黑人阿姨 Glossary Flashcards
1
Q
Chapter 13 bankruptcy
A
A common kind of bankruptcy in which a borrower might need to enter into a repayment plan with his or her creditors.
2
Q
Reverse mortgage
A
A mortgage loan in which the lender makes periodic payments at a fixed rate to the borrower using the borrower’s equity in the home as security. This is often used to provide income to retirees or elderly borrowers based upon their existing home equity. Typically, no repayment is required until the property is sold or the borrower is deceased.
3
Q
Non-judicial foreclosure
A
A form of foreclosure that only requires administrative actions rather than the involvement of a court. Typically found in states that use the trust deed as the security instrument.
4
Q
Judicial foreclosure
A
A method of foreclosure that requires court action in order to complete the process. Typically found in states that use the mortgage document as the security instrument.
5
Q
VA funding fee
A
An amount paid by a veteran in order to help defray the costs of the VA loan program. The size of the fee will depend on several factors, including the loan-to-value ratio, the purpose of the loan, the veteran’s status and the number of times the veteran has obtained a VA loan.
6
Q
Disparate impact
A
A method of identifying discrimination through statistical analysis. Disparate impact claims occur when a seemingly neutral (non-discriminatory) policy is implemented to achieve a neutral result but ends up having a disproportionately negative impact on a protected class.
7
Q
Kickback
A
Something of value that is given in exchange for a referral. Kickbacks are prohibited by RESPA.
8
Q
Gramm-Leach-Bliley Act (GLBA)
A
A federal law that includes provisions to protect consumers’ personal financial information held by financial institutions. Some of the issues pertaining to GLBA compliance include financial privacy rules, safeguard rules and pretexting rules.
9
Q
Nontraditional mortgage product
A
Any mortgage product that isn’t a 30-year, fixed-rate loan. In order to obtain and renew their licenses, loan originators must complete courses with an emphasis on nontraditional mortgage products.
10
Q
Home Loan Toolkit
A
A booklet that provides consumers information on shopping for a home loan, common closing costs and reading required disclosures like the Loan Estimate and Closing Disclosure. This booklet is published by the CFPB and must be provided to the applicant within three business days of application on purchase transactions according to TILA/Regulation Z.
11
Q
Equity stripping
A
A practice whereby the applicant’s equity is taken away by a mortgage lender. Equity stripping can come in many forms, but in all cases is viewed as predatory lending and must be avoided.
12
Q
Per-diem interest
A
The amount of daily interest payable under a loan. Per-diem interest is determined by first multiplying the principal amount of the loan by the interest rate to determine the annual amount of interest payable under the loan. Next, that annual amount is divided by 360 days to determine the per-diem interest amount. Finally, the per-diem interest amount is multiplied by the number of days remaining in the month of closing, including the date of closing.
13
Q
Easement
A
Formal right to traverse or use real property without ownership or possession. Often granted to utility companies so that they may maintain infrastructure located on a property. Recorded with the county in which the property is located, easements will appear on the title report and, in certain limited circumstances, may raise questions from an underwriter or attorney.
14
Q
Servicing Transfer Disclosure
A
A document informing the borrower that servicing of a loan has been transferred to another entity. It must be provided to the borrower no later than 15 days before servicing rights are transferred to a new institution.
15
Q
Balloon mortgage
A
A type of fixed-rate mortgage loan with monthly payments based on a 30- year amortization schedule, setting a maturity date for a shorter period of time – usually five, seven, 10 or 15 years. This allows the borrower to make lower monthly payments for that shorter period of time, with a large payment of the full remaining principal balance and interest due at the maturity date.
16
Q
Money laundering
A
Bringing illegally obtained funds into and out of the financial system in a manner that evades law enforcement. Under the Bank Secrecy Act, many businesses, including non-depository mortgage banks and mortgage brokers, must implement a program that detects and prevents money laundering.
17
Q
Margin
A
The number that a lender adds to an index to determine the interest rate of an ARM. The margin never changes during the life of the loan.
18
Q
Character
A
In mortgage lending, the borrower’s willingness to repay the debt.
19
Q
Residual income
A
The amount of income that a borrower will have left after taxes, debt payments and childcare expenses to purchase necessities such as food or gasoline.
20
Q
Title report
A
A document typically prepared by an attorney setting forth the condition of title. Title insurance can be purchased to protect the lender or the owner from defects in title that were not found in the title report.
21
Q
Secondary market
A
The sector of the economy where existing mortgage loans (and the right to collect borrower payments) are bought and sold. This market provides liquidity for lenders and creates standardization in regard to credit requirements, loan types and loan documents.
22
Q
Conference of State Bank Supervisors (CSBS)
A
A national organization of state bank supervisors who are charged with ensuring that state banking institutions adhere to certain standards. The organization played a major role in the formation of the NMLS-R and in the drafting of the model licensing law.
