage that gives the mortgagee a security right over all other mortgages of the mortgaged property.

Fixed-rate mortgage (FRM): A mortgage in which the interest rate and payments remain the same for the life of the loan.

Float: A loan application in which the lender has not committed to lend at a particular interest rate (the rate is not locked-in). In mortgage servicing, the period of time between the receipt of borrower’s principal and interest payments and remittance of those funds to investors.

Forbearance: The act of refraining from taking legal action despite the fact that the mortgage is in arrears. It is usually granted only when a mortgagor makes satisfactory arrangements to pay the amount owed at a future date.

Foreclosure: A legal procedure in which a mortgaged property is sold in a legal process to pay the outstanding debt in case of default.

Forfeiture: The loss or surrender of money, property, a right, or privilege due to failure to perform.

Freddie Mac (Federal Home Loan Mortgage Corporation): Created by Congress in Title III of the Emergency Home Finance Act of 1970 (12 USC 1451 et seq.), Freddie Mac supports the secondary market in mortgages on residential property with mortgage purchase and securitization programs.

Fully amortized: A mortgage which has a zero balance at the end of the mortgage term.

Funding: Payment of loan money by a lender to a borrower so that he or she can purchase real estate.

Garnishment: A notice to an employer or other asset holder than monies, wages, or property of a debtor must be applied to a specific debt or creditor.

Ginnie Mae: Created in 1968 by an amendment to Title III of the National Housing Act (12 USC 17 et seq.), this federal government corporation is a constituent part of the Department of Housing and Urban Development. Among other governmental functions, it guarantees securities backed by mortgages that are insured or guaranteed by other government agencies. Also called Government National Mortgage Association.

Government mortgages: Mortgages insured or guaranteed by the government (FHA, VA, RHA or State Bond Agencies).

Grace period: A period of time (usually 15 days) after a mortgage payment is due in which the lender will not charge a late penalty or report the payment as late.

Graduated payment mortgage (GPM): A type of flexible mortgage where the payments increase for a specified period of time and then level off. Usually results in negative amortization.

Grantor: The person conveying an interest in real property.

Growing equity mortgage (GEM): A graduated payment mortgage in which increases in a borrower’s mortgage payments are used to accelerate reduction of principal on the mortgage. Due to increased payments, the borrower acquires equity more rapidly and retires the debt earlier.

Ground rent: Rent paid for land in accordance with the terms of a ground lease.

Guarantor: A party who is secondarily liable for another’s debt or performance (in contrast to a surety who is primarily liable with the principal debtor.)

Guaranty: A promise by one party to pay a debt or perform an obligation contracted for or by another in the event that the obligor fails to pay or perform as contracted.

Haircut: The difference between the market value of a mortgage and the amount of money a lender will advance against it.

Hazard insurance: Insurance coverage that provides compensation to the insured and/or mortgagee in case of property loss or damage.

Home equity line of credit loan: An open-end loan, usually recorded as a second mortgage, that permits borrowers to obtain cash advances based on an approved line of credit.

Home equity loan: Mortgage financing that consists of credit secured by the appraised market value of the home. Usable for any purpose.

Home improvement loan: Mortgage to finance an addition to or rehabilitation of a residence.

Home loan: A mortgage loan secured by a residence for one, two, three or four families. Also known as a single family mortgage, even though the property may be designed for more than one family.

Home Mortgage Disclosure Act (HMDA): Federal legislation which requires certain types of lenders to compile and disclose data on where their mortgage and home improvement loans are being made.

Homestead estate: In some states, a statutory exemption which prohibits the attachment or sale of owner-occupied properties to pay the claims of creditors.

Homestyle Seconds: One of Fannie Mae’s major tools for neighborhood and community revitalization, the HomeStyle Second Mortgage is designed for homebuyers and homeowners at all income levels who wish to repair, remodel, enlarge or substantially renovate a home. Introduced in 1993, this program was designed to help lenders capture the growing U.S. market for home remodeling.

Housing expense ratio: The relationship of a borrower’s monthly payment obligation on housing divided by gross monthly income, expressed as a percentage. Also called the “top ratio.”

Housing Finance Agency (HFA): A state or local agency responsible for the financing of housing and the administration of subsidized housing programs.

Immediate purchase contract: An over-the-counter offer by a seller to a purchaser of a mortgage.

Income/expense ratio: A qualifying ratio used in underwriting a residential mortgage loan which computes the percentage of monthly income required to meet the monthly housing expense.

Income property: Real estate developed or improved to produce income.

Income property loan: A loan secured by commercial real estate.

