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Terminology I
Common terminology in the mortgage industry Part I
| Term | Definition |
|---|---|
| Closing | The conclusion of a real estate transaction. It includes the signing of legal documents and the disbursement of funds necessary to complete either a refinance loan transaction or the sale of a home. |
| Escrow | An account held by the lender into which a portion of a borrower’s mortgage payment is deposited for the payment of taxes and insurance premiums. |
| Per diem interest | Interest calculated per day. Interest that must be paid from the day of closing to the end of the month. |
| Default | Failure to meet the legal obligations of a contract; specifically, failure to make the monthly payments on a mortgage. |
| Verification of employment (VOE) | A document signed by their employer verifying the borrower’s position and salary. |
| Borrower | One who applies for and receives a loan in the form of a mortgage. |
| Federal Reserve Board | The seven-member Board of Governors that oversees Federal Reserve Banks, establishes monetary policy, and monitors the economic health of the country. Members of this system are appointed by the governor, confirmed by the Senate, and serve a 14 year term. |
| Liability | Something for which a person or business is legally responsible, such as a debt or other financial obligation. |
| Security | The real or personal property pledged as collateral for a loan. |
| Acceleration | A clause in a mortgage or deed of trust that allows the lender to demand the immediate repayment of the balance of a loan under certain conditions, such as default by the borrower. |
| Hypothecate | To pledge a property as security without having to relinquish possession. |
| Note | A legal document obligating a borrower to repay a mortgage loan that specifies the terms by which repayment will occur. |
| Redlining | The practice of refusing to provide loans or insurance in a certain neighborhood. |
| Addendum | An addition or supplement to a contract used to make changes to an existing, executed contract. |
| Refinance | The process whereby the borrower replaces (pays off) an existing mortgage loan with the proceeds from a new mortgage loan on a property already owned. |
| Credit Bureau | A clearinghouse for credit history information. Credit grantors provide the clearinghouse with information regarding how borrowers pay their bills, and this information is assembled into a file for each consumer. |
| Underwriting | A process used to evaluate a loan applicant’s financial information and the facts about the real estate that will be used to secure a loan. |
| Mortgage | A legal document that pledges a property to a lender as security for payment of a debt. |
| Improvements | Additions to raw land, such as buildings, streets, and utilities, which add value to the land. |
| Depreciation | A decrease in the value of a property over time. |
| Real Property | Land and any improvements permanently affixed to it, such as buildings or structures. |
| Secured Loan | A loan that is protected by collateral, such as real property. The loan agreement contains a provision stating that the lender has a claim against the property if the debt is not paid according to the agreement. |
| Encroachment | A building, part of a building, or an obstruction that physically intrudes upon or overlaps onto the property belonging to another. |
| Basis Point | One 100th of 1% of the loan amount. |
| Appraisal | A written analysis of the estimated value of a property. |
| Joint Tenancy | Two or more people holding equal ownership of a property and providing for the automatic transfer of a deceased tenant’s interest to the surviving tenant. |
| Origination | The process of completing and processing an application for a mortgage loan. |
| Rescission | The cancellation of a contract. |
| Mortgage Insurance | Insurance that indemnifies the lender against default by the borrower; required when the borrower has less than a 20% equity position in a property. |
| Market Value | The highest price a buyer is willing to pay, and the lowest price a seller is willing to accept for real property. It may be different from the price the property could actually be sold for at a given time. |
| Originator | One who, for a fee or compensation, negotiates, arranges, or offers to negotiate or arrange a mortgage loan between a mortgage lender and one or more individuals; or to place, assist in placing, or find a mortgage loan for one or more individuals. |
| Payment Shock | A sudden large increase in a monthly mortgage payment as a result of an adjustable-rate mortgage or through a refinance with new financing terms. |
| Amortization | Periodic payments on a loan requiring payment of enough principal and interest to ensure complete repayment of the loan by the end of the loan term. |
| Appreciation | The increase in the value of a property that has occurred over time. |
| Chain of title | The chronological order of conveyance of a parcel of land from the original owner to the present owner. |
| 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. |
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