23
Q
Consumer reporting agencies
A
Organizations that allow lenders to report and gather information about a borrower’s credit history. This is the legal term for what are generally referred to as “credit bureaus.” The three major consumer reporting agencies are Equifax, Experian and TransUnion.
24
Q
ARM Disclosure
A
A disclosure required to be presented to the applicant within three days of application on any ARM loan. This disclosure provides the applicant with information about the specific ARM product for which they are applying, such as a historical index value.
25
Regulation Z
The federal regulation that implements the Truth in Lending Act (TILA). Rulemaking and enforcement power under TILA is handled by the Consumer Financial Protection Bureau.
26
Government-sponsored enterprise (GSE)
A quasi-governmental agency. Fannie Mae and Freddie Mac are examples of GSEs.
27
Conforming loans
Loans that can be sold to Fannie Mae and Freddie Mac.
28
Non-conforming loans
Loans that do not satisfy requirements of Fannie Mae and Freddie Mac and cannot be sold to those GSEs.
29
Alt-A loans
Loans in which the borrower represents too much risk to meet the underwriting standards for a conforming loan but is not risky enough to be considered “subprime.”
30
Adjustable-rate mortgage (ARM)
A type of mortgage instrument in which the interest rate periodically adjusts up or down according to a specific index and pre-determined margin. ARM transactions require the creditor to provide borrowers with a special ARM disclosure, as well as a CHARM booklet.
31
Equal Credit Opportunity Act (ECOA)
A federal law prohibiting discrimination in the granting of credit. Creditors cannot discriminate on the basis of race, color, religion, national origin, sex, marital status, age, receipt of income from public assistance programs or the fact that an applicant has exercised his or her rights under the Consumer Credit Protection Act. It is implemented by Regulation B.
32
State
In regard to the SAFE Act, any state of the United States, the District of Columbia, any territory of the United States, Puerto Rico, Guam, American Samoa, the Trust Territory of the Pacific Islands, the Virgin Islands and the Northern Mariana Islands.
33
Home Mortgage Disclosure Act (HMDA)
A federal law written as a response to public concerns that lenders were redlining. Requires creditors to track demographic data on applications and lending activity and report that data to the federal government on an annual basis.
34
Private mortgage insurance (PMI)
Insurance that protects the lender against losses that result from default by the borrower. It is required when the loan-to-value ratio is greater than 80% and must be cancelled when the loan-to-value ratio is equal to or less than 78%. Other kinds of mortgage insurance (not PMI) are used for FHA and VA loans.
35
Credit union
A financial institution operating somewhat differently than other thrift institutions. After deducting operating expenses and reserves, credit unions return their earnings to their members.
36
Loan Estimate
A disclosure containing information on settlement costs and the cost of credit itself. Required to be provided to the applicant within three business days of application under Regulation Z, the Loan Estimate is part of the TILA-RESPA Integrated Disclosure rule that replaced the Good Faith Estimate and Truth in Lending disclosure for most mortgage loans.
37
Closing Disclosure
A disclosure that provides a final accounting of the closing costs associated with the transaction, as well as information about the cost of the credit itself (such as the loan’s APR). Required to be provided to the borrower within three business days of application under Regulation Z, the Closing Disclosure is part of the TILA-RESPA Integrated Disclosure rule and replaced the HUD-1 Settlement Statement for most transactions.
38
Equity
The value of the property minus any mortgage debt.
39
Acceleration clause
A portion of a lending agreement that forces the borrower to repay the entire loan upon the first instance of borrower default.
40
Good Faith Estimate (GFE)
This disclosure, required under Regulation X, has been replaced by the Closing Disclosure for most mortgage loans. It contains information on the known or anticipated fees, charges or settlement costs that the mortgage applicant is likely to incur at the settlement (closing) of the loan. It must be delivered within three business days of receiving or preparing an application on loans that do not use the TRID disclosures.
41
Uniform Residential Loan Application (URLA)
The common application form for residential mortgage loans. It is also known as the “1003.”
42
Identity theft prevention program
A written program designed to detect the warning signs of identity theft in day-to-day operations. Businesses defined as “financial institutions” under the Fair and Accurate Credit Transactions Act’s Red Flags Rule are required to implement this kind of program. Because of the broadness of the definition, all mortgage brokerages and mortgage banks are covered by it.
43
Mortgage
A document that creates a lien upon the subject property for the security of payment of the debt.
44
Mortgage-backed securities (MBS)
Pooled mortgages that have been converted into bonds and sold to the public.
45
Housing ratio
The sum of monthly principal, interest, taxes and insurance divided by the borrower’s gross monthly income. For some loans, such as those sold to Freddie Mac, the housing ratio cannot exceed 28% without compensating factors. The ratio is sometimes called the “front-end ratio” or the “top ratio.”