Income limits: Income restrictions established for low- to moderate-income persons to qualify for admission into subsidized housing programs. The limits are established by law and are based on family size and geographic location.

Index: A published interest rate, such as the prime rate, LIBOR, T-bill rate, or the 11th District COFI. Lenders use indexes to establish interest rates charged on mortgages or to compare investment returns. On ARMs, a predetermined margin is added to the index to compute the interest rate adjustment.

In file credit report: Unverified credit report which may contain unchecked, duplicated, or overlapping data. Used for “quick look” at a prospective borrower’s credit history.

Insolvency: A condition in which a debtor is unable to pay his or her creditors.

Installment: The periodic payment that a borrower agrees to pay a mortgage lender.

Installment debt: Borrowed money that is repaid in several successive payments, usually at regular intervals, for a specific amount and for a specified term.

Institutional lender: A financial institution that lends to the public. Examples are mutual savings banks, life insurance companies, commercial banks, pension and trust funds, and savings and loan associations.

Insurable interest: The interest of an owner, lessee, mortgagee, or trustee which is insured against financial loss in the case of specified events.

Insured loan: A loan insured by the Farmers Home Administration, FHA, or a private mortgage insurance company.

Interest: Consideration in the form of money paid for the use of money, usually expressed as an annual percentage. Also, a right, share, or title in property.

Interest carry ratio: A ratio used in the analysis of floating rate loans that indicates the maximum interest rate the income property’s cash flow would carry. Calculated by dividing the net income before debt service by the loan amount.

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

Interest rate collar: Risk management tool which mitigates risk by restricting the range to which a variable rate instrument may rise or fall.

Interest rate floor: On a floating rate instrument, the lowest the interest rate may go.

Interest reduction programs: Programs that subsidize the market interest rate on mortgage loans, thus lowering the consumer’s housing cost.

Interest reserve: A holdback of loan proceeds by a lender to be utilized to pay interest as it accrues on a loan.

Investor: Any person or institution that invests in mortgages or mortgage-backed securities.

Involuntary lien: A lien imposed against property without the consent of the owner. Examples include property tax liens, special assessments, federal income tax liens, special assessments, federal income tax liens, judgment liens, mechanic’s liens, and liens for materials.

Joint tenancy: Form of co-ownership giving each tenant equal interest and equal rights in the property, including the right of survivorship.

Jointly-owned property: Property held in the name of more than one person.

Judgment: Final determination by a court of the rights and claims of the parties to an action.

Judgment lien: Lien upon the property of a debtor resulting from a decree of the court.

Judicial foreclosure: Type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court.

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

Junior mortgage: A mortgage that is subordinate to the claims of a prior lien or mortgage.

Late charge: An additional charge that a borrower is required to pay as a penalty for failure to pay a regular installment when due.

Lender: Person or entity that invests in or originates mortgage loans, such as a mortgage banker, credit union, commercial bank, or savings and loan. In single-family property usage, the lender is generally whosever name the loan is closed in.

Lender paid mortgage insurance: Mortgage insurance program which allows the lender to collect a higher interest rate from the borrower and forward the excess interest to the mortgage insurance company to pay for the mortgage insurance.

Leniency clause: A provision in the promissory note that allows for loan payments to be adjusted temporarily if the borrower, through no fault of his or her own, is experiencing extreme financial problems.

Letter of credit: A letter authorizing a person or company to draw on a bank, or stating that the bank will honor their credit up to the stated amount.

Letter of intent: A formal letter stating that the buyer or developer is interested in a property. The letter creates no legal obligation.

Liability: An accounting term signifying money owed or expected to be owed to another party.

Liability insurance: Insurance covering the risks related to the property and personal liability claims of other parties against the insured party.

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

Lien: A legal hold or claim of a creditor on the property of another as security for a debt. Liens may be placed against real or personal property.

Limited documentation: Another term for a no income verification mortgage.

Line of credit: An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specific borrower.

Liquidation value: The value of an asset upon its sale or disposition.

Liquidity: The ability to readily convert assets or investments to cash.

Loan administration: A mortgage banking function which includes the receipt of payments, customer service, escrow administration, investor accounting, collections, and foreclosures. Also called “servicing.”

Loan constant ratio: The annual interest and amortization as a percentage of the principal loan amount. Calculated by dividing the debt service by the loan amount.

Loan fee: A fee charged a borrower by a lender for negotiating a loan; sometimes used in reference to an additional fee over and above the origination fee.

Loan guaranty certificate: A VA certificate that states the portion of a loan that is guaranteed.

Loan submission: A package of pertinent papers and documents regarding a specific property or properties, delivered to a prospective lender to obtain financing.

