Mortgage Loan Resources
ABS--Asset Backed Security.
APR--Annual Percentage Rate.
AIREA--American Institute of Real Estate Appraisers.
API--Annual Percentage Interest.
ARM--Adjustable Rate Mortgage.
COE--Cost of Equity.
CPI--Consumer Price Index.
DTI--Debt to Income Ratio.
DIM--Deferred Interest Mortgage.
FHA--Federal Housing Administration.
FHLMC--Freddie Mac/Federal Home Loan Mortgage.
FNMA--Fannie Mae/Federal National Mortgage Association Corporation.
FPM--Flexible Payment Mortgage.
FRM--Fixed Rate Mortgage.
FTHB--First Time Home Buyer.
GFE--Good Faith Estimate.
GPM--Graduated Payment Mortgage.
GSE--Government Sponsored Enterprise.
HECM--Home Equity Conversion Mortgage.
HELOC--Home Equity Line of Credit.
HUD1--Settlement Statement that you receive that details all the costs and expenses involved in the actual closing of a mortgage.
IAD--Interest Adjustment Date.
LIBOR--London Interbank Offered Rate.
LPMI--Lender Paid Mortgage Insurance.
MBA--Mortgage Bankers Association of America.
MSA--Master Senior Appraiser.
PITI--Principal, Interest, Taxes, and Insurance.
PMI--Private Mortgage Insurance.
RAM--Reverse Annuity Mortgage.
REIT--Real Estate Investment Trust.
TIL/TILA--Truth-in-Lending or Truth-in-Lending Act.
TRA--Tax Reform Act.
TDR--Total debt ratio.
VPM--Variable Payment Mortgage
B. Mortgage Terms: Commonly Used
Adjustable Mortgage. A type of flexible property loan where not only may the payments shift but the lifespan of the loan may also change. Often times, the adjustable mortgage term is used in reference to any mortgage that is not a fixed rate. The term adjustable may be used interchangeably with the following: flexible mortgage, variable mortgage, convertible mortgage, and floating mortgage.
Annual Percentage Interest (API). This is the interest rate paid by the borrower in exchange for the opportunity to have a mortgage.
Balloon Mortgage. In this type of mortgage loan, payments are fixed for a set number of years with amounts comparable to that of monthly payments on a 30-year mortgage. After the fixed number of years, the lender has the option of either renewing the loan at prevailing rates or demanding the loan be paid in full.
Debt to Income Ration (DTI). Debt to income ratio of the borrower's gross monthly income evaluated in light of their consumer or housing debt.
Escrow. In association with real estate business transactions, the term applies to the available cash given by the buyer to the seller after an offer made on the property has been accepted. When a buyer makes an offer on a property and the seller accepts the offer, it is then expected that the buyer will back up the offer with a showing of cash. For the most part, the offer to purchase, accompanied by a cash amount, outlines the buyer's intent to purchase the property subject to certain conditions being met.
Fannie Mae (FNMA--Federal National Mortgage Association Corporation). Fannie Mae is a government sponsored enterprise (GSE) created for the purpose of expanding the flow of mortgage money through the introduction of a secondary mortgage market. It is a publicly traded company.
In operation under a congressional charter, over the 70 years since its inception in 1938, Fannie Mae's efforts have been to increase the availability and affordability of homeownership for low, moderate, and middle income Americans.
Essentially, Fannie Mae purchases and guarantees mortgage packages that meet its funding criteria. As such, Fannie Mae is able to secure mortgages to form mortgage backed securities (MBS).
The market for Fannie Mae's MBS is extremely broad and liquid. Pension funds, insurance companies, and foreign governments are considered to be among the investors in Fannie Mae's MBS.
Within the Fannie Mae family, the little brother is Freddie Mac. Depending upon market conditions and consumer trends, Fannie and Freddie purchase or guarantee somewhere in the neighborhood of 40 to 60% of all mortgages originated annually in the United States.
Fixed Rate Mortgage (FRM, conventional mortgage). This is the type of mortgage in which the interest rate remains constant (as opposed to fluctuating as is the case with adjustable rate mortgages) over the entire length of the loan.
Freddie Mac (FHLMC--Freddie Mac/Federal Home Loan Mortgage). Freddie is a government sponsored enterprise (GSE), which in conjunction with its aforementioned sister, Fannie Mae, creates liquidity in the residential mortgage market by guaranteeing, purchasing, securitizing, and investing in home loans. Stepwise, in an interest to help minimize the risk, Freddie purchases conventional residential mortgages from mortgage bankers who, in turn, can then provide mortgages to those who typically would not qualify.