46
Real estate contract
A written contract between a buyer and seller of real property, setting forth the price and the terms of the sale. This contractual agreement contains all the terms and conditions upon which the seller agrees to sell and the buyer agrees to buy.
47
Home equity line of credit (HELOC)
A revolving mortgage loan that allows the borrower to take advances at his/her discretion up to an approved limit that represents a percentage of the borrower’s equity in a property.
48
Collateral
In mortgage lending, the value of the property mortgaged as security for the loan.
49
Hedging
In mortgage lending, the attempt to minimize interest-rate risk by purchasing a Treasury security or MBS to offset large movements in the rate markets.
50
Independent contractor
Someone who performs mortgage-related duties and isn’t supervised or directed by a licensed or registered loan originator. An independent contractor who otherwise only performs the same tasks as a loan processor or underwriter must still be licensed as a loan originator.
51
Credit
In mortgage lending, the amount of a borrower’s outstanding debt.
52
Unique identifier
A number or other identifier that is assigned to a loan originator by the NMLS- R in order to identify the person and track his or her conduct in the mortgage-lending business. The unique identifier must appear on various documents, including advertisements.
53
Rate cap
A limitation on the amount an interest rate may increase or decrease either at the adjustment date or over the lifetime of the loan. Sometimes referred to as an “adjustment cap,” a rate cap can dictate how much a rate can increase during the loan’s first adjustment period, during each adjustment period or during the entire life of the loan.
54
Service release premium
An amount paid by an investor to a mortgage banker in exchange for the right to service (collect payments on) the loan after closing.
55
Seasoned funds
Funds that have been in the account for a minimum period of time. Many lenders will require that money intended for a down payment or closing costs come from seasoned funds.
56
Rate lock
An agreement between the borrower and lender for a specified period of time in which the lender will keep a specific interest rate, loan fee and discount points available for the borrower. Some lenders charge a fee for locking a rate at application.
57
Nationwide Mortgage Licensing System and Registry (NMLS-R)
A licensing system and registry that was established in connection with the SAFE Act.
58
Verification of employment (VOE)
Third-party verification of a borrower’s employment, typically gathered by a loan processor from an employer.
59
State Regulatory Registry, LLC
A wholly owned subsidiary of CSBS that runs the NMLS-R.
60
Negative amortization
The result of an interest payment being less than the amount of interest actually due. The difference between what is paid and what is due is added back to the loan principal. In effect, this can force the borrower to make longer payments (or make bigger payments) later in order to retire the debt.
61
Wholesale lenders
Entities that purchase and sell loans that have been originated by third parties. Wholesale lenders may purchase loans with the intent to package the loans for sale to secondary market investors; or they may purchase loans in order to service the loans themselves.
62
Loan Application Register (LAR)
A log of applications taken by a creditor. Required to be kept up to date and provided to the federal government once per year under the Home Mortgage Disclosure Act (HMDA).
63
Red flags
Warning signs of a particular activity. Many businesses are required to have programs that detect the red flags of identity theft and money laundering.
64
Dodd-Frank Act
A federal law that addresses several aspects of mortgage lending and other financial regulatory matters. It created the Consumer Financial Protection Bureau (CFPB) and amended many other mortgage-related laws.
65
Foreclosure
A proceeding to extinguish all rights, title and interest of the owner of a property in order to sell the property and satisfy a lien against it. Foreclosures are initiated by lenders when borrowers fail to make payments.
66
Underwriter
The individual responsible for reviewing an application (including all related documentation) evaluating the strength of the application (often in conjunction with findings from an automated underwriting system) and issuing a credit decision.
67
Registered loan originator
A loan originator who is registered with the NMLS-R and employed by a depository institution, a subsidiary of a depository institution or an institution regulated by the Farm Credit Association. A registered loan originator generally does not need to be licensed.
68
Changed circumstance
A material event or piece of information that is discovered after the issuance of a Loan Estimate and has an impact on either the borrower’s settlement costs or the borrower’s eligibility for a loan. A changed circumstance allows a loan originator to reissue the Loan Estimate to reset applicable tolerances.
69
Debt-to-income ratio
Monthly principal, interest, taxes and insurance payments plus other debts (such as credit card debt, installment loan payments, alimony and child-support payments) divided by the borrower’s gross monthly income. However, the ratio doesn’t include other expenses, such as utility payments, food bills, educational expenses (other than student loans), child care expenses (other than child support payments), medical insurance premiums or entertainment expenses. For most loans, the debt-to- income ratio cannot exceed 36%. It is sometimes known as the “back-end ratio” or the “bottom ratio.”
70
Fraud for profit
A willful misrepresentation of material facts on a mortgage loan application with the intent of gaining money through the transaction. This type of fraud is more likely to be committed by industry professionals/insiders and result in more damage to the victimized creditor(s).
