Mortgage Dictionary

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Federal National Mortgage Association (FNMA, Fannie Mae)

Purchases loans from lenders, securitizes them and sells FNMA mortgage backed securities on wall street.

Federal Home Loan Bank Board (FHLBB)

Provides financing to farmers.

Farmer's Home Administration (FmHA)

An agency, within the U.S. Department of Agriculture, that administers assistance programs for purchasers of homes and farms in small towns and rural areas.

Federal Home Loan Mortgage Corporation (FHLMC, Freddie Mac)

Purchase loans from members of the Federal Reserve and the Federal Home Loan Bank Systems, securitizes them and sells FHLMC mortgage backed securities on wall street.

Federal Housing Administration (FHA)

An agency within the U.S. Department of Housing and Urban Development (HUD) that administers loan programs, issues loan guarantees to make more housing available.

Federal Reserve System

The central federal banking system that regulates and provides services to member commercial banks. Also has the responsibility for conducting federal monetary policy.

Fee Simple (Fee Absolute or Fee Simple Absolute)

Absolute ownership of real property; owner is entitled to the entire property with unconditional power of disposition during the owners life and upon his death the property descends to the owner's designated heirs.

Fidelity Bond

An assurance, generally purchased by an employer, to cover employees who are entrusted with valuable property or funds.

Example : A landlord employs a clerk who collects rents. To safeguard these funds during the collection process, the landlord purchases a fidelity bond the clerk.

Fiduciary

A person in a position of trust or responsibility with specific duties to act in the best interest of a client. A real estate broker is a fiduciary for his/her clients.

Finance Charge

Interest charged by a lender.

First Mortgage

A mortgage that has priority as a lien over all other mortgages. In the case of a foreclosure the first mortgage will be satisfied before other mortgages. See also second mortgage.

Fixture

Improvements or personal property attached to the land so as to become a part of the real estate. Fixtures are transferred to the buyer upon sale of the property. To determine whether an item is a fixture include :

• Intent (was it intended to be part of the property)
• How is it fixed ?
• Is the fixture essential to the property ?
• Relationship - was the fixture intended to be a part of the tenant's business ?

Example : John sells his house to Mary. John wants to take the chandelier because he states it is personal property. Mary wants the chandelier to stay because she believes it is a fixture.

Flood Insurance

An insurance policy that covers property damage due to natural flooding. Flood insurance may be required on properties in a flood zone.

Foreclosure (Repossession)

A legal process by which the lender forces a sale of a property because the borrower has not met the terms of the mortgage.

Free and clear

A property that has no liens.

FSBO

For sale by owner. A property for sale that is not listed with a real estate broker.

Fully indexed rate

The fully indexed rate=value of the index + margin. See adjustable loans.

General Warranty Deed

A deed in which the grantor (seller) agrees to the protect the grantee (buyer) against any other claim to title of the property. See also warranty deed.

Government National Mortgage Association (GNMA, Ginnie Mae)

A government agency part of HUD that buys VA and FHA loans from lenders, securitizes them and sells Ginnie Mae securities to investors.

Grantee

That party in the deed who is the buyer or recipient.

Grantor

That party who is the seller or the giver.

Graduated Payment Mortgage (GPM)

A mortgage that has lower payments initially (with potential negative amortization) which increase each year until the loan is fully amortized.

Grandfather Clause

The clause in a law permitting the continuation of a use, business, etc., which was permissible but because of a change in the law is now no longer permissible.

Hazard Insurance (Fire Insurance, Homeowner's insurance)

Insurance on a property against fire and other risks. A homeowner's policy may have additional coverage for theft, liability, etc. that a fire insurance policy may not cover.

Homeowners Association

An association of homeowners in a particular subdivision, planned unit development (PUD), or condominium organized to manage the common area of the development and to enforce the association rules and regulations.

Homestead

Status provided to a homeowner's principal residence in some states that protects the home against judgements up to specified amounts.

Homestead Exemption

Available in some states - this causes the assessed value of a principal residence to be reduced by the amount of the exemption for the purposes of calculating property tax.

Example : John's principal residence is assessed at $100,000 and the homestead exemption is $7,000. His property taxes will be based on $93,000.

Home Warranty Plan

Insurance that covers appliances, heating systems, etc. Typically purchased at the time of closing.

Housing and Urban Development

A U.S. government agency established to implement certain federal housing and community development programs.

