Key Terms and Definitions

  • Foreclosure- The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
  • Short Sale- A sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments. By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what he owes.
  • Interest Rate-The amount of interest charged on a monthly loan payment expressed as a percentage.
  • Teaser Rate- A temporary rate reduction at the inset of a loan.
  • Fixed Rate Loan- A mortgage in which the interest rate does not change during the entire term of the loan.
  • ARM- A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.
  • Amortization- The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.
  • Negative Amortization- An increase in principal balance which occurs when the monthly payments do not cover all of the interest cost. The interest cost which is not covered by the payment is added to the unpaid principal balance.
  • Cash-Out Refinance- When a borrower refinances his mortgage at a higher amount than the current loan balance with the intention of pulling out money for personal use, it is referred to as a "cash out refinance.
  • Equity- A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens.
  • Appraisal- A written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby.
  • FHA (Federal Housing Authority)-An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.
  • Sub Prime Loan-Typically, subprime loans are for persons with blemished or limited credit histories. The loans carry a higher rate of interest than prime loans to compensate for increased credit risk.Studies reveal that even in upper-income African-American neighborhoods one is one-and-a-half times as likely to have a subprime loan than persons in low-income white neighborhoods. In neighborhoods where Hispanics comprise at least 80 percent of the population, they were 1.5 times as likely than the nation as a whole to have a subprime mortgage loan.
  • Credit Report- A report detailing a borrowers credit history including payment history on revolving accounts (eg. credit cards) and installment accounts (e.g.. car loan). A credit report also includes information found from public records including tax liens and judgements.
  • Loan Modification- A Loan Modification is a permanent change in one or more of the terms of a Borrower's loan, allows the loan to be reinstated, and results in a payment the Borrower can afford.
  • Habitat for Humanity- A non-profit organization tasked with offering free mortgage consultations with the goal of getting at risk borrowers into a fair loan modification option. Successes are few and far between.
  • Loan Servicer- A financial institution tasked with billing, collecting payment, filing reports, managing impound accounts and handling defaults on a mortgage.
  • Mortgage Backed Security (MBS)- A bond or other financial obligation secured by a pool of mortgage loans.
  • Fannie Mae (Federal National Mortgage Assoc.) 1938, New Deal-
  • Freddie Mac (Federal Home Loan Mortgage Corp.) 1968)-
  • Ginnie Mae (VA,FHA, FarmersHA, govmt employees and veterans,1968)-
  • MHFA (Minnesota Home Finance Agency)-
  • Principal Reduction- A Lender decision to reduce the loan amount owed. The amount of reduction varies and is based entirely on Lender discretion.
  • Mortgage Reset- The notion that mortgage Principal values should be reset to universally reflect current market conditions.

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