Loan-to-value ratio (LTV): The ratio of the amount of the loan to the appraised value or sales price of real property (expressed as a percentage).

Loan transfer: The assumption of existing financing by a new owner when a property is sold.

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

Lock-in period: The number of days during which a lender guarantees a borrower a specific interest rate and terms on a mortgage.

London Interbank Offered Rate (LIBOR): The rate at which banks in the foreign market lend dollars to one another. A common interest rate index; one of the most valid barometers of the international cost of money.

Long-term financing: A mortgage or deed of trust with a term of 10 years or more.

Loss coverage: Mortgage reserves maintained by mortgage insurers to cover catastrophic losses.

Loss payable clause: An insurance policy provision for payment of a claim to someone other than the insured, who holds an interest in the insured property.

Lot: A measured parcel of land having fixed boundaries as shown on the recorded plat.

Low documentation program: Quick qualifying program for residential mortgages that eliminates many verification documents and speeds up the approval process. These programs typically require a substantial down payment.

Market: Current supply and demand characteristics of a commodity in a given geographic/economic setting.

Market approach to value: In an appraisal, an market value estimate of the property based on actual prices paid in similar market transactions.

Market value: The highest price that a buyer and the lowest price that a seller would accept, neither one being compelled to buy or sell. Also called “fair market value.”

Marketable title: A title that may not be completely clear, but has only minor objections that a well-informed and prudent buyer of real estate would accept.

Master mortgage: A standard form of mortgage in the public record to help reduce recording fees, as mortgage documents therefore refer to the record and the master mortgage.

Maturity: The date on which an agreement expires; termination of a promissory note.

Maximum loan amount: Highest loan amount allowed under federal or conventional guidelines.

Menu pricing: The method of service fee calculation where each function the servicer performs for the lender has a corresponding fee.

Modification: A changing of the original note terms that may allow for adding delinquent interest into the loan, resetting the payment due date or extending the maturity date so the loan becomes current. A fee may be required and certain conditions of title may not allow this option. Investor approval is also required. Certain financial information will be required and must be verifiable.

Monetary default: A breach or nonperformance of the terms of the note due to the nonpayment of debt service or escrow payments.

Monthly payment: The monthly payment of principal and interest collected by mortgage lenders. May also include escrow items for taxes or insurance and thereby called the housing payment.

Moratorium: Legal authorization to delay the enforcement of liability for debt, or to suspend an activity.

Mortgage: A pledge of property, usually real property, as security for a debt. By extension, the document evidencing the pledge. In many states this document is a deed of trust. The document may contain the terms of repayment of the debt. By further extension, “mortgage” may be used to describe both the mortgage proper and the separate promissory note evidencing the debt and providing the terms of the debt’s repayment.

Mortgage broker: A firm or individual who, for a commission, matches borrowers and lenders. A mortgage broker takes applications and sometimes processes loans, but generally does not use its own funds for closing.

Mortgage commitment: An agreement between lender and borrower detailing the terms of a mortgage loan such as interest rate, loan type, term, and amount.

Mortgage constant: A rate that expresses the relationship between annual debt service and mortgage principal. Used for converting debt service into mortgage loan value.

Mortgage discount: The percentage of difference between the principal amount of a mortgage and the selling price.

Mortgage equity analysis: The difference between the fair market value of a property and the amount of outstanding mortgage indebtedness.

Mortgage insurance (MI): Insurance which protects mortgage lenders against loss in the event of default by the borrower. This allows lenders to make loans with lower down payments. The federal government offers MI through HUD/FHA; private entities offer MI for conventional loans.

Mortgage Insurance Companies of America (MICA): A national trade association for mortgage insurers located in Washington, D.C.

Mortgage life insurance: Term life insurance paid by the borrower in which the amount of coverage decreases as the mortgage balance declines. In the event the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds.

Mortgage insurance certificate (MIC): Certificate issued by HUD/FHA as evidence that a mortgage has been insured, and that a contract of mortgage insurance exists between HUD/FHA and the lender incorporating the HUD/FHA regulations identified in the certificate.

Mortgage insurance premium (MIP): The amount paid by a mortgagor for mortgage insurance either to FHA or a private mortgage insurance company.

Mortgage note: A written promise to pay a sum of money at a stated interest rate during a specified term. A mortgage note is secured by a mortgage.

Mortgage pool: A group of mortgage loans with similar characteristics that are combined to form mortgage-backed securities.

Mortgage portfolio: The aggregate of mortgage loans held by an investor or serviced by a mortgage banker.

