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Mortgage Fundamentals
Mortgage Fundamentals
81
Business
Professional
02/02/2012

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Term
Mortgage Industry Circle of Life
Definition
1. Capital "Secondary" Markets 2. Originations 3. Processing 4. Underwriting 5. Closing 6. Warehousing 7. Shipping and Delivery 8. Loan Administration
Term
Tier 1
Definition
Responsibilities: Originate, Process, Underwrite, Close, Fund, Service
Term
Tier 2
Definition
Responsibilities: Process, Underwrite, Close, Fund, Service
Term
Tier 3
Definition
Responsibilities: Underwrite, Close, Fund, Service
Term
Tier 4
Definition
Responsibilities: MA (employee out in the field) originates, Process, Underwrite, Close, Fund, Service
Term
Tier 5
Definition
No tier 5
Term
Tier 6
Definition
Responsibilities: Re-Underwrite Closed Loan, Purchase, Service; no established relationship
Term
Tier 7
Definition
Responsibilities: Purchase and Service; established relationships
Term
Conventional Mortgage
Definition
Any mortgage that is not guaranteed or insured by the federal government; follows the guidelines of government sponsored enterprises; either "conforming" or "non-conforming"
Term
FHA Mortgage
Definition
Federal Housing Administration; created to help stabilize the mortgage market; insured by the federal government; popular with first time buyers
Term
VA Mortgage
Definition
Available to veterans of the United States Armed Forces and guaranteed by the Veterans Administration
Term
Fannie Mae
Definition
FNMA; Nation's largest private investor for mortgages; a government sponsored enterprise
Term
Freddie Mac
Definition
FHLMC; Primary purchase is to buy laons from Savings and Loans investors
Term
Ginnie Mae
Definition
GNMA; VA mortgage; guaranteed by VA
Term
GSE
Definition
Government sponsored enterprise: Ginnie Mae, Freddie Mac, Fannie Mae
Term
Other investors
Definition
Insurance companies, pension funds, and private investors
Term
Private Label Solutions
Definition
PLS; private label clients (Merrill Lynch, E*Trade, etc.) largest source of business (65%)
Term
Business Sources
Definition
Private Label Solutions (PLS), Real Estate Sales- Franchise, Real Estate Sales- NRT, Corporate Clients
Term
Real Estate Sales
Definition
Franchise (Brands)- Ex. Century 21, Coldwell Banker; NRT-
Term
Corporate Clients
Definition
Deals with customers being relocated by their employer.
Term
Interest Rate
Definition
Percentage paid for the use of money, usually expressed as annual % free charged for using money.
Term
Points
Definition
Money paid up front in exchange for a lower interest rate 1 pt=1% of loan amount
Term
Appraised Value
Definition
The market value of the subject property with regard to it's location. Determined by how much similar homes in the same neighborhood have sold for in the last year. The appraiser picks the 3 most recent sales which are comparable to the subject property.
Term
Conventional Conforming Loan Limit
Definition
$417,000
Term
Conventional Conforming Plus Limit
Definition
For high cost areas; $938,250
Term
Conventional Non-Conforming (Jumbo)
Definition
Anything over conforming limits in non-high cost areas and anything over Jumbo limits in high cost areas
Term
FHA Loan Limit
Definition
*Varies by county; $271,050-$729,750
Term
VA Loan Limit
Definition
$1,094,625
Term
Pre-Purchase
Definition
The customer is pre-approved for a mortgage amount prior to signing a sales contract
Term
Refinance
Definition
The payoff of an existing loan with a new loan; used to either change rate and term or cash out
Term
Rate and Term
Definition
Customer refinances to get a lower rate and/or different term
Term
Cast Out
Definition
Customer refinances and borrows more than the outstanding balance of the existing mortgage to obtain extra cash.
Term
Right of Recission
Definition
A period of 3 full business days after the closing on their primary residence in which customers can cancel a refinance transaction. Saturday is considered a business day but Sundays and Federal holidays are not. Loan proceeds are only distributed after the recission expires.