71
Loan-to-value ratio (LTV)
The loan amount divided by the lesser of the purchase price or appraised value of the property. The higher the loan-to-value ratio on a given loan, the less investment from the applicant in the form of a down payment is required.
72
Total interest percentage (TIP)
The total amount of interest paid over the life of the loan expressed as a percentage of the loan amount. It appears on both the Loan Estimate and Closing Disclosure.
73
FHA loans
Government-insured loans that are issued by HUD-approved primary lenders. They are for one-to-four-family-unit dwellings and require at least a 3.5% down payment. They also require the payment of mortgage insurance premiums. In general, a maximum housing ratio of 31% and a maximum debt-to-income ratio of 43% are required too.
74
Regulation B
The federal regulation that implements the Equal Credit Opportunity Act (ECOA). Rules from this regulation are enforced by the Consumer Financial Protection Bureau.
75
Immediate family member
A spouse, child, sibling, parent, grandparent or grandchild. An individual who only originates loans with or on behalf of an immediate family member doesn’t need a loan originator license.
76
Securitization
The pooling of multiple loans into single investment vehicles.
77
Fiduciary relationship
A relationship between a financial professional, such as a mortgage loan originator, and the consumers they are doing business with. Fiduciary duties require originators to place the consumer’s best financial interests ahead of theirown.
78
Homeowners Protection Act (HPA)
A federal law requiring that private mortgage insurance be automatically cancelled when the loan-to value ratio (LTV) on an owner-occupied single- family residence reaches 78% or less of the original value of the property. Borrowers have the ability to request cancellation of mortgage insurance when loan-to-value reaches 80% of the appraised value.
79
Upfront mortgage insurance premium (UFMIP)
A one-time cost of FHA mortgage insurance that is paid at closing. It is calculated by multiplying the loan amount by a factor.
80
Grossing up
Calculating how much tax the borrower would pay if this income were taxable and then adding that figure to the gross amount received. This is commonly done when non-taxable income is used to qualify a borrower.
81
Yield spread premium
An amount paid by an investor to a lender or mortgage broker at closing to compensate the loan originator for making a loan at an interest rate that is higher than the interest rate that the investor would have accepted for that loan. This type of compensation was made illegal under the Dodd-Frank Act and the MLO Compensation Rule under TILA.
82
Fraud for property
Also called “fraud for housing,” this is a willful misrepresentation of material facts on a loan application with the intent of gaining property. This type of fraud is more likely to be perpetuated by borrowers and result in less damage to the creditor(s) involved because the loan is typically paid in a timely manner.
83
Interest-only loan
A fixed-rate mortgage that allows the borrower to pay only the interest due on the mortgage for a period of years, after which the loan becomes fullyamortizing.
84
State-licensed loan originator
A loan originator who is licensed by his or her state, registered with the NMLS-R and isn’t employed by entities mentioned in the definition of “registered loan originator.” If you are reading this study guide, you are likely planning on becoming (or have already become) a state-licensed loan originator.
85
Privacy policies
Required under the Privacy Rule of the Gramm-Leach-Bliley Act, these are written documents that detail the financial institution’s practices for collection of non-public personal information about customers and with whom that information is shared. A privacy policy must be provided to your customer when they first become your customers, annually for as long as they remain your customers and anytime the policy changes for as long as they remain your customers. A short-form version of the policy must be readily available to consumers (not customers) in a place like the company website.
86
Certificate of Reasonable Value (CRV)
A document issued by the VA that establishes the value of a property to be secured with a VA-guaranteed loan.
87
Cost approach
A method of appraisal in which the appraiser estimates the value of the property by calculating the cost of construction minus any depreciation, plus the value of the site (land).
88
Defeasance clause
A portion of a lending agreement that requires the lender to execute a release of lien or satisfaction of mortgage document upon full payment of the debt.
89
Teaser rate
For an ARM, an introductory interest rate that is lower than the fully indexed rate at the time of closing.
90
Fixed-rate mortgage
A type of mortgage loan in which the interest rate and payments remain the same for the life of the loan. It is the opposite of an adjustable-rate mortgage.
91
Equitable right of redemption
The ability to avoid a foreclosure prior to, or at the time of, a judicial sale of a property.
92
Title insurance
A type of insurance coverage that protects against defects in title that were not listed in a title report or abstract. Separate coverage exists for owners and lenders. Owners’ policies are typically issued each time property is sold, covering the buyer. Lenders’ policies are typically required each time a new mortgage loan is closed, including refinance transactions.
93
Monthly MIP
The monthly charge for FHA mortgage insurance. It is calculated by multiplying the base loan amount by a factor, then dividing by 12. The borrower pays the MIP as part of the monthly mortgage payment, along with principal, interest, taxes and insurance (PITI).
94
Derogatory credit
The result of not paying obligations on time. A borrower’s derogatory credit might be reported to a credit bureau or might lead to a judgment being filed against the borrower.
