Mortgage Glossary

There are many terms and definitions in the mortgage and loan business that it may be helpful for you to know, in order to get the most out of your investment in financing. We invite you to call us and speak with our experienced loan originators at 800-684-4400.

The mortgage industry has many terms that are commonly used to describe loan types and components of the process. We have provided below a quick glossary (based on the Fannie Mae publications) that should make understanding these terms a bit easier.

Adjustable Rate Mortgage (ARM)

A mortgage with an interest rate and payment that change periodically over the life of the loan based on changes in a specified index.

Annual Percentage Rate (APR)

To protect the public, Congress decided that a more precise measure of the true cost of a mortgage loan was needed. The concept of the annual percentage rate (APR) was developed to more accurately reflect this cost factor. The APR represents not only the rate of interest charged on the loan but certain other pre-paid finance charges. These costs are expressed in terms of percent and, among other costs, may include the following: origination fees, loan discount points, private mortgage insurance premiums and the estimated interest pro-rated from the closing date to the end of the month.

Conventional mortgage

A mortgage loan that is not insured or guaranteed by the federal government.

Conforming Loan

A loan type offered to a person with a good to excellent credit score with verifiable income.

Non-Conforming Loan

Many credit profiles may have past issues that should be analyzed and structured in order to make the loan process work properly. Your Mortgage Trust Group mortgage consultant is experienced in this area and can work to ensure that your mortgage is possible with the most favorable rate. Many times a non-conforming loan has No-Doc or No Income Verification features which are attractive to the self-employed borrower.

Credit-related expenses

The sum of foreclosed property expenses plus the provision for losses.

Credit-related losses

The sum of foreclosed property expenses plus charge-offs.

Credit scoring

A process that uses recorded information about individuals and their loan requests to assess in a quantifiable, objective, and consistent manner their future performance regarding debt repayment.

Debt security

A security in which the issuing company generally agrees to repay the principal (typically, the original amount borrowed) and make interest payments according to an agreed schedule.

Default

The failure of a borrower to comply with the terms of a note or the provisions of a mortgage.

Delinquency

A mortgage loan on which a payment has not been made by the due date.

Duration

The weighted-average life of the present value of all future cash flows, both principal and interest, of a security. It is used as a measure of the sensitivity of the value of a security to changes in interest rates.

Escrow

Prior to closing, be sure to inquire if the lender requires an escrow account set up for the payment of the real estate taxes and homeowners insurance. Some lenders will waive the escrow requirements if the down payment is above a certain limit. Depending on when you close and when real estate taxes are paid in your jurisdiction, the cash required to set up the real estate tax escrow could represent one-half to three-quarters of the annual real estate tax bill.

Fixed-rate mortgage

A mortgage loan in which the interest rate does not change during the entire term of the loan.

Forbearance

The lender's postponement of legal action when a borrower is delinquent. It is usually granted when a borrower makes satisfactory arrangements to bring the overdue mortgage payments up to date.

Foreclosure

The legal process by which property that is mortgaged as security for a loan may be sold to pay a defaulting borrower's loan.

Guarantee fee

Compensation paid by a lender to Fannie Mae for the guarantee of timely payments of principal and interest to MBS security holders.

Interest rate swap

A transaction between two parties in which each agrees to exchange payments tied to different interest rates or indices for a specified period of time, generally based on a notional principal amount.

Intermediate-term mortgage

A mortgage loan with a contractual maturity at time of purchase equal to or less than 20 years.

Lender option commitments

An agreement giving a lender the option to deliver loans or securities by a certain date at agreed-upon terms.

Loan servicing

The tasks a lender performs to protect a mortgage investment, including collecting monthly payments from borrowers and dealing with delinquencies.

Loan-to-value (LTV) ratio

The relationship between the dollar amount of a borrower's mortgage loan and the value of the property.

Loss mitigation

Activities designed to reduce either the likelihood of the corporation suffering financial losses on a loan or the final dollar value of those losses in the event of a borrower default.

Mandatory delivery commitment

An agreement that a lender will deliver loans or securities by a certain date at agreed-upon terms.

Modification

Any change to the original terms of a mortgage.

Mortgage

A legal document that pledges property to a lender as security for the repayment of the loan. The term also is used to refer to the loan itself.

Mortgage-Backed Security (MBS)

A Fannie Mae security that represents an undivided interest in a group of mortgages. Principal and interest payments from the individual mortgage loans are grouped and paid out to the MBS holders.

Multifamily housing

A building with more than four residential rental units.

Nonperforming asset

An asset such as a mortgage that is not currently accruing interest or on which interest is not being paid.

Preforeclosure sale

A procedure in which the borrower is allowed to sell his or her property for an amount less than what is owed on it to avoid a foreclosure. This sale fully satisfies the borrower's debt.

Repayment plan

An agreement between a lender and a borrower who is delinquent on his or her mortgage payments, in which the borrower agrees to make additional payments to pay down past due amounts while still making regularly scheduled payments.

Reverse mortgage

A financial tool which provides seniors with funds from the equity in their homes. Generally, no payments are made on a reverse mortgage until the borrower moves or the property is sold. The final repayment obligation is designed to not exceed the proceeds from the sale of the home.

Risk-based capital

The amount of capital necessary to absorb losses throughout a hypothetical ten-year period marked by severely adverse circumstances.

Secondary mortgage market

The market in which residential mortgages or mortgage securities are bought and sold.

Serious delinquency

A single-family mortgage that is 90 days or more past due, or a multifamily mortgage that is two months or more past due.

Transfer agent

A bank or trust company charged with keeping a record of a company's stockholders and canceling and issuing certificates as shares are bought and sold.

Underwriting

The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower's ability and willingness to repay the debt and the value of the property.