Term
Loan to Value
Definition
LTV; the ratio of the loan amount in comparison to the appraised value or sales price of a property. Risk determining factor;
Term
Loan Amount Calculation
Definition
Sales price x LTV%
Term
Dollar Amount Down Calculation
Definition
Sales price x % down
Term
Combined Loan-to-Value
Definition
CLTV; the principal balance of all mortgages on the subject property (including second and third loans) divided by the sales price or the appraised value. Used when customers are refinancing. *Actual
Term
Home Equity Combined Loan-to-Value
Definition
HCLTV; Considered when customers are refinancing a property and have a HELOC on that property which they wish to keep. *Potential
Term
Capital Markets
Definition
"Secondary markets" establishes market prices and values
Term
Originations
Definition
Creates mortgages
Term
Processing
Definition
collects supporting documents to verity information
Term
Underwriting
Definition
evaluates loan documentation to approve/deny loan
Term
Closing
Definition
signs and records loan documentation and disburses funds
Term
Warehousing
Definition
Finances loans from closing until sale to investor
Term
Shipping and Delivery
Definition
Packages loan documentation according to investor guidelines
Term
Loan Administration/Servicing
Definition
Collects and monitors mortgage payments, manages escrows, and delinquencies
Term
What tiers are part of PHH retail lending platform?
Definition
1, 2, and 4
Term
PMI
Definition
Private Mortgage Insurance; allows customers to purchase a home and secure conventional financing without putting 20% down; Applied if LTV is 80.01% and above
Term
PMI Removal
Definition
Government loans do not have PM. FHA loans have something similar called Mortgage Insurance Premiums; VA has a VA Funding Fee
Term
PITI
Definition
Principal, Interest, Taxes, and Insurance (HOI, HOA, Flood, and PMI) Used to qualify a customer for a mortgage.
Term
P&I
Definition
Part of the customer's monthly mortgage payment; (Loan amount x P&I factor)/1000
Term
Qualifying Ratio's: Conventional LTV>90%
Definition
28%/36%
Term
Qualifying Ratio's: Conventional LTV</= 90%
Definition
33%/38%
Term
Qualifying Ratio's: Government: FHA
Definition
31%/43%
Term
Qualifying Ratio's: Government: VA
Definition
41%/41%
Term
Primary Housing Ratio/Front ratio
Definition
PITI/Total gross monthly income
Term
Total Obligation Ratio: Back Ratio
Definition
(PITI+Debts)/Monthly income
Term
Closing Costs
Definition
Costs incurred in order to purchase real estate; paid 1 time
Term
PrePaid Items
Definition
cost paid at closing for taxes, interest, and insurance; reoccuring
Term
Seller/Lender credits
Definition
payment of some or all of the purchases closing costs
Term
Primary Residence
Definition
Owner physically occupies the home
Term
Second home
Definition
Vacation home usually located in resort area; owner occupied
Term
Investment property
Definition
rental property or income generating; a non-owner uses the home
Term
Single Family Detached
Definition
Free standing home, not attached to another unit, no common wall shared. Owners own the dwelling and the lot
Term
Single Family Attached
Definition
Customers share a common wall or walls with another homeowner. Customers own the dwelling and the lot
Term
Duplex/Triplex/Quad
Definition
Two, three, or four unit home in which all units are owned by one customer. All units are considered 1 property. Max we lend is on 4 units
Term
PUD, detached
Definition
Free standing home where customers own the dwelling and the lot but pay mandatory dues for maintenance of common grounds.
Term
PUD, attached
Definition
Customers share a common wall; They own the dwelling and the lot but pay mandatory dues for maintenance of common areas.
Term
Condo attached
Definition
Customers own the air space between the interior walls and have an undivided interest in the common areas for which mandatory dues are paid
Term
Condo detached
Definition
PUD detached; condo in name only to get around zoning laws. AKA site condo
Term
Condotel
Definition
A project that has one rental or registration desk, short term occupancy, food, telephone, and cleaning services. Operated by a single management company. PHH does NOT lend
Term
Condex
Definition
Condo project with only 2 units located directly next to each other.
Term
Co-Op
Definition
Set up like a corporation; customers purchase shares in the corporation instead of an actual unit.
Term
Manufactured home
Definition
Single family detached; Customers own a mobile home (dwelling and lot) that must have the wheels removed and affixed to a permanent foundation. Only finances purchase transactions
Term
Fixed Rate Mortgage
Definition
Interest rate remains fixed for the life of the loan; stabile and predictable
Term
ARM
Definition
Adjustable Rate Mortgage; Interest rate remains fixed for a predetermined amount of time, and then begins to adjust continually for the remainder of the time.
Term
Index
Definition
financial indicator of inflation; the specific ARM program will dictate the index used to determine the interest rate. PHH uses LIBOR index
Term
Margin
Definition
the constant amount added to the index to determine the new interest rate at each adjustment.
Term
Initial rate cap
Definition
the highest % added to the state rate (at the initial adjustment after the fixed period)
Term
Periodic rate cap
Definition
the highest % above the current rate at a set interval of time.
Term
Lifetime rate cap
Definition
the highest % above the start rate for the life of the loan
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