95
Affiliated Business Arrangement Disclosure (AfBA)
A document that informs mortgage applicants of any service providers that may be used in the loan transaction that are affiliated with the lender. It must be provided to the borrower no later than the time the referral to the affiliated business is made and is required when there is greater than a 1% common ownership in the affiliated settlement service business. If the lender requires the use of an affiliated provider (such as for a flood certification), then the disclosure must be given at application.
96
Introductory rate
An initial rate for an adjustable-rate mortgage that is often lower than the fully indexed rate. The introductory rate will often expire after anywhere from a few months to a few years.
97
Closing costs
Also called “settlement costs,” all of the costs related to closing except the prepaid or escrow items. Examples of closing costs are the origination fee, discount points, real estate sales commission, attorney fees, survey charges, title insurance premiums, agency closing fees, appraisal fees, credit report fees, termite report fees, recording fees, mortgage insurance premiums, loan transfer or assumption fees, and more.
98
VA entitlement
The portion of a VA loan that is guaranteed by the government.
99
Floating rate
A mortgage interest rate that has not been locked and is being allowed to move (or “float”) with the market. Floating the rate will benefit the borrower if interest rates drop between the time of application and closing and will be a detriment if interest rates increase. The floating rate is ultimately locked in sometime prior to closing.
100
Life cap
A rate cap that sets a maximum number of percentage points that the rate can increase over the start rate for the life of the loan.
101
Warehouse line of credit
A line of credit commonly used by mortgage bankers to fund loans.
102
Real Estate Settlement Procedures Act (RESPA)
A federal law that allows borrowers to receive pertinent and timely disclosure regarding the nature and costs of the real estate settlement (closing) process. The law also protects consumers against abusive practices (such as kickbacks) and places limitations on the use of reserve accounts. It is implemented by Regulation X.
103
Consumer Financial Protection Bureau (CFPB)
A federal regulator created under authority of the Dodd-Frank Act. This agency is housed under and funded directly by the Federal Reserve, and has been tasked with rulemaking for and enforcement of the majority of U.S. mortgage laws.
104
Reserves
A borrower’s remaining liquid assets after the closing of a real estate transaction.
105
Construction loan
A loan intended to facilitate the new construction of improvements at a property. Typically a construction lender will require a low loan-to-value ratio and only release funds as it receives evidence of actual completion of construction. Most construction loans provide for interest-only repayment and a requirement to pay off the principal balance within a limited time period following completion ofconstruction.
106
Federal Home Loan Bank (FHLB) system
A system of GSEs owned by over 8,000 community financial institutions. It provides advances to financial institutions in order for those institutions to make residential mortgage loans.
107
Loan processor or underwriter
In the context of the SAFE Act, this is someone who is supervised by a state-licensed or federally registered lending institution and who performs clerical or support duties. Loan processors and underwriters do not typically need to hold loan originator licenses unless they are performing duties for more than one company at a time.
108
Treble damages
The maximum penalty allowed under RESPA for requiring a buyer/borrower to use a specific title company; three times the amount of the title fees assessed to the borrower.
109
Administrative and clerical tasks
The receipt, collection and distribution of information that is common in the processing or underwriting of a loan in the mortgage business. The term is also used to describe communication that is designed to obtain common information from a consumer. In general, an individual who only performs administrative or clerical tasks and doesn’t negotiate with or give advice to borrowers doesn’t need a loan originator license.
110
Truth in Lending Act (TILA)
A federal law designed to promote the informed use of consumer credit (i.e., credit to a consumer primarily for personal, family or household purposes) by requiring disclosure about its terms and cost. It does not apply to loans for commercial or business purposes. It is implemented by Regulation Z.
111
Discount points
Amounts charged by a lender to the borrower or seller in order to increase the lender’s effective yield on the loan. One discount point is equal to 1% of the total loan amount. An industry-standard benchmark is that for each discount point paid, the lender increases its yield on the loan by 1/8%. From a borrower’s perspective, discount points are paid to achieve a lower interest rate; without the payment of the discount points, the interest rate would be higher for the life of the loan.
112
Life expectancy set-aside
An account, similar to an escrow account, which must be created if a borrower with a reverse mortgage cannot prove an ability to pay future property taxes and insurance premiums.
113
Ginnie Mae
A government-sponsored enterprise that guarantees interest payments on MBS pools made up of only government-insured or government-guaranteed mortgages (such as FHA, VA and USDA loans).
114
Positive amortization
The payment of a debt with equal periodic installments of both principal and interest, so that a loan will be paid off at the end of a specific period of time.
115
Code of ethics
A policy statement and written guidelines that reflect the ethical principles of the company and how its employees are supposed to act when dealing with the customers and/or each other. It should contain clear and enforceable consequences for violations.
116
Pretexting
The use of false pretenses in order to obtain consumers’ personal financial information. It is prohibited by the Gramm-Leach-Bliley Act.
