Definitions

Take a moment to review some key terms you may hear when working with your mortgage lender or servicer. These definitions can help you understand the mortgage-financing process and make informed decisions about your home loan and finances.

Adjustable-Rate Mortgage (ARM) -- A mortgage loan with an interest rate that can change at any time, usually in response to the market or Treasury Bill rates. These types of loans usually start off with a lower interest rate comparable to a fixed-rate mortgage.

Advance (HomeSaver Advance) -- allows servicers to provide an unsecured personal loan to qualified borrowers that are delinquent on a Fannie Mae loan.

Amortize -- Paying off a debt by making regular installment payments over a set period of time, at the end of which the loan balance is zero.

Balloon Mortgage -- A mortgage loan with initially low interest payments, but that requires one large payment due upon maturity (for example, at the end of seven years).

Buy-down Mortgage -- A mortgage loan in which one party pays an initial lump sum in order to reduce the borrower’s monthly payments. .

Collections -- The efforts a lender takes to collect past due payments.

Convertible ARM -- An Adjustable Rate Mortgage loan that can be converted into a fixed-rate mortgage during a certain time period.

Deed -- A legal document under which ownership of a property is conveyed.

Deferred Payments -- Payments that are authorized to be postponed as part of a workout process to avoid foreclosure.

Delinquency -- Failure to make a payment when it is due. A loan is generally considered delinquent when it is 30 or more days past due.

Equity -- Ownership interest in a project after liabilities are deducted. Also referred to as your assets.

Escrow -- A lender-held account where a homeowner pays money toward taxes and insurance of a home.

Escrow Account -- The actual account where the escrow funds are held in trust.

Escrow Analysis -- A periodic review of escrow accounts to make sure that there is sufficient funds to pay the taxes and insurance on a home when they are due.

Fixed-Rate Mortgage -- A mortgage loan in which the interest rate remains the same for the life of the loan.

Forbearance -- The lender's postponement of legal action when a borrower is delinquent. It is usually granted when a borrower makes satisfactory arrangements to bring the overdue mortgage payments up to date.

Foreclosure -- The legal process by which a property may be sold and the proceeds of the sale applied to the mortgage debt. A foreclosure occurs when the loan becomes delinquent because payments have not been made or when the borrower is in default for a reason other than the failure to make timely mortgage payments.

Foreclosure Prevention -- Steps by which the servicer works with the borrower to find a permanent solution to resolve an existing or impending loan delinquency.

Hazard Insurance -- Insurance coverage that pays for the loss or damage or a person’s home or property.

Home Equity Line of Credit -- A way of borrowing money against the equity or assets that you have in your home to pay for things such as home repairs, college education, or other personal uses.

Interest-Only Mortgage -- A mortgage where the borrower pays only the interest on the loan for a specified amount of time.

Investment Property -- A property not considered to be a primary residence that is purchased by an investor in order to generate income, gain profit from reselling or to gain tax benefits.

Investor -- The owner of the loan on a property.

Lender Placed Insurance -- Insurance placed on a home or property by a lender to protect their interest on collateral which secures the loan.

Mortgage Insurance -- Insurance that protects lenders against losses caused by a borrower's default on a mortgage loan. Mortgage insurance (or MI) typically is required if the borrower's down payment is less than 20% of the purchase price.

Mortgage -- A legal document that pledges property to a lender as security for the repayment of the loan. The term is also used to refer to the loan itself.

Refinance -- Paying off an existing loan (such as a balloon mortgage) with a newer, usually lower rate loan.

Repayment Plan -- A borrower promises to pay down past due amounts on a mortgage while continuing to make regular monthly payments on a home.

Servicer -- A firm that performs functions in support of a mortgage that include collecting mortgage payments, paying the borrower's taxes and insurance, and generally managing borrower escrow accounts.

Title -- The documented evidence that a person or organization has ownership of real property.

Work Out -- A way to resolve or restructure a loan or prevent someone from going into foreclosure through a loan modification, forbearance or short sale.

Abbreviations

Take a moment to review some key abbreviations you may hear when working with your mortgage lender or servicer.

• ALTA American Land Title Association
• APR Annual Percentage Rate
• ARM Adjustable Rate Mortgage
• D/R Debt Ratio
• ECOA Equal Credit Opportunity Act
• FCRA Fair Credit Reporting Act
• FEMA Federal Emergency Management Agency
• FHA Federal Housing Administration
• FHLMC Federal Home Loan Mortgage Association or Freddie Mac
• FmHA Farmers Home Administration
• FNMA Federal National Mortgage Association or Fannie Mae
• GFE Good Faith Estimate
• GNMA Government National Mortgage Association or Ginnie Mae
• HMDA Home Mortgage Disclosure Act
• HUD Department of Housing and Urban Development
• LIBOR London Interbank Offer Rate
• LID Limited income documentation
• LTV Loan-To-Value
• P&I Principal and Interest
• PITI Principal, Interest, Taxes and Insurance
• POC Paid Outside of Closing
• PMI Private Mortgage Insurance
• PUD Planned Unit Development
• RESPA Real Estate Settlement Procedures Act
• SRP Service Release Premium
• TIL Truth in Lending
• VA Veterans Administration
• VOD Verification of Deposit
• VOE Verification of Employment
• VOM Verification of Mortgage
• VOR Verification of Rent