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Accelerated Amortization:
The restructuring of an existing mortgage loan by increasing the monthly payments in order to pay off the loan in a shorter time than the original maturity.
Accrued Interest:
Interest that has been earned but which has not been paid or credited since the last time that interest was paid.
Adjustable Rate Mortgage (ARM):
A loan in which the interest rate is periodically adjusted, moving higher or lower in the same ratio as a preselected index, such as treasury bill rates. Arm loans may include caps on interest rate increases in a given time period, and over the life of the loan, and may include limits on the frequency of interest rate adjustments. Arm loans generally have initial below market interest rates in return for the borrower sharing the risk that interest rates may rise during the life of the loan.
Accrued Expense:
Costs that have been incurred during an accounting period but have not yet been paid.
Balloon Payment:
The final lump sum payment that is due at the termination of a balloon mortgage.
Bankruptcy:
By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of various types, but the most common for an individual seem to be a "Chapter 7 No Asset" bankruptcy which relieves the borrower of most types of debts, or chapter 13, which covers work-outs of debts by individuals. Upon a court declaration of bankruptcy, a person or firm surrenders assets to a court-appointed trustee, and is relieved from the payment of previous debts. A borrower cannot usually qualify for an "A" paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.
Broker:
Broker has several meanings in different situations. Most Realtors are "agents" who work under a "broker." Some agents are brokers as well, either working form themselves or under another broker. In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but broker loans to larger lenders or investors. (See the Home Loan Library that discusses the different types of lenders). As a normal definition, a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so.
Co-mortgagor:
One who is individually and jointly obligated to repay a mortgage loan and shares ownership of the property with one or more borrowers. See also: co-signer.
Cease And Desist Order:
A formal demand from the office of thrift supervision, other government agency, or court, to a person or institution ordering an immediate halt to a specified activity. An ots cease and desist order is a formal enforcement action. If the respondent does not challenge the issuance of the order, it is called a consent cease and desist order.
Charged Off Loan:
An uncollectible loan for which the principal and accrued interest were removed from the receivable accounts.
Contract For Deed:
A written agreement between the seller and buyer of a piece of property, whereby the buyer receives title to the property only after making a determined number of monthly payments; also called an installment contract or land contract.
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.
Default:
Failure to do something that is required by duty, law, or the terms of a loan or other contract. The term is commonly used when a corporate, institutional or governmental borrower fails to pay the principal or interest on a debt when due.
Deferred Expense:
An expense that is paid before the corresponding benefit is fully received, such as a prepaid insurance premium. For accounting purposes, the expense is listed as an asset until the paid for benefit is obtained, and is usually prorated over a number of subsequent accounting periods.
Due Date:
The date on which all or part of a debt is required to be paid; the maturity date.
Escrow Account:
Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner’s insurance when they come due. The lender pays them with your money instead of you paying them yourself.
Escrow Analysis:
Once each year your lender will perform an "escrow analysis" to make sure they are collecting the correct amount of money for the anticipated expenditures.
Forbearance:
The act of surrendering the right to enforce a valid claim usually in return for a binding promise to perform a specified act. In the thrift industry, forbearance sometimes 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. The term also may refer to the office of thrift supervision refraining from taking enforcement action against a thrift institution as long as certain conditions are met.
Foreclosure:
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
Hazard Insurance:
A form of insurance that protects the insured property against physical damage such as fire and tornadoes. Mortgage lenders often require a borrower to maintain an amount of hazard insurance on the property that is equal at least to the amount of the mortgage loan.
Interest:
A fee paid for using money that belongs to another, usually expressed as an annual percentage of the amount used. A financial institution makes periodic payments of interest to savers for the use of their deposited funds. A borrower pays interest to the financial institution for the use of its funds. In Mortgage terms the amount of the entire mortgage loan which does not include the principal. Also, as a part of PITI, the amount of the monthly mortgage payment which does not include the principal, taxes, and insurance.
Late Charge:
The penalty a borrower must pay when a payment is made a stated number of days. On a first trust deed or mortgage, this is usually fifteen days.
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 Service:
A service performed by a vendor in which customers' incoming payments are picked up from a post office box and processed.
Modification:
Occasionally, a lender will agree to modify the terms of your mortgage without requiring you to refinance. If any changes are made, it is called a modification. Changes may include a reduction in the interest rate or change in maturity date.
Modification Agreement:
A written agreement between a financial institution and a borrower that changes one or more terms of an existing mortgage loan such as the interest rate, number of years allowed for repayment, or amount of monthly payment.
Mortgage Broker:
A mortgage company that originates loans, then places those loans with a variety of other lending institutions with whom they usually have pre-established relationships.
Mortgage Servicing:
The activity of keeping a mortgage loan current, including collecting monthly mortgage payments, forwarding principal and interest payments to the current mortgage holder (if the loan has been sold), maintaining escrow accounts, paying taxes and insurance premiums, and taking steps to collect overdue payments. Mortgage servicing may be performed by the original lender, or the lender may sell the right to service a mortgage to another company, which performs the service for a fee. Some companies, including some savings associations, specialize in servicing mortgages, both their own and those made by other lenders. The original lender may sell the mortgage servicing rights to one company and sell the mortgage itself to another company. See mortgage servicing rights. See recourse servicing. See purchased mortgage servicing rights.
Partial Payment:
A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan. Normally, a lender will not accept a partial payment, but in times of hardship you can make this request of the loan servicing collection department.
Private Mortgage Insurance (PMI):
Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.
Principal, Interest, Taxes, And Insurance (PITI):
The four components of a monthly mortgage payment on impounded loans. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.
Redeem:
To buy back, as in an issuer redeeming bonds at maturity, or a property owner redeeming his or her property after a foreclosure sale.
Reinstatement:
The payment by a borrower of all past due, or delinquent, payments, thus restoring the loan to current status.
Repayment Plan:
An arrangement made to repay delinquent installments or advances.
Reverse Annuity Mortgage:
A type of mortgage loan in which the lender makes periodic payments to the borrower. The borrower's equity in the home is used as security for the loan.
Settlement Costs:
Money paid by borrowers and/or sellers to effect the closing of a mortgage loan. This normally includes an origination fee, discount points, title insurance premium, survey costs, attorney's fees, and prepaid items such as insurance and tax payments to the escrow account.
Sheriff's Deed:
A deed given by court order to convey title to property that has been sold to satisfy a judgment of delinquent taxes.
Tax Lien:
A government claim against real property for unpaid taxes.
Tax Penalty:
Interest, late charge, or other penalty imposed by taxing authority for late payment of taxes.
Underwater Loan:
A loan that, if sold, would be worth less than its current book value. Loans "sink" underwater because: (1) payments are delinquent, or (2) the loan's interest rate is below current market rates for similar loans of similar maturity, or (3) the collateral of a delinquent loan has =decreased in value below the amount of outstanding principal.
Unapplied Payment:
Payment that is less than total amount due. Servicer will return to borrower or hold as unapplied; Payment Shortage.
Unapplied Funds:
Portion of partial payment remaining after accepted by servicer and applied to one or more future installments, typically held in suspense account until enough funds received to make full payment.
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