117
Suspicious activity reports (SARs)
Reports that must be filed with the Treasury Department whenever a person engages in suspicious aggregate transactions of $5,000 or more. These reports are required by the Bank Secrecy Act.
118
Mortgage Loan Servicing Disclosure
A notice regarding the lender’s practices of transferring or retaining the servicing of the loan. It must be provided to the borrower within three days of the loan application.
119
Periodic cap
A rate cap that applies to all subsequent adjustment periods and indicates the number of percentage points that a rate may increase or decrease from the rate that was in effect prior to the adjustment.
120
VA loans
Government-guaranteed loans that are made to owner-occupant veterans by private lenders, such as banks, thrifts and mortgage companies.
121
Residential mortgage loan
Any loan primarily for personal, family or household use that is secured by a mortgage, deed of trust or other equivalent security interest on a dwelling (or on real estate where a dwelling is being constructed or will be constructed). The requirements mentioned in this guide relate to the origination of residential mortgage loans. They do not necessarily apply to loans tied to commercial or industrial properties.
122
Jumbo loans
Loans for amounts that are greater thanthe standards of Fannie Mae and Freddie Mac.
123
Loan flipping
An abusive practice in which a loan is refinanced without any tangible net benefit for the borrower. A form of equity stripping.
124
Trigger terms
Items in an advertisement that automatically require the disclosure of other items in the same advertisement. Trigger terms are the amount or percentage of down payment, the number of payments or period of repayment, the amount of any payment and the amount of any finance charge.
125
Combined loan-to-value ratio (CLTV)
The figure that is found by adding the loan amount of the first lien plus the loan amount of any subordinate lien(s) and dividing that result by the purchase price or appraised value, whichever is less.
126
Fannie Mae
The common name for the “Federal National Mortgage Association,” which is a government-sponsored enterprise that acts as a quasi-governmental agency for the purpose of creating a secondary market for mortgages. It purchases loans on the secondary market and turns groups of loans into mortgage-backed securities (MBS) through the securitization process.
127
Conventional loan
Any loan that is not insured or guaranteed by the federal government.
128
Reconciliation
The process by which an appraiser examines several estimates ofvalue and bases the property’s final estimate of value on the intended use of the property.
129
Sales comparison approach
A method of appraisal in which value is determined by looking at the recent sale price of similar properties.
130
Disparate treatment
A method of identifying illegal discrimination. Occurs when two people (or groups of people) are treated differently based on membership in a protected class. For example, offering coffee to one visitor to your office but not to another; should those people be of different races, genders, ethnicities, etc., disparate treatment may have occurred.
131
Retail lending
Direct lending to borrowers (as opposed to lending that is facilitated by a broker).
132
Verification of deposit (VOD)
Third-party verification of a borrower’s bank statements, typically gathered by a loan processor.
133
Mailbox rule
If disclosures such as the Loan Estimate and Closing Disclosure are mailed to the applicant, they are deemed received on the third business day after they are placed in the mail.
134
Notice of Escrow Analysis
A required summary of payments into and disbursals from a borrower’s escrow account. It must be provided to the borrower every year.
135
Fair Credit Reporting Act
A federal law regulating the users and use of consumer credit information. Parts of the law are now implemented and enforced by the Consumer Financial Protection Bureau, but parts of it remain with the Federal Trade Commission.
136
American Association of Residential Mortgage Regulators (AARMR)
A national association of individuals who are charged with administering and regulating various aspects of residential mortgage lending. It played a major role in the formation of the NMLS-R and in the drafting of the model licensing law.
137
Initial cap
A rate cap that applies only to the first rate adjustment period and indicates the number of percentage points that a rate may increase over the introductory rate.
138
Application
A request for a residential mortgage loan and includes the borrower-related information that lenders commonly use when considering the request. Someone who takes an application from a consumer is generally considered to be acting as a loan originator, even when gathering application information over the phone or Internet.
139
Home Equity Line of Credit Combined Loan-to-Value (HCLTV)
The figure found by adding the loan amount of the first lien plus the credit limit of the home equity line of credit (HELOC) and dividing that result by the purchase price or appraised value, whichever is less. This is calculated when a borrower wants to obtain multiple mortgage loans for the same property and at least one of the loans is a home-equity line of credit (HELOC).
140
High-cost mortgage loan
A mortgage loan with an annual percentage rate exceeding the Average Prime Offer Rate (APOR) by more than 6.5% for a first-lien transaction or 8.5% for a second-lien transaction, OR a mortgage loan with total points and fees exceeding 5% of the loan amount. ALL high-cost loans must be compliant with the Home Ownership and Equity Protection Act (HOEPA).
141
Opt-out right
A consumer’s right, under the Privacy Rule of the Gramm-Leach-Bliley Act, to limit some sharing of his or her financial information.
