Term
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Definition
a home loan for borrowers who fall short of qualifying for a standard (prime) home loan
the use of the term varies
roughly, it refers to loans better than subprime, but below prime in borrower qualifications and loan terms
most Alt-A loans differ from prime loans by the absence of complete documentation of borrower's income assets |
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Term
| Conforming conventional loan |
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Definition
| a conventional loan that meets the standards required for purchase in the secondary market by Fannie Mae or Freddie Mac |
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Term
| Conventional mortgage loan |
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Definition
| mortgage loans that do not enjoy government backing in the form of FHA insurance or a Veterans Administration guarantee |
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Term
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Definition
government-sponsored enterprise
one of the largest purchasers of residential mortgages in the secondary market |
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Term
| Federal Housing Administration (FHA) |
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Definition
| a government-sponsored housing finance agency that operates in the primary market by providing a default insurance program, as well as other housing programs and initiatives |
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Term
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Definition
| a government-sponsored enterprise and, along with Fannie Mae, one of the largest purchasers of residential mortgages in the secondary market |
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Term
| Government-sponsored enterprise (GSE) |
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Definition
| a term that refers to Fannie Mae, Freddie Mac, and several other less important government entities created by acts of Congress to promote an active secondary market for home mortgages |
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Term
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Definition
| second mortgages, used to finance home improvements and other purchases, where homeowners can borrow against the accumulated equity in the home |
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Term
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Definition
an adjustable rate mortgage loan that provides for an initial period of fixed interest charges, hence fixed payments, before the interest rate becomes adjustable
the fixed interest rate period typically ranges from three to ten years |
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Term
| Interest-only amortizing mortgage |
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Definition
| a mortgage loan that is interest only for some years, perhaps ten or fifteen, after which the payment increases to an amount sufficient to fully amortize the loan in the remaining term |
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Term
| Interest-only balloon mortgage |
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Definition
| a mortgage loan that is interest only for its full term and then must be refinanced or paid in full |
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Term
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Definition
nonconforming loans that exceed the maximum loan amount for purchase by Fannie Mae or Freddie Mac
because these loans cannot be purchased b one of the GSEs, they usually carry a slightly higher interest rate |
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Term
| Maturity imbalance problem |
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Definition
| situation faced by banks, thrifts, and other financial institutions in which long-term assets are funded with short-term liabilities |
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Term
| Mortgage insurance premium (MIP) |
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Definition
| upfront insurance premium required by FHA-insured loans |
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Term
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Definition
the many types of residential loans offered by originating lenders to residential borrowers
the menu includes the cost of the various mortgage terms, including the contract interest rate and number of upfront discount points and origination fees |
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Term
| Nonconforming conventional loan |
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Definition
| a conventional loan that does not satisfy one or more underwriting standards required for purchase in the secondary market by Fannie Mae and Freddie Mac |
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Term
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Definition
an adjustable rate mortgage loan that offers the borrower a variety of payment choices
the choices typically include a payment to fully amortize the loan in 15 years, one to fully amortize the loan in 30 years, in interest-only payment, and a payment at an artificially low level such that unpaid interest is added to the outstanding balance each month
the loan often begins with a below market interest rate for a few months |
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Term
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Definition
| home mortgage loans that include funds for items of personal property such as a range, dishwasher, refrigerator and furnishings |
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Term
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Definition
| the loan origination market where borrowers and lenders negotiate mortgage terms |
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Term
| Private mortgage insurance (PMI) |
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Definition
| insurance offered by private companies that reimburses the lender for capital losses in the event of default by the borrower |
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Term
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Definition
| typically, a mortgage loan where the seller lends all or part of the purchase price of a property to the purchaser, and the loan is secured by a mortgage, created simultaneously with conveyance of ownership |
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Term
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Definition
| an arrangement where the lender agrees to pay money to an elderly homeowner, either regularly or occasionally, and to be repaid from the homeowner's equity when he or she sells the home or obtains other financing |
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Term
| Secondary mortgage market |
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Definition
| the market where mortgage originators can divest their holdings, and existing mortgages are resold |
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Term
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Definition
| the most widely used FHA program, covering single-family home mortgages insured by the FHA under Title II, section 203 of the National Housing Act |
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Term
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Definition
loans made to homeowners who do not qualify for standard (prime) home loans
subprime loans can have high fees, and costly prepayment penalties that "lock in" the borrower to a high interest rate |
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Term
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Definition
| a government-guaranteed loan designed to help veterans obtain home mortgage loans for which they might not otherwise qualify |
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Term
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Definition
| a U.S. government Department whose purpose is to help veterans readjust to civilian life |
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Term
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Definition
| loan purchase programs offered to primary mortgage market lenders by Fannie Mae and Freddie Mac exclusively for low- and moderate-income households |
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Term
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Definition
| a loan underwriting approach that exploits the combination of cyber-technology and the vast lending experience embedded in the giant loan portfolios of Freddie Mac, Fannie Mae, and other large mortgage lenders |
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Term
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Definition
| property pledged as security for a debt |
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Term
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Definition
| depository institutions primarily engaged in the business of making short-term loans to businesses for inventory financing and other working capital needs |
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Term
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Definition
| agencies and private companies that pool mortgages and sell mortgage-backed securities, using the pool of mortgages originated or purchased as the collateral for the mortgage-backed security |
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Term
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Definition