Mortgage servicer: An organization that performs routine collection and processing of payments from borrowers, followed by the remittance of those payments to the lender. Other functions include management of delinquencies and foreclosures, and in certain cases, the payment of taxes and insurance.

Mortgage servicing rights: The contractual obligations undertaken by one party to provide servicing for mortgage loans owned by another party, typically for a fee.

Mortgagee: The lender in a mortgage transaction.

Mortgagee clause: A clause that may be attached to an insurance policy stipulating that the lender will receive a portion of insurance proceeds sufficient to satisfy the unpaid amount of a loan in the event of a loss.

Mortgagee in possession: A mortgagee who, due to default under the terms of a mortgage, has obtained possession but not ownership of the property.

Mortgagor: The borrower in a mortgage transaction who pledges property as a security for debt.

Mother Hubbard clause: A provision in a mortgage that allows the lender, in the event of a default, to foreclose not only that mortgage, but also any other mortgages that may have been executed by the borrower and which are held by the lender.

Multiple Listing Service (MLS): A service provided by the Board of Realtors® which renders access to real estate listings of properties for sale or lease.

Mutual Mortgage Insurance Fund (MMIF): The actuarially sound FHA insurance fund for the 203(b) unsubsidized single family mortgage program. It is “mutual” because mortgagors whose mortgages are insured by the fund receive rebates of premiums in excess of the amounts needed to pay costs and losses.

National Association of Mortgage Brokers (NAMB): Professional society for mortgage brokers which was developed to foster professional business relationships.

National Association of Realtors® (NAR): Trade association representing real estate sales professionals. Realtors® is a registered trade mark of the National Association, and is properly used only to describe members of the Association, not all real estate brokers or agents.

Negative amortization: The unpaid interest which is added to the mortgage principal in a loan where the principal balance increases rather than decreases because the mortgage payments do not cover the full amount of interest due.

Net rate: The rate of interest remitted to an investor after servicing fees have been deducted from the gross rate.

Net realizable value: An amount or figure resulting from the sale or disposition of property or an asset after all expenses associated with such sale or disposition are paid.

Net worth: The value of all assets, including cash, less total liabilities. Often used as an underwriting guidelines to indicate creditworthiness and financial strength.

No cash-out refinance: Also known as rate reduction mortgage, a transaction in which the mortgage amount is limited to the sum of the unpaid principal balance of any existing fist mortgage(s) and closing costs.

Nominal interest rate: The stated rate of interest in a loan agreement.

Nonassumption clause: A mortgage loan in which the loan amount, the loan-to-value ratio, the term, or some other aspect of the loan exceeds permissible limits as specified in agency regulations.

Nonconforming mortgage loan: A mortgage loan in which the loan amount, the loan-to-value ratio, the term, or some other aspect of the loan exceeds permissible limits as specified in agency regulations.

Nonjudicial foreclosure: Power to sell property at foreclosure without court procedure. This foreclosure proceeding can be used by a trustee named in a deed of trust.

Non-monetary default: A breach of nonperformance of any of the terms or covenants of the loan documents other than debt service and escrow payments.

Non-performing loan: A loan which has not fulfilled one or more of the terms, covenants, conditions, or obligations required under the mortgage.

Nonrecourse loan: Type of loan which prohibits the lender from attempting to recover against the borrower (personally) if the security value for the loan falls below the amount required to repay the loan.

No point mortgage: A mortgage which carries a higher interest rate in exchange for no discount points or origination fee,

Note: A general term for any kind of paper or document signed by a borrower that is an acknowledgement of the debt, and is, by inference, a promise to pay. When the note is secured by a mortgage, it is called a mortgage note and the mortgage is named as the payee.

Notice of default: Notice recorded after a default under a deed of trust of mortgage. Also, the notice sent to defaulting borrowers, required by insurers or guarantors such as FHA, VA, or MIC.

Novation: The substitution of a new contract or obligation between the same or different parties. Also, the substitution, by mutual agreement, of one debtor for another or one creditor for another, whereby the existing debt is extinguished.

Open-end mortgage: A mortgage with a provision that the outstanding loan amount may be increased upon mutual agreement of the lender and the borrower.

Open equity line: A second trust mortgage which is an open line of credit. That is, the balance can be increased by future draws up to a set amount.

Open listing: A written contract that does not allow one licensed real estate agent the exclusive right to sell a property for a specified time, but reserving the owner’s right to sell the property alone without the payment of a commission.

Open period: The interval of time under a mortgage during which the loan can be prepaid.

Origination: Securing a completed mortgage application from a commercial or residential borrower.