142
Prepayment penalties
Fees that must be paid by the borrower if the loan’s principal is repaid in full prior to the loan’s expiration. Many loans in today’s market cannot have prepayment penalties that last more than three years or that are greater than 3% during the loan’s first year, 2% during the loan’s second year and 1% during the loan’s third year.
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Regulation C
The federal regulation that implements HMDA. The Consumer Financial Protection Bureau has primary rulemaking and enforcement authority over this regulation.
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National Do Not Call Registry
A list of phone numbers that cannot be called for telemarketing purposes. Sellers of goods or services (including loan origination services) are required to search the registry every 31 days and delete from their call lists phone numbers that are in the registry.
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Undisclosed concessions
Monies related to a purchase transaction passing between buyer and seller that are not disclosed on the Closing Disclosure or HUD-1 settlement statement (for loans not using the CD). ALL credits and concessions must be listed on the settlement statement.
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Servicer
The party collecting payments from borrowers. Servicing can be handled by the original lender or by a third party.
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Lender-paid compensation (LPC)
Compensation paid by a lender to a mortgage broker for originating a loan funded by that lender. This compensation is different from the old yield-spread premium (YSP) in that it does not vary based on the terms or conditions of a loan. Typically, LPC is paid as a percentage of the loan amount and does not vary from transaction to transaction in a given lender/broker relationship.
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Servicing
The process of collecting the principal, interest and escrow account payments on the loan. Servicing may be done by the lender or transferred to another party.
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Chapter 7 bankruptcy
A common kind of bankruptcy in which a borrower might need to liquidate assets in order to satisfy creditors.
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Novation
The process of releasing one borrower from a lending agreement and substituting a new borrower.
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Refinance transactions
Loan transactions in which one mortgage loan is satisfied and replaced by another mortgage loan. Refinance transactions on an owner-occupied primary residence give borrowers a three-day right of rescission.
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Overt discrimination
A method of identifying illegal discrimination. Occurs when a business has a known policy that refuses to serve, or provides different levels of service to, members of a protected class based solely on their membership in the protected class (i.e., refusing service to Hispanic borrowers).
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Identity theft
A fraud, committed or attempted, using the identifying information of another person without authority. Many businesses are required to implement a program that detects and prevents identity theft.
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Intent to proceed
An indication by a potential borrower that he or she is interested in moving forward with a mortgage transaction after delivery of the Loan Estimate. The intent to proceed might be provided orally in a face-to-face or phone conversation or in some written format. However, a creditor cannot interpret a borrower’s silence as an intent to proceed with the transaction. In general, no fees (other than a fee to obtain a credit report) can be charged to a consumer until there is an intent to proceed.
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Bridge loan
A short-term balloon loan that is paid back either through the sale of the current property or through a subsequent mortgage loan. It is commonly used when borrowers are buying a new home but still haven’t sold their current residence.
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Capital
In mortgage lending, the borrower’s ability to make a down payment, pay for closing costs and fund any escrows or reserves required at closing.
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Veteran
A person who is currently serving in the U.S. Army, Navy, Air Force, Marine Corps or Coast Guard, or who has been discharged from those services and has served a sufficient amount of time to be eligible for the VA mortgage program.
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Origination fee
A fee or charge for the work involved in the evaluation, preparation and submission of a proposed mortgage loan. The origination fee is limited to 1% of the loan amount for FHA and VA loans.
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Force-placed insurance
Property insurance that is purchased by a lender when an owner’s insurance is cancelled or not properly obtained. Lenders must provide notice before billing a borrower for force-placed insurance. The charges passed on to the borrower for this insurance must be reasonable.
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Loan originator
Someone who takes residential mortgage loan applications and offers or negotiates the terms of such loans in exchange for compensation or gain. Most loan originators must be licensed. Be aware that the term “loan originator” can refer to an individual or a company. In practice, the term “MLO” (or “mortgage loan originator”) is sometimes used to describe an individual who is a loan originator.
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Freddie Mac
The common name for the “Federal Home Loan Mortgage Corporation,” which is a government-sponsored enterprise that was intended to provide a secondary market for mortgages originated by savings and loan associations and create competition to Fannie Mae. Like Fannie Mae, Freddie Mac also issues mortgage-backed securities (MBS).
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Mortgage broker
A firm or individual that, for a commission, matches borrowers and lenders. A mortgage broker does not retain servicing, does not use its own funds and is not a lender.
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Home Ownership and Equity Protection Act (HOEPA)
A federal law that sets rules for high- cost loans. A loan that is subject to HOEPA cannot feature a balloon payment, negative amortization or a prepayment penalty and cannot be refinanced within one year by the original creditor (other creditors may refinance the loan) unless doing so is “clearly in the best interests of the borrower.”