| the statistical evaluation of borrower creditworthiness that has largely replaced the use of credit reports and the subjective examination of payment punctuality and debt balances |
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Term
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Definition
| depository institutions that are restricted by their charters to serving a group of people who can show a common bond such as employees of a corporation, government unit, labor union, or trade association |
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Term
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Definition
| reference to the occurrence of conditions when the growth of deposits in banks and savings associations becomes negative, due to other, more attractive, direct investment opportunities |
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Term
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Definition
| the potential loss of borrowers from the origination pipeline if mortgage interest rates decline after the loan commitment, but before the closing of the loan, which results in borrowers choosing not to close ("take down") the loan |
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Term
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Definition
| a contract binding a mortgage lender or investor to purchase or fund a loan on predetermined terms at a future date |
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Term
| Government National Mortgage Association (GNMA) |
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Definition
a federal government agency that promotes affordable housing by buying subsidized mortgages in the secondary market
this agency also guarantees mortgage-backed securities issued by private FHA and VA lenders |
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Term
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Definition
a ratio used to assess the ability of a borrower to pay a debt
defined as the monthly payment of principal and interest on the loan plus monthly payments into an escrow account toward property taxes and hazard insurance divided by the borrower's gross monthly income |
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Term
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Definition
| the risk that changes in the general level of interest rates will affect the pricing of all securities and investments |
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Term
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Definition
all actions and activities associated with administering a mortgage loan, including collection of payments, monitoring insurance and tax obligations, and notification of delinquent borrowers
this function is often provided by an entity different from the entity that owns the mortgage |
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Term
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Definition
involves an analysis by the lender of the riskiness of the promised mortgage payments
requires analysis of the potential borrower's willingness and ability to make scheduled mortgage payments |
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Term
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Definition
| full-service mortgage companies that process, close, provide funding, and sell the loans they originate in the secondary mortgage market, and service loans for loan investors |
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Term
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Definition
an intermediary between those who demand mortgage funds and those who supply the funds
brokers arrange mortgage loans for a fee, but do not originate or service the loans |
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Term
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Definition
| an originating lender's approved, but currently unfunded, loan commitments plus loans funded but unsold |
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Term
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Definition
the time between making a loan commitment and selling the loan
the mortgage banker is exposed to considerable risk during this period |
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Term
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Definition
| the monthly payment of the principal and interest on a home mortgage loan, plus monthly payments into an escrow account toward annual property taxes and hazard insurance |
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Term
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Definition
| financial institutions such as banks that fund mortgage loans and then hold the loans as investments |
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Term
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Definition
referring to "qualifying" home mortgages
the specific use of the term varies
some use prime to refer to loans where the borrower has a FICO score of 660 or higher
others also include FHA and VA mortgage loans
still others distinguish prime by the type of lender |
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Term
| Standby forward commitment |
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Definition
| in mortgage lending, forward commitments where the mortgage banker has the right, but not the obligation, to sell a prespeified dollar amount of a certain loan type at a prespecified price to the seller of the commitment |
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Term
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Definition
depository institutions that evolved primarily to collect and invest household savings
usually the term encompasses (former) savings and loan associations and savings banks, but not credit unions
thrifts invested largely in home mortgage loans, and for well over a century, until about 1980, were the backbone of home mortgage finance in the U.S. |
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Term
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Definition
one of two common ratios used by home mortgage lenders to determine a borrower's ability to pay a debt
defined as PITI and other long-term obligations divided by the borrower's gross monthly income |
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Term
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Definition
| the provision by commercial banks of short-term funds to mortgage banking companies to enable them to originate and fund mortgage loans until they can be sold in the secondary mortgage market |
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Term
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Definition
| the number of initial years in which an ARM remains fixed before the interest rate is allowed to be adjusted |
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Term
| Annual percentage rate (APR) |
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Definition
| an approximation of the mortgage loan's annual effective borrowing cost in the absence of early payoff |
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Term
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Definition
| sometimes called settlement costs, costs in addition to the price of a property, usually including mortgage origination fee, title insurance, attorney's fee, and prepayable items such as taxes and insurance payments collected in advance at closing and held in an escrow account until needed |
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Term
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Definition
| upfront financing costs charged by lenders to increase the yield on a loan |
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Term
| Early payment mortgages (EPM) |
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Definition
| loans where the borrower makes additional payments to reduce outstanding principal more quickly than scheduled |
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Term
| Effective borrowing cost (EBC) |
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Definition
the true borrowing cost, including the effect of all up-front financing costs
is similar to the annual percentage rate but allows for the effect of early payoff |
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Term
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Definition
during the life of the loan, borrower's make interest, but no principal, payments
therefore, the remaining mortgage balance is not reduced over the life of the loan |
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Term
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Definition
| the implied discount rate, or internal rate of return, on a loan given all of the cash inflows and outflows on the loan to the lender |
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Term
| Level-payment mortgage (LPM) |
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Definition
| a fully amortizing loan with equal periodic payments |
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Term
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Definition
the outstanding principal balance on a loan
will always be equal to the original balance if the loan is an interest-only loan
declines over time if the loan is self-amortizing |
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Term
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Definition
| a loan payment factor used to determine payments on a level payment, fixed rate loan |
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