A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

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Abstract of Title - A summary of past ownership and any other public records relating to the title of a property.  Before a buyer purchases property, an attorney or title company can examine that property’s abstract of title to determine if there are any defects that need to be cleared before the title is considered clear, marketable, and insurable.

Acceleration, Acceleration Clause - A provision in a mortgage agreement that allows a lender or servicer to demand immediate repayment of the entire loan balance under certain circumstances, such as failure to make regular mortgage payments, nonpayment of taxes, or for breach of any other conditions of the mortgage or when the servicer decides to send the borrower down the slippery slope of the loan-servicing-scam.

Ad valorem taxes -- property taxes on the assessed value of a property. Ad valorem is Latin for "according to value."

Advances - Normally, mortgage loan servicing agreements require the servicer to pay the trustee a full month of scheduled interest (and usually scheduled principal) on each loan, even if the Servicer does not collect the full amount from the borrowers.  This is why servicers become very aggressive in their attempts to get payments in when the amount of equity in the property is so low that foreclosure is not profitable.

If a borrower is delinquent, the Servicer also pays all costs incurred in the collection, foreclosure and liquidation process.  The Servicer is repaid either by the borrower who may cure the delinquency by paying all the late payments and all associated fees or costs, or, if the borrower does not cure the delinquency, the Servicer will complete the foreclosure process, liquidate the property, and it then takes from the liquidation proceeds all monies needed to pay all the required advances to the trustee.  The certificate holders (investors) in theory only get what is left over but are often protected by insurance.

AMMINET - Automated Mortgage Market Information Network.  A nationwide electronic quotation system developed by the Federal Home Loan Mortgage Corporation, and operated by a non-profit corporation.  The system provides market information to subscribers on buy and sell orders for various types of mortgages and mortgage-backed securities.

Appellant - the party that appeals a decision of a lower court. See appellee.

Appellee -- the party that is the defendant in an appeal of a lower court decision.  See appellant.

Appraisal - A written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby and provided by a licensed appraiser.  (NOT a BPO!)

Asset Backed Securities - A security backed by receivables other than those arising out of real estate, i.e., autos.

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Bankruptcy -- the legal process in which a person or firm formally declares their inability to pay debts.  In Chapter 7 filings, any available assets (with some exceptions) are liquidated and the proceeds are distributed to creditors.  Chapter 11 filings are reorganizations of bankrupt businesses; Chapter 13 covers work-outs of debts by employed individuals with some assets.  Upon a court declaration of bankruptcy, a person or firm surrenders assets (Chapter 7) or makes pre-arranged payments over three to five years (Chapter 13) to a court-appointed trustee who distributes the funds to the approved debtors.

Typically, foreclosures are at least temporarily halted during the Chapter 13 process, although many servicers will attempt to have the protection waived.

Bankruptcy Fee – [Monitoring Fee; Proof of Claim (POC) Fee]  Fee charged to borrower by lender or servicer as a result of bankruptcy filing by borrower, often a flat fee included in amount owed listed on proof of claim filed by servicer in chapter 13 or added to account as recoverable expense or corporate advance without notice to borrower or bankruptcy court approval.

Basis Point - One one-hundredth of one percent, which means that one percent is composed of 100 basis points.

Bond - certificate that is evidence of a debt.  The debt is initiated when the issuer sells the bond to the holder for a specific amount of cash. The issuer is obligated to pay the holder of the bond a fixed sum (the bond's face value) at a stated future date and to pay interest (usually twice a year) at a specified rate during the life of the bond.  Bonds may be issued by corporations, the federal government, and by state and local governments as a means of raising funds in the capital markets.  Bonds may be issued in registered form, in which the name of the holder is on record with the issuer, or in bearer form, in which the name of the owner is not registered and the bond is payable to whomever bears, or presents the bond to the issuer for redemption.

In mortgage-backed securities, used to refer to both true Bonds and Certificates of Ownership issued by the Trust that holds the assets (i.e., deeds or mortgages).