Housing Code

A local government ordinance that sets minimum standards of safety and sanitation for existing residential buildings.

HUD 1

A closing document required by HUD that outlines the settlement cost of a loan. The closing agent prepares this document and sends it to the buyer upon closing.

Hypothecate

To pledge a property as security without having to give up possession of it.

Improvements

Additions to raw land such as buildings, streets, etc. that add value to the land.

Impound Account

That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.

Income Approach

A method used by an appraiser to estimate the value of a property based on the income it generates.

Income Property

Real estate that generates rental income. Examples : apartment buildings, office buildings and shopping centers.

Index

A statistic that indicates some current economic of financial condition. Indexes are used to make adjustments in variable rate loans.

Ingress and Egress

The right to go in and out over a piece of property but not the right to park on it. See also Easements.

Installment Sale

See land contract.

Joint and Several Liability

A creditor can demand full repayment from any and all of those who have borrowed. Each borrower is liable for the full debt, not just the prorated share.

Joint Tenancy

Ownership of a property by 2 or more people, each of whom has an undivided interest with the right of survivorship.

Example : John and Mary own a house in joint tenancy. Each owns half of the entire (undivided) property. If John dies, Mary will own the entire property and vice versa.

Judgement

The decision of a court of law stating that one individual is indebted to another and fixing the amount of indebtedness. Judgements, when recorded, become a lien on real property owned by the defendant.

Judgement Lien

The claim on the property of a debtor resulting from a judgement.

Jumbo Loan

Loan size that is larger than the limit established by Fannie Mae or Freddie Mac.

Junior Mortgage

A mortgage subordinate to another mortgage. In the case of a foreclosure a senior mortgage will be paid prior to a junior mortgage.

Kicker

A payment required by a mortgage in addition to normal principal and interest. Sometimes known as a participation loan.

Land Contract

A real estate installment selling arrangement whereby the buyer may use and occupy land, but no deed is given by seller until the sales price has been paid.

Lease with Option to Purchase

A lease under which the lessee has the right to purchase the property. The option may run for a portion or for the full length of the lease

Leasehold Estate

Tenant's right of possession for a specific period of time under a lease agreement.

Legal Description

Legally acceptable identification of real estate by one of the following:

• the government rectangular survey
• metes and bounds
• recorded plat (lot and block number)

Lessee

A person to whom property is rented under a lease. (Tenant)

Lessor

A person who rents property to another under a lease. (Landlord)

Lien

A claim against the property for the payment of a debt, judgement, mortgage or taxes.

Example : Unpaid contractors may file a mechanic's lien.

Life Estate

An estate in real property for the life of a living person. The estate then reverts back to the grantor or to a third party.

Lis Pendens

Latin for "lawsuit pending." Recorded notice that litigation is pending on a property. Most lenders will require the clearance of the Lis Pendens prior to closing.

Loan Application

A document required by a lender prior to loan approval. The application includes detailed information about the borrower and the property.

Loan origination fee or points

Charge by a lender or broker connected with originating a loan. This is different from discount points which are used to buy down the rate of interest.

Loan to Value Ratio (LTV)

The loan amount divided by the value of the property.

Loan Servicing

The act of collecting loan payments, handling property tax and insurance escrows, foreclosing on defaulted loans and remitting payments to the investors.

Margin

A fixed number added to the index to compute the rate on an adjustable rate mortgage.

Marketable Title

Title that is free of liens, clouds and other legal defects and hence is readily acceptable by a buyer.

Market Value

The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Mechanics Lien

The right of an unpaid contractor or subcontractor to file a lien against property to recover the amount due to him/her.

Mortgage

A written instrument that creates a lien upon real estate as security for the payment of a specified debt.

Mortgage Backed Security (MBS)

A bond or other financial obligation secured by a pool of mortgage loans.

Mortgage Banker

Specializes in originating and servicing loans. They generally sell their loans to investors, but may continue to service them.

Mortgage Broker

Arranges financing for a borrower by placing loans with lenders. Mortgage brokers are paid a fee by the borrower or the lender when a loan closes.

Mortgagee

The lender.

Mortgagor

The borrower.

Mortgage Insurance

See private mortgage insurance (PMI)

Mortgage Note

A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment.

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.

Net Effective Income

The borrowers gross income minus federal income tax.

Non-conforming loan

Loans that do not comply with Fannie Mae or Freddie Mac guidelines.