In 2008, crippled by the mortgage crisis, the U.S. government seized a controlling interest over the company in what is being referred to as one of the largest governmental interventions since the Great Depression.
Good Faith Estimate (GFE). These are instances where a banker-broker may provide a potential borrower with an approximation of the loan amount that they likely may be able to get based upon certain pre-qualifying questions and market conditions. Additionally, the banker-broker may attempt to negotiate with a lender in order to get the best possible deal for the borrower.
Graduated Payment Mortgage. This is a conventional mortgage with monthly payments that start at a low level and then rise later.
Loan to Value Ratio (LTV). Expressed as a percentage, this term is used to reflect the relationship between the amount that has been borrowed and the value of the property that has been purchased. The formula for determining the LTV is to divide the loan amount by the appraised value of the property.
Negative Amortization. A gradual increase in the unpaid loan balance, a condition that occurs when regular monthly mortgage payments fail to sufficiently cover the accumulated interest on the loan and, at least during the first few years, the balance owed continues to increase.
Rollover Mortgage. Akin to a balloon loan, the major difference is that the borrower must renew the loan after a few years at the current (as opposed to the original) interest rates.
Reverse Annuity Mortgage (RAM, also called reverse mortgage and home equity conversion mortgage). This is an arrangement whereby the homeowner borrows against the equity in their home and, in doing so, is entitled to tax free payments from the lender on a regular, consistent basis.
Real Estate Investment Trust (REIT). A corporation or trust that pools the capital of multiple of investors for the purpose of purchasing and managing income property (equity REIT) and/or mortgage loans (mortgage REIT). Traded on major exchanges, they are granted special tax considerations.
Subprime Lending (also referred to as B-paper, near-prime, non-prime, and second chance lending). A relatively new financial term that, in light of the 2008 mortgage crisis, has dramatically increased in use.
As a collective whole, the subprime lending market is marked by loans that carry a higher level or expectation of risk than that of more traditional lending. Due to the added risk, loans within the subprime market tend to be accompanied by higher interest rate charges.
In the United States, the term subprime is often used as a distinction for loans that fall short of meeting the guidelines set forth under Fannie Mae or Freddie Mac. The reason for these shortfalls may include the borrower's credit status, current income, job history, and/or income to mortgage payment ratio.
C. Mortgage Related Associations or Organizations and Services
The Center for Responsible Lending (CRL). Classified as a resource for opponents of predatory lending, this online forum's mission is to promote home ownership while working to curb predatory lending. Features of the site include legislative lending updates, discussion forums, and resources for both lending professionals and mortgage borrowers. www.responsiblelending.org
Bank Rate. This site is an objective, aggregated financial site with up-to-date financial news as well as broad based information concerning mortgage lending policies, practices, and developments. www.bankrate.com
Borrow Smart. This is a public service site to educate current and future homeowners about the process of borrowing from home equity. www.borrowsmart.org
Home Loan Learning Center. A service provided to consumers by the Mortgage Bankers Association offers financial information, links, and calculators to help individuals seeking to obtain a mortgage and become homeowners. www.homeloanlearningcenter.com
Mortgage Bankers Association (MBA). The MBA is based in Washington, D.C.; they are a national association representing the real estate finance industry (an industry encompassing more than 370,000 people).
They invest in communities across the nation as a means of ensuring the continued strength of the nation's residential and commercial real estate markets, expansion of home ownership, continued access to affordable housing for all Americans, and support of financial literacy efforts.
Through a wide range of educational programs and a variety of publications, they promote fair and ethical lending practices and foster professional excellence among real estate finance employees through a wide range of educational programs and a variety of publications. www.mbaa.org
MortgageDaily.com. This site is an online newspaper with a series of affiliates, such as mortgagechronicle.com, that provides up-to-the-minute news reports related to the mortgage finance industry, as well as, as services (leads and networking) to support bankers-brokers' efforts to build and sustain their businesses. www.mortgagedaily.com
National Association of Mortgage Brokers (NAMB). Established in 1973, NAMB lays claim to being the only national trade association representing the mortgage broker industry. With 50 state affiliates, and more than 25,000 members, NAMB's mission asserts that it promotes the industry through educational programs, professional certification services, and governmental affairs representation. www.namb.org
U.S. Department of Housing and Urban Development (HUD). With the mission of increasing home ownership, supporting community development, and increasing access to affordable housing, the Federal agency known informally as HUD is presently under the leadership of the current Secretary, Steve Preston, appointed under President George W. Bush.
HUD Rights and Responsibilities of the Mortgage Servicer, as a subtext of the Department of Housing and Urban Development website, they offer information to the consumer as to what they can expect from a mortgage service provider. www.hud.gov
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