Bond Rating - A Bond Rating is an opinion on the likelihood of a bond paying investors interest and principal as promised.  Most often, a Bond Rating is simply referred to as a Rating.  Currently, three Bond Rating Agencies dominate the United States ABS market: Standard & Poors, Moody's Investors Service, and Fitch IBCA.  Duff and Phelps Credit Rating Agency was active in the ABS markets until it was purchased by Fitch IBCA in the year 2000.

BPO - Broker Price Opinion. "Drive-by appraisal" of a broker known and trusted by the Servicer (and even owned by the servicer in the case of Fairbanks and RRR).  Rather than a formal (and more expensive appraisal which might alert the homeowner/borrower that something is about to happen) the BPO merely provides the Servicer with an opinion on what the property is worth.  Digital cameras and the Internet have reduced this to a "drive-by shooting" process.

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Certificate - Most home equity asset-backed securities are issued as Certificates, which represent a beneficial interest in the Trust that holds the assets securitized.  Some ABSs are issued as Notes or Bonds.

Certificate of Title - A written statement, provided by an attorney or title company that contains an affirmation about the status of a property’s title. It is the attorney or title company’s professional opinion that the title is clear and marketable; however, a Certificate of Title does not guarantee that there are not any defects that may not have been uncovered in the title search. It does not offer the level of protection of a title insurance policy.

CMBS - Commercial Mortgage-Backed Securities.

CMO - Collateralized Mortgage Obligation - a type of bond having mortgages or mortgage-backed securities as collateral.  Principal and interest payments from an underlying pool of mortgages are redirected to pay the CMO holders until the CMO’s are retired.  A single issue of CMO’s contains two or more classes of bonds called tranches, each with a different length of maturity, providing a form of call protection to the holder of a CMO.  A holder who wants to lock in a CMO investment for a specific length of time will buy into a tranche with a low risk of being retired early because the underlying mortgages are paid off early.  Such low prepayment risk tranches are called planned amortization classes (PACs).  Changes in prepayment rates in the underlying pool of mortgages are absorbed first by another tranche, so that the PAC remains unaffected by prepayment risk.  CMO’s generally pay principal and interest semiannually.  CMO were first issued by the Federal Home Loan Mortgage Corporation (Freddie Mac) in June 1983. (See also REMIC.)

Conduit - A company in the business of pooling large numbers of loans for the purpose of  securitization.

Conforming Mortgage - A mortgage that meets Fannie Mae and/or Freddie Mac purchase requirements.  Generally, Fannie Mae and Freddie Mac purchase only prime quality loans below a Federally mandated limit.  Conforming loans are generally not found in Home Equity pools because it is more efficient to sell these loans to Fannie Mae or Freddie Mac.

Conventional Mortgage - A mortgage that is not insured or guaranteed by a government agency such as the US Department of Housing and Urban Development (HUD) or the Veteran’s Administration.

Conveyance - The transfer of title of real from one party to another.

Corporate Advance - Disbursement for servicing-related expenses (not escrow expenses) paid with servicer funds rather than escrow funds, to be recovered from borrower. May include foreclosure expenses, attorney fees, bankruptcy fees, force placed insurance, and so forth.

Correspondent - An agent in the primary mortgage market who originates and funds loans, generally according to a conduit's guidelines with the expectation of selling the loans to the conduit.  Also known as a Mortgage Banker.  Some Correspondents sell loans on a "flow" basis to Conduits, which means they are sold as they are produced, while other choose to sell on a "bulk" basis, meaning the Correspondent acquires a large number of loans and then sells them as a block to the best bidder.

Coupon -- (1) a tab attached to a bond, which can be torn off and presented to collect an interest payment, usually semiannually.  (2) a percentage of a bond's face value, which is the annual rate of return received by the bondholder.

Coupon bond -- a written document evidencing a debt obligation to which interest coupons are attached.  Each coupon bears a different maturity date and states the interest due on that date.  The bondholder clips the coupons from the bond as they mature and presents the coupons to the bond issuer for payment of interest.

Coupon book -- a set of notices, usually computer generated, that the borrower returns to the lender, one at a time, with each loan repayment or with each deposit to a savings account such as a club account.