Note

A written instrument that acknowledges a debt and promises to pay.

Notary Public

One authorized to take acknowledgments of certain types of documents, such as deeds, contracts, and mortgages.

Notice of default

A letter sent to the defaulting party as a reminder of the default.

Offer

An expression of willingness to purchase a property at a specified price.

Offeree

One who receives the offer. When the buyer makes an offer to the seller the seller is an offeree.

Offeror

One who makes the offer. When the buyer makes an offer to the seller the buyer is an offeror.

Office of Comptroller Currency

The oldest federal financial regulatory body that oversees the nation's federally chartered banks.

Office of Thrift Supervision

The OTS charters federal thrift institutions and is the primary regulator of all federal and many state-chartered thrift institutions.

Open House

A method of showing a home for sale to prospective buyers where the home is left open for inspection by those who may be interested in making a purchase.

Open End Mortgage

A mortgage permitting the mortgagor to borrow additional money under the same mortgage, with certain conditions.

Origination Fee

See Loan Origination Fee.

Optionee

One who receives or purchases an option.

Optionor

One who gives or sells an option.

Oral Contract

A verbal agreement. Verbal agreements for the sale or use of real estate are normally unenforceable.

Owner of Record

The individual named on a deed that has been recorded at the county recorders office.

Owner Occupant

A tenant of a residence who also owns the property.

Package Mortgage

Mortgage covering both real and personal property.

Paper

A mortgage, deed of trust or land contract provided in lieu of cash.

Partial Release

A provision in a mortgage that allows some of the property secured to be freed from serving as collateral.

Participation Mortgage

A mortgage that allows the lender to share in part of the income or resale proceeds.

Pass Through Certificates

Interests in a pool of mortgages sold by mortgage bankers to investors. Money collected as monthly mortgage payments is distributed to those who own certificates..

Permanent Loan or Mortgage

A mortgage for a long period of time. Often referred to as the mortgage that pays off a construction loan on a completed property.

Permit

A document issued by a government regulatory authority that allows the bearer to take some specific action.

An occupancy permit allows the owner of a building to occupy or rent the building.

PITI

Abbreviation for principal, interest, taxes and insurance, which may be combined in a single monthly mortgage payment.

Planned Unit Development (PUD)

A zoning classification that allows flexibility in the design of a subdivision. PUDs include individually owned units as well as some common space that is jointly owned.

Plat

A plan or map of a specific land area.

Plat Book

A public record containing maps of land, showing the division of the land into streets, blocks, and lots and indicating the measurements of the individual parcels.

Points

Fees paid to lenders. 1 point=1% of the loan amount. On a $100,000 loan 1 point is $1000. Points may be further classified into origination points or discount points.

Portfolio Loan

A loan that is held as an investment by a bank or savings and loan, and NOT sold on the secondary market to investors.

Power of Attorney

A written document authorizing a person to act on the behalf of another person. That person does not have to be an attorney. Different than an attorney-in-fact.

Prepaid Interest

Prepaid interest is the interest charged to borrowers at closing to pay for the cost of borrowing for a balance of the month. For example, if a loan closes on the 19th of the month and the first payment is due on the 1st of the following month, the lender will charge 12 days of prepaid interest.

Prepayment

Full or partial payment of the principal before the due date. This might occur if the borrower makes extra payments, sells the property, or refinances the existing loan.

Prepayment Penalty

Fees paid by the borrower if they pay the loan before its due date.

Primary Mortgage Market

Companies that originate and service mortgage loans (banks, savings & loans, credit union, mortgage bankers, institutional lenders) make up the primary mortgage market. See also secondary mortgage market.

Prime Rate

The lowest commercial interest rate charge by a bank on short term loans to their most credit worthy customers.

Principal

The outstanding balance on a loan.

Private Mortgage Insurance (PMI)

In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment - as low as 2 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance payments are normally made annual or monthly. An impound account may be required.

Probate

Court process to establish the validity of the will of a deceased person.

Purchase Money Mortgage

A mortgage used to finance the purchase of a property.

Property Tax

A government levy based on the market value (as assessed by the county assessor's office) of the property.

Public Sale

An auction of property with notice to the general public.

Purchase Agreement

See Agreement of Sale.

Quiet Title (Action)

A court action to settle a title dispute.

Quit Claim Deed

A deed which transfers whatever interest the maker of the deed may have in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor's interest in a property is questionable. By accepting such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has.