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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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A
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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.
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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.
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Ad valorem taxes -- property
taxes on the assessed value of a property. Ad valorem is Latin
for "according to value."
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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.
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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.
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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.
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Appellant - the party that appeals a decision
of a lower court. See appellee.
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Appellee -- the party that is the defendant in
an appeal of a lower court decision. See appellant.
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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!)
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Asset Backed Securities - A security
backed by receivables other than those arising out of real
estate, i.e., autos.
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B <Back
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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.
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Typically, foreclosures are at least temporarily
halted during the Chapter 13 process, although many servicers
will attempt to have the protection waived.
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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.
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Basis Point - One
one-hundredth of one percent, which means that one percent is
composed of 100 basis points.
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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.
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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).
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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.
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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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C
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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.
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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.
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CMBS - Commercial Mortgage-Backed
Securities.
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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.)
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Conduit - A company in the business of
pooling large numbers of loans for the purpose of securitization.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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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D
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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.
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Deed-in-Lieu of Foreclosure - where the borrower abandons the
property to avoid foreclosure.
Some call it "mailing in the keys."
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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.
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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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E
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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.
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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.
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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.
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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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F
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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.)
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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.
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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
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FICO - Short for a commonly used credit score
based on statistical models developed by Fair Isaac and Company,
Inc. headquartered in San Rafael California.
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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.
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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.
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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.
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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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G
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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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H
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Hearsay - Evidence
provided by a person who heard it from someone else but did not actually witness
the event themselves.
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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."
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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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I
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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.
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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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J
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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.)
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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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K
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L
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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).
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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.
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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.
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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.
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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.
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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).
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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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M
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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.
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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
]
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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.
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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.
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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.
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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.
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Mortgage Servicing - see Loan Servicing.
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Mortgagee - The creditor or lender in a mortgage
agreement.
Mortgagor – The borrower
in a mortgage agreement.
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N
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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.
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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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P
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