Coupon rate -- the annual interest rate of a debt instrument.  More generally, the annual interest rate on any indebtedness.  In mortgage banking, the term is used to describe the contract interest rate on the face of a bond or note.

Cure - The repayment of all past due sums owed by a delinquent borrower.  A borrower typically cures by simply paying all delinquent amounts due, but it is not uncommon in the home equity market for borrowers to cure by completely paying off the loan in full, either by refinancing or from the sale of the house.

Cushion – (Reserve) An additional sum of money required by lender to be paid into escrow account as part of monthly escrow payment to protect lender against increases in escrow expenses.

CUSIP - A CUSIP is a sequence of nine numbers and letters that uniquely identifies each publicly traded security.  The word CUSIP is short for Committee on Uniform Securities Identifying Procedures and was developed by the American Bankers Association.

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Deed - A legal instrument that documents the transfer of ownership of a title to real property.  The document contains a description of the property, is signed and witnessed according to the state where the property is located, and is delivered to the buyer at closing.

Deed-in-Lieu of Foreclosure - where the borrower abandons the property to avoid foreclosure.  Some call it "mailing in the keys."

Deed of Trust - A document used in certain states instead of a mortgage.  An agreement in which a borrower pledges real property as collateral for a loan.  Same as a mortgage agreement, but in a Deed of Trust, the title is transferred to a Trustee rather than to the borrower.

Default Servicer - (Subservicer; Special Servicer) Servicer of subprime, home equity, non-performing and other loans in which increased default-related activities are anticipated.

Demand Letter - Notice of Intent to Foreclose Letter notifying borrower of a delinquency or default, possibly a notice of intent to foreclose.

Demand Letter Assessment - Fee for sending the demand letter or notice of intent to foreclose.

Disbursement – (Escrow Disbursement) Use of funds to pay for servicing-related charges and expenses, including payments made out of escrow.

 Due Date - Date on which borrower’s monthly installment of principal, interest, and escrow (if applicable) is due as stated in note.

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Escrow - The deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.  In the loan servicing scam, escrow accounts are either not set up correctly (resulting in taxes or insurance not being paid) or are used to draw off principal and interest payments to create a shortfall in the payment and a resulting late fee and late payment report to the credit bureaus.

Equitable right of redemption - a right under state law of a defaulted borrower to redeem his or her property up to the date of the mortgage foreclosure sale by paying in full the outstanding mortgage debt.

Equity - in real estate, equity is the difference between the fair market value of a property and the amount of any mortgage debt, or liens against the property, still outstanding.  In business, the excess of a firm's assets over its liabilities.

Equity Stripping - (1) A result of the loan servicing scam.  Various types of other scams achieve the same thing, but it usually starts when the borrower is told that they can solve all their problems and keep their home.  The scammer either pushes a forbearance agreement (in the servicing scam) or in the case of lending scams, promises loan money that never appears.  The end result often is that the homeowners end up owing more per month than before the foreclosure and are quickly forced out of the house. In most cases, the homeowners receive little or nothing for their home equity.  (2) An asset protection scheme where the owner of a property has a lien placed against it by an entity he more-or-less controls, thus showing an asset to creditors that is impaired by the value of the lien.

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Fannie Mae (FNMA) - A corporation created by Congress, that purchases conventional mortgages from lending institutions and sells them as mortgage-backed securities directly to investors.  (See FHLCMC, which sells them to the investment broker/dealer community.)

Federal Housing Administration (FHA) - A division of the Department of Housing and Urban Development (HUD), this government agency insures residential mortgage loans that are made by private lenders, protecting the lenders against loss in the event of borrower default.  The FHA also sets standards for underwriting mortgage loans.

Flipping - Land or property flipping (as distinct from loan flipping which is repeated refinancing by predatory lenders) happens when property is purchased and quickly resold for a large profit, after little or no meaningful rehabilitation. There is growing evidence that property flipping has become epidemic in low-income urban housing markets. 

(From http://www.nhi.org/online/issues/113/focer.html )

FICO - Short for a commonly used credit score based on statistical models developed by Fair Isaac and Company, Inc. headquartered in San Rafael California.