Origination fee: The lender’s fee charged a borrower to prepare documents, make credit checks, inspect and sometimes appraise a property. Usually slated as a percentage of the face value of the loan.

Originated mortgage servicing rights (OMSR): Aggregate value of a servicing portfolio acquired through a company’s own production.

Originator: A person who solicits builders, brokers and others to obtain applications for mortgage loans. Often called a loan officer.

Owner occupied purchase: The purchase of a property for the purpose of the primary residence of the owner.

Partial payment: Payment of only a portion of the requirement amount due, including payments received without the late charge.

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

Payment shock: A scenario in which monthly mortgage payments on an adjustable rate mortgage (ARM) rise so high that the borrower may not be able to afford the payments. Consumer protection guidelines regarding extremely low “teaser” rates, lifetime ceilings, and annual caps are designed to prevent payment shock.

Payoff figures (sales figures): The unpaid principal balance and escrow amounts to be used for payment in full of the mortgage or for closing sale of the property.

Payoff letter: A statement detailing the unpaid principal balance, accrued interest, outstanding late charges, legal fees, and all other amounts necessary to pay off the lender in full.

Perfecting title: The elimination of claims against title.

Performing loan: A loan which has and continues to fulfill all of the terms, covenants, conditions, or obligations required under the mortgage.

Periodic payment date: The day of the month on which the borrower’s payment is due.

Physical depreciation: Decline in the value of a physical asset or real property resulting from normal usage, age, wear and tear, disintegration, or action of the elements. Depreciation can be curable or incurable.

Piggyback financing: A loan made jointly by two or more lenders on the same property under one mortgage or trust deed.

PITI: Acronym for the items included in a monthly mortgage payment: principal, interest, taxes, and insurance.

PITI ratio: The ratio of principal, interest, taxes, and insurance to income.

Pledged account mortgage (PAM): A graduated payment mortgage in which part of the buyer’s down payment is deposited into a savings account; funds are drawn from the account to supplement the buyer’s monthly payments during the early years of the loan. Also called a “FLIP mortgage.”

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

Point: An amount equal to one percent of the principal amount of a mortgage. Loan discount points are a one-time charge assessed at closing by the lender to increase the yield on the mortgage loan to a competitive position with other types of investments.

Pool: A collection of mortgage loans grouped by one or more similar characteristics.

Pool consistency: The similarity of the types of loans included in a pool, usually defined by interest rate, loan term, and loan type.

Portfolio: The collection of loans held for servicing or investment.

Post closing reserves: Liquid assets required by a lender after closing on the mortgage.

Power of sale: A provision in deed of trust or mortgage that empowers a trustee, without court order, to sell property in the event of default by the mortgagor and to apply the proceeds of the sale to satisfy the obligation, the costs of invoking the procedure, and the expenses of the sale.

Preclosing: A meeting proceeding formal closing in which documents are reviewed and signed and estimated prorations are made.

Preferred debt: Any debt obligation that has precedence over others, as in a senior or first mortgage.

Preforeclosure sale: Settlement of a mortgage default where the borrower allows the mortgage insurance company or servicer to sell the property securing the mortgage rather than foreclose on it.

Premium: The amount paid, often in addition to the interest, to secure a loan.

Prepaid interest: Mortgage interest that is paid in advance of when it is due to obtain tax advantages.

Prepayment: The payment of al or part of a mortgage debt before it is due.

Prepayment penalty: A charge the mortgagor pays the mortgagee for the privilege to prepay the loan prior to its maturity.

Prepayment privilege: The right given a borrower in the mortgage to pay all or part of a mortgage debt without penalty prior to its maturity.

Prequalification: Evaluation of a potential borrower’s financial status to determine the size and type of mortgage available to him or her.

Price level adjusted mortgage (PLAM): A mortgage loan in which the interest rate remains fixed, but the outstanding balance is adjusted periodically for inflation according to an appropriate price index such as the Consumer Price Index or Cost-of-Living Index. At the end of each period, the outstanding balance is adjusted for inflation and monthly payments are recomputed based on the new balance.

Primary financing: A loan secured by a first mortgage or deed of trust on real property.

Primary market: The market in which mortgages are created and funds are loaned directly to borrowers.

Primary mortgage lender: A mortgage banker who makes loans directly to the general public.

Primary residence: Residence which the owner physically occupies and uses as his or her home.

Prime rate: The interest rate commercial banks charge their most creditworthy customers for short-term loans. Prime is a yardstick for trends in interest rates, and is often a baseline for establishing interest rates on high-risk loans.