Forbearance - In mortgages, it refers to an agreement by a lender to refrain from taking legal action when a mortgage is in arrears, as long as the borrower complies with a satisfactory arrangement to pay off the past due balance by a future date.

Force-placed insurance - NOT a homeowner's policy.  Force-placed insurance is something a lender purchases from an insurance company to cover the value of the loan in case of a property loss.

Foreclosure - Foreclosure is a procedure that varies significantly from state to state, allowing a lender to force the sale of a property (usually at public auction) to pay back a debt secured by that property.  The details of the Foreclosure process vary from state to state. (See Judicial foreclosure and Non-judicial foreclosure).  A loan typically enters Foreclosure when a Notice of Default is sent warning the borrower that payment is past due and that the property will be sold to satisfy the debt if the borrower does not pay all sums owed.

Freddie Mac - Federal Home Loan Mortgage Corporation (FHLMAC) - A corporation, created by Congress, that purchases conventional mortgages from lending institutions (that are members of the Federal Reserve) and sells them as securities to the dealer community.  (See Fannie Mae, which sells them directly to investors.)

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Government National Mortgage Association (GNMA or Ginnie Mae) - A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD).  Created by Congress on September 1, 1968, GNMA performs the same role as Fannie Mae and Freddie Mac in providing funds to lenders for making home loans.  The difference is that Ginnie Mae provides funds for government loans (FHA and VA)

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Hearsay - Evidence provided by a person who heard it from someone else but did not actually witness the event themselves.

HOEPA - Home Ownership and Equity Protection Act of 1994.  The law addresses certain deceptive and unfair practices in home equity lending.  It amends the Truth in Lending Act (TILA) and establishes requirements for certain loans with high rates and/or high fees.  The rules for these loans are contained in Section 32 of Regulation Z, which implements the TILA, so the loans also are called "Section 32 Mortgages."

HUD-1 Settlement Statement - A document mandated by the federal government to be prepared for the closing of a real estate transaction.  It describes the loan transaction, including fees, points, mortgage insurance, and hazard insurance.  The itemized listing of all fees will be numbered according to a standardized system used by all lenders.  Also sometimes referred to as a Closing Statement or Settlement Sheet.

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Instrumentality Rule - Under the instrumentality rule, a separate corporate existence (protection from the acts of a subsidiary) is disregarded where a subsidiary is viewed as organized and controlled and its affairs so conducted that it is seen only as an adjunct and instrument of the parent corporation.  In these circumstances, the parent corporation is held responsible for the obligations of its subsidiary. Some corporations avoid exposure to the rule and the resultant liability by having interest in but supposedly limited control of loan servicing companies.

Issuer - Technically, the certificates (or more loosely, the bonds) that investors buy are issued by a Trust that holds the collateral, so the Trust is the issuer.  Market participants, however, often refer to the company (i.e., the seller, sponsor or conduit that caused the Trust to be created and that assembled the collateral for the Trust), as the issuer.

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Judicial Foreclosure - Involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust.  Generally, after the court declares a foreclosure, the property will be auctioned off to the highest bidder.  (See Non-judicial Foreclosure.)

Junior mortgage - a mortgage that is subordinate to claims of a prior lien or mortgage.  Borrowers sometimes use junior mortgages to obtain additional funds needed for down payments or closing costs.  Lenders tend to discourage junior financing because the borrower has little or no equity in the home.  Also called a second mortgage.

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Late Charge Assessed – (Late Charge Adjustment Fee) charged to borrower’s account when payment made after due date (usually fifteen days after due date).

Loaded couponing - the practice of a lender including the cost of mortgage insurance in the interest rate stated in the loan note, rather than listing it as a separate monthly charge.  The practice permits a lender to cancel the mortgage insurance at a later date, while continuing to collect the monthly insurance premium from the homeowner/borrower. The practice was prohibited in 1985 by the Federal Home Loan Mortgage Corporation.

Loan servicing - Collecting and processing of loan payments during the life of a loan. Include producing coupon books or monthly statements; collecting payments of principal, interest, and payments into an escrow account; disbursing funds from the escrow account to pay taxes and insurance premiums; and forwarding funds to an investor if the loan has been sold in the secondary market.

Loan Servicing Scam - A process of deliberately creating various default conditions on loans where a servicer sees opportunity for profit from the collection of fees, extension of various insurance policies, etc.

Loan workout - a series of steps taken by a lender with a borrower to resolve the problem of delinquent loan payments.  Steps can include rescheduling loan payments into lower installments over a longer period of time so that the entire outstanding principal is eventually repaid.

Lock Box Payment – (Coupon Payment) Borrower payment sent to designated address (usually post office box) at the servicer’s payment processing center (servicer may outsource service to third-party company who collects mail directed to post office box and deposits funds to servicer’s bank account).

LTV - Loan-To-Value ratio - the relationship, expressed as a percent, of the amount of money loaned to the appraised value of the real estate pledged as security for the loan.  For example, an $85,000 loan on a $100,000 house would have a loan-to-value ratio of 85 percent.

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Master Servicer - Master servicers are responsible for the oversight of primary servicers, with respect to the primary servicer's responsibilities; and providing liquidity to a transaction by advancing principal and interest, as well as certain property protection expenses, on delinquent loans.  If the transaction requires a special servicer, the master servicer will insure the smooth transfer from the primary servicer to the special servicer and monitor the ultimate disposition of problem loans.

MERS – (Mortgage Electronic Registration System)   Electronic registry system for tracking ownership of individual mortgages, servicing rights, and security interests used by MERS members.  

[Note: The following is from the MERS website: http://www.mersinc.org/index1.htm ]

MERS was created by the mortgage banking industry to streamline the mortgage process by using electronic commerce to eliminate paper. Our mission is to register every mortgage loan in the United States on the MERS & reg; System.

Beneficiaries of MERS include mortgage originators, servicers, warehouse lenders, wholesale lenders, retail lenders, document custodians, settlement agents, title companies, insurers, investors, county recorders and consumers.

MERS acts as nominee in the county land records for the lender and servicer.  Any loan registered on the MERS & reg; System is inoculated against future assignments because MERS remains the nominal mortgagee no matter how many times servicing is traded.  MERS as original mortgagee (MOM) is approved by Fannie Mae, Freddie Mac, Ginnie Mae, FHA and VA, California and Utah Housing Finance Agencies, as well as all of the major Wall Street rating agencies.

Mortgage-Backed Securities - Mortgage-backed securities (MBS) are a type of investment that represents ownership in a group of mortgages. Principal and interest from the individual mortgages are used to pay principal and interest on the MBS.

Ownership in a group of mortgages is typically represented by a passthrough certificate (PC). Most passthrough certificates are issued by the Government National Mortgage Agency, a branch of the United States Government, or by one of two private corporations:  Fannie Mae or Freddie Mac. With these certificates homeowners' payments pass from the originating bank through the issuing agency to holders of the certificates. These agencies also frequently guarantee that the certificate holder will receive timely payment of principal and interest from the PCs.

Mortgage Servicing - see Loan Servicing.

Mortgagee - The creditor or lender in a mortgage agreement. 

     Mortgagor – The borrower in a mortgage agreement.

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Negative Amortization - The gradual increase in the balance due on a loan that occurs as a result of monthly payments that do not sufficiently cover the full amount of interest due. When loan payments do not cover the interest due, the principal does not get reduced. Furthermore, any deferred interest is added to the loan balance. An example of this situation is when payment caps on an Adjustable-Rate Mortgage (APR) limit the monthly payment amount even if interest rates rise. Another example is when loan servicers concoct forbearance agreements that create ever-higher amounts due that are applied to the loan balance.

Non-Judicial Foreclosure - Used when a power of sale clause exists in a mortgage or deed of trust.

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Overcollateralization - OC or sometimes O/C, is an almost universal form of credit support in the Home Equity market. If a pool is supported by OC, it means that the face value of the assets used as collateral exceeds the face value of the bonds that are secured by those assets. In principal, this implies that even if some of the underlying loans default there will still be enough collateral to repay the bonds.

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