Principal: The original balance of money lent, excluding interest. Also, the remaining balance of a loan, excluding interest.

Principal reduction: The reduction in loan balance with occurs with each payment of a positively amortized mortgage.

Priority: The order of precedence of liens against property or assets. Priority is usually established by filing or recordation of liens, but may be established by statute or agreement.

Private mortgage insurance (PMI): Insurance written by a private company protecting the mortgage lender against financial loss occasioned by a borrower defaulting on the mortgage.

Processing: The completion of a mortgage loan application and supporting documents for underwriting.

Promissory note: A written promise to pay a specific amount at a specified time.

Purchase agreement: A written agreement between a buyer and seller of real property, setting forth the price and terms of sale.

Purchase-money mortgage: A mortgage a purchaser of real property gives a seller as all or part of the consideration in the sales transaction.

Purchased mortgage servicing rights (PMSR): Aggregate value of a servicing portfolio obtained from a source outside the purchasing company. It is classified as an intangible asset for both financial accounting and regulatory reporting purposes.

Qualification: The process which determines whether an applicant can be approved for a mortgage loan.

Quiet title action: Legal action taken to eliminate any interest or claim to property by others; the procedure used to perfect title when a quit-claim deed is unobtainable.

Quitclaim deed: A deed relinquishing all interest, title, or claim an owner has in a property.

Rate reduction refinance: The refinance of an existing mortgage balance solely to lower the interest rate.

Real estate owned (REO): Property a lender acquires as a result of foreclosure.

Realtor®: A person licensed to sell and/or lease real property, acting as an agent for others, and who is a member of a local real estate board affiliated with the National Association of Realtors® (NAR).

Reassessment: The revaluation of property for ad valorem tax purposes.

Recasting: Modification of the terms of an existing mortgage to cure delinquency.

Reconveyance: An instrument used to transfer title from a trustee to the equitable owner of real estate, used when the performance of debt is satisfied under the terms of a deed of trust.

Recording: The filing of documents or details of a legal document to make them a matter of public record. Usually requires the witnessing and notarizing of the document or instrument to be recorded.

Recourse loan: A type of mortgage loan in which the lender’s remedies in the event of borrower default are unlimited, extending beyond the property to the borrower’s personal assets.

Redemption period: The time allowed by law in some states during which mortgagors may buy back their foreclosed properties by paying the balance owed on their delinquent mortgages, plus interest and fees.

Refinancing: The repayment of a debt from the proceeds of a new loan using the same property as security.

Reinstatement: The curing of all loan defaults by a borrower to return it to current status.

Release clause: A stipulation in a blanket encumbrance, mortgage, or deed of trust under which a portion of the security may be released from lien if certain amounts are paid or conditions are met.

Release of liability: An agreement by a lender to terminate personal obligation of a mortgagor in connection with payment of a debt.

Release of lien: An instrument discharging secured property from a lien.

Release of record: The act of recording a release deed or satisfaction of a mortgage.

Release price: The amount of compensation, either partial or full, needed for a mortgagee to remove a lien.

Repayment plan: A workout agreement that requires a series of payment over two or more months that will pay a portion of the delinquent amount in addition to the regular monthly payment amount. If payments are made in accordance with the plan agreement, foreclosure action will be postponed. It is granted only when the borrower makes arrangements to satisfy the delinquency for a designated amount, date and term. Certain financial information will be required and must be verifiable.

Restructure: A loan for which the basic terms, such as interest rate, maturity date, collateral, or guaranty have been modified as a result of actual or anticipated delinquency. Also known as a “workout.”

Reverse annuity mortgage (RAM): A mortgage which uses present equity in the property to fund monthly payments from the lender to the borrower-in lieu of the borrower receiving the proceeds of the loan in a lump sum.

Reversion: A right to future possession retained by an owner at the time of a transfer of an owner’s interest in real property.

Reversion value: The estimated value of a property at a specified future date.

Revolving credit: Open lines of credit which are subject to variable payments in accordance with the balance. Credit cards are examples of revolving credit.

Revolving loan fund: A pool of money set up to make loans. The pool is replenished through borrower paybacks.

Rider: An addendum or amendment to contract.

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

Right of redemption: In some states, a right permitting the mortgagor to reclaim foreclosed property by making full payment of the foreclosure sales price. The right of redemption exists for a specified period f time, called the redemption period.

Right of survivorship: The survivor’s right to the property of a deceased person. In the case of joint tenancy by entirety (husband and wife), the undivided property passes to the survivor.

Right to Financial Privacy Act: Places restrictions upon governmental authorities having access to copies of the financial records of any mortgage applicant.

Rolled-in: To include the closing costs of a refinance transaction in the balance of the new mortgage – i.e., to finance the closing costs of the refinance so that they are not paid in cash by the borrower, or out of pocket.

Rollover: The renewal of a loan at maturity. Also, reinvestment of proceeds of a sale of an investment into another, which defers payment of taxes on the gain from the sale.

Sales-leaseback: A sales arrangement where a seller deeds a property to a buyer for consideration. The seller then leases the same property back from its new owner.

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

Sales contract: A written agreement between buyer and seller stating terms and conditions of a sale or exchange of property.

Satisfaction: The discharge of an obligation by paying a party what is due.

Satisfaction of mortgage: The recorded instrument the lender provides to evidence payment in full of the mortgage debt.

Seasoned mortgage: A mortgage on which payments have been made regularly for a year or longer.

Second home purchase: A property purchased by the owner but is not the primary residence. Usually recreational properties.

Second mortgage: A mortgage that has rights subordinate to a first mortgage. Also called “second trust.”

Second trust: Another term for a second mortgage.

Secondary financing: A funding method using a loan secured by a second mortgage on a property. Sometimes used to refer to any financing technique other than equity and first mortgage debt.

Secured party: An entity party holding a security interest or lien. Also called the mortgagee.

Security document/security instrument: Mortgage or deed of trust evidencing the pledge of real estate as collateral for the loan.

Seller contributions: Payment by the seller or any other interested party of some or all of the purchaser’s usual closing costs. Investors and insurers sometimes limit the amount of seller contribution and require lenders to adjust the property’s value if contributions exceed limitations. Undisclosed seller contributions (such as decorating allowances, appliances, or payment of moving expenses) are made to borrowers outside of closing and are also subject to investor and insurer restrictions.

Senior mortgage: A first mortgage.

Servicing fee/servicing rate: The fee earned by a servicer for administering a loan for an investor usually expressed as a percentage of the unpaid principal balance of the loan and deducted from the monthly mortgage payment.

Settlement: The closing of a mortgage loan. Also, the delivery of a loan or security to a buyer.

Settlement costs: Money paid by borrowers and sellers to effect the closing of a mortgage loan, including payments for the title insurance, survey, attorney fees, and such prepaid items as taxes and insurance escrow.

Shared appreciation mortgage (SAM): A mortgage in which the lender offers the borrower a below-market interest rate in exchange for a portion of the profit upon eventual sale of the property.

Short sale: A workout program wherein the lender accepts less than the total payoff amount.

Simple interest rate loan: A loan that accrues interest daily relative to the principal balance on the loan. Interest is accrued immediately following receipt of the last payment and is set up on a 30-day cycle. Payments need to be made every 30 days to avoid additional interest from accruing. Monies received satisfy interest owed first and the remaining funds are applied to the principal balance.

Soft dollars: The amount invested in the development or purchase of a property that is immediately deductible for tax purposes, such as prepaid interest and fees.

Specific performance: A remedy in a court of equity compelling a defendant to carry out the terms of an agreement or contract.

Spread: The difference between the rate at which money can be borrowed and the rate at which it is loaned.

Standing mortgage: A loan where no amortization payments are required and the entire loan comes due at maturity. Interest is normally paid at periodic intervals while the loan is outstanding.

Streamline: A rate reduction refinance which requires less documentation than a full package mortgage application.

Strict foreclosure: A type of foreclosure proceeding used in some states in which title to the foreclosed property in invested directly in the mortgagee by court decree, without holding a foreclosure sale.

Subject to mortgage: A mortgage clause in which title to a mortgaged property is taken without assuming personal liability for the mortgage debt.

Submortgage: The use of one mortgage as collateral to obtain another.

Subordinate lien: A lien or encumbrance on real estate whose priority is inferior to another’s recorded interest in the same property.

Subordination: The act of a party acknowledging, by written record, that a debt is inferior to the interest of another in the same property. Subordination may apply not only to mortgages, but to leases, real estate rights and any other types of debt instruments.

Subrogation: The right of a party to proceed against another for recovery.

Subsidize: A term for aid. Federally subsidized mortgages typically have an interest rate lower than market because of government assistance. Temporary Buydowns are considered subsidized mortgages because there is money placed in an escrow fund to supplement the regular payment for a certain period of time.

Substitution of liability: The assumption of liability by another on a mortgage or trust deed note, with the concurrent release of the original maker by the mortgagee.

Superior lien: A lien or encumbrance on real estate whose priority is greater to the interest of another’s interest in the same property.

Take home pay: A borrower’s paycheck after taxes and other deductions have been subtracted.

Tax basis: A taxpayers’s cost of property for tax purposes, including cash paid and the principal amount of mortgage debt encumbering the property at the time of acquisition. The property’s tax basis is increased from time to time by additional cash investment in the property, and is decreased from time to time by tax deductions (such as depreciation) relating to the property and by cash withdrawals.

Tax deduction: An expense that the government allows you to subtract from your income before tax liability is computed. The federal government allows you to subtract certain itemized deductions such as mortgage interest in lieu of using the deduction standard.

Tax deed: A deed on property purchased at public sale for nonpayment of taxes.

Tax lien: A claim against property for unpaid taxes.

Tax sale: The sale of property by a taxing authority or an officer of the court acting on a judgment to satisfy the payment of delinquent taxes.

Teaser rate: A starting rate which is below the fully indexed accrual rate (FIAR) on an adjustable rate mortgage.

Temporary buydown: A lower interest rate on a mortgage for a fixed period at the beginning of a mortgage term.

Term: The period of time between the commencement date and termination date of a note, mortgage, legal document, or other contract.

Term mortgage: A mortgage in which, for a specified period of time, only interest is paid, after which the principal is due.

Thrifts: Saving banks or savings and loan associations.

Title: Written evidence of the right to or ownership in property. In the case of real estate, the documentary evidence of ownership is the title deed that specifies in whom the legal estate is vested and the history of ownership and transfers. Title may be acquired through purchase, inheritance, devise, gift, or through foreclosure of a mortgage.

Title insurance policy: A contract by which the insurer agrees to pay the insured a specific amount for any loss caused by defects of title to real estate, wherein the insured has an interest as purchaser, mortgagee or otherwise.

Title search: An examination of public records, laws and court decisions to ensure that no one except the seller has a valid claim to the property, and to disclose past and current facts regarding ownership of the subject property.

Title theory: A system in which the holder of the mortgage (the lender) has actual title to the mortgaged property until the mortgage loan is repaid.

Trust deed: The instrument given by a borrower (trustor) to a trustee vesting title to a property in the trustee to ensure the borrower’s fulfillment of an obligation. A mortgage.

Trustee: One who holds legal title to property for the benefit of another, or to secure performance of an obligation.

Trustee in bankruptcy: An agent of the court authorized to liquidate and protect the assets of the bankrupt, and bring them to court for final distribution for the benefit of the bankrupt and creditors.

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

Two-step mortgage: Mortgage where the interest rate stays the same for a stated period, then changes, typically after 5 or 7 years.

Underwriting: The analysis of the risk involved in making a mortgage loan to determine whether the risk is acceptable to the lender. Underwriting involves the evaluation of the property as outlined in the appraisal report, and of the borrower’s ability and willingness to repay the loan.

Unencumbered property: A property that is free and clear of debts or liens.

Uniform Residential Appraisal Report (URAU): The appraisal form which is utilized by appraisers of residential properties to estimate the value of properties to be financed with FHA, VA and conventional mortgages.

Unimproved land: Raw land.

VA loan: Mortgage loan made by an approved lender and guaranteed by the Department of Veterans Affairs. VA loans are made to eligible veterans and those currently serving in the military, and can have a lower down payment than other types of loans.

Valuation: The estimation of a property’s price through appraisal.

Variable rate mortgage (VRM): See adjustable rate mortgage.

Vendor’s lien: An unpaid seller’s right to a lien on property until the purchase price is recovered.

Verification of mortgage: Form that requests and secures verification of payments made on an applicant’s current or past mortgage.

Voluntary conveyance: An elective transfer of property title from a defaulting borrower to the lender, as an alternative to foreclosure. This arrangement saves the lender the expense of foreclosure, and the borrower receives credit for payment in full.

Waiver of lien: The written evidence from a contractor or supplier, surrendering the right of lien to enforce collection of debt against a property.

Whole loans: Unsecured mortgages sold individually to investors.

Without recourse: A mortgage in which the lender will not pursue liability against the borrower. The lender’s security is the real estate being financed.

Workout: An alternative action to foreclosure for the benefit of the lender and the borrower. Includes loan modification, short sales and various forms of forbearance. Also called “restructure.”

Workout agreement: A plan between the lender and borrower to bring a delinquent or defaulted loan current.

Wraparound mortgage: A refinancing technique involving the creation of a second mortgage which includes the balance due on any existing mortgages, plus the amount of the new secondary or junior lien.

All terms are taken from Mortgage Banking Terms: A Working Glossary, 8th Edition. Mortgage Bankers Association of America. © 1997.