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Thrift
Sometimes known as a “savings and loan,” a mutual or stock association chartered and regulated by the Office of the Comptroller of the Currency. Traditionally, deposits are invested in residential mortgage loans.
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Misrepresentation
A characteristic of mortgage fraud and negligence, this involves a misstatement or omission of a material fact on a loan application. A fact is considered to be material if knowledge of that fact would have caused a lender to consider a different outcome on a credit application.
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Subordinate financing
Loans secured by subordinate liens.
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Mortgage banker
An individual, firm or corporation that originates and sells loans secured by mortgages on real property. Mortgage bankers may occasionally service loans, although that tends not to be their primary function. Some states actually require a separate license or endorsement to allow a mortgage banker to engage in the act of servicing loans.
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Assumable
A term used to describe a loan in which a new borrower can take over the payments of an existing borrower.
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Regulation X
The document containing the rules for implementing the Real Estate Settlement Procedures Act (RESPA). The rules are enforced by the Consumer Financial Protection Bureau.
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Right of rescission
The borrower’s right to cancel certain refinance transactions. Under the Truth in Lending Act, this right lasts for three business days, not including Sundays or legal holidays.
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Rate floor
The lowest interest rate to which an ARM may adjust.
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Negligence
Unintentional misrepresentation on a loan application. The difference between negligence and fraud is that negligence does not involve intent on the part of the perpetrator(s), though it may still be a crime if it is serious enough.
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Down payment
The portion of a property’s purchase price that won’t be financed as part of the mortgage loan.
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Adjustment period
The amount of time during which a new interest rate will be in effect for an adjustable-rate mortgage. New adjustment periods might occur after several months, every year or every few years.
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Redemption period
A period of time in which the borrower may pay off the loan in full in order to avoid a foreclosure sale of the property.
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Bank Secrecy Act (BSA)
A federal law requiring that financial institutions take steps to prevent and report cases of money laundering.
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Uniform Settlement Statement
A form containing a complete list of the actual settlement costs (not an estimate) that will be charged at the closing. Also known as the “HUD-1,” this disclosure has been replaced by the Closing Disclosure for most mortgage loans.
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PITI
The monthly sum of principal, interest, taxes and insurance owed by the borrower. For some loans, such as those sold to Freddie Mac, the monthly PITI cannot exceed 28% of the borrower’s gross monthly income.
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Capacity
In mortgage lending, the borrower’s ability to repay the loan (and service other debts and obligations) based upon sufficient income.
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Processor
An individual who performs clerical duties for a lender or mortgage broker, including ordering independent verifications of employment, income and assets, preparing a loan for underwriting and assisting in clearing of any underwriting conditions.
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Alienation clause
A portion of a lending agreement that prohibits the borrower from transferring title to the mortgaged property without the consent of the lender.
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Encroachment
A fixture, such as a fence, that crosses the boundary line of one property onto another. It can create adverse possession issues and a cloud on the property’s title.
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CHARM (Consumer Handbook on Adjustable Rate Mortgages) booklet
A booklet about adjustable-rate mortgages that is issued by the Federal Reserve. It must be provided within three business days of application if the loan is an adjustable-rate mortgage.
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Adverse action
An unfavorable credit decision rendered against a consumer made on the basis of information contained on the credit application. If a lender takes adverse action against an applicant, the lender must notify the applicant in writing. If the adverse action is taken as a result of information contained on the credit report, the notice must also provide the name, address and toll-free phone number of the credit bureau that supplied the information.
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Statutory right of redemption
The ability to cure a foreclosure even after a judicial sale has occurred.
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Uniform Residential Appraisal Report (URAR)
The most common form used by appraisers to appraise a single-family home. Also called the “1004.”
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Deed of trust
An arrangement by which the borrower actually conveys title to the secured property to a third-party trustee for the life of the loan. Upon repayment of the debt, the trustee transfers title back to the borrower. In some states, a deed of trust is used as a substitute for a mortgage.
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Legitimate business need
One circumstance under which a lender can receive a consumer’s credit information from a credit bureau. The disclosure must relate to a business transaction that was initiated by the consumer or must be intended to help a creditor review an account in order to determine whether a consumer continues to meet the terms of that account.
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Qualified mortgage (QM)
One type of mortgage loan defined in the Dodd-Frank Act. If a loan is a qualified mortgage, the lender is presumed to have complied with the Dodd-Frank’s ability- to-repay requirements.
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Finance charge
The total cost of the loan in dollars, including interest, points, mortgage insurance, administrative fees or any other charge paid directly or indirectly by the consumer and imposed directly or indirectly by the lender in connection with making the loan. The finance charge does not include deposits into escrow accounts, appraisal fees or pest inspection fees paid prior to the closing.
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Subprime loan
A loan in which the borrower represents too high of a risk for it to be sold to Fannie Mae or Freddie Mac.
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Steering
Directing a borrower to a given loan or loan product to increase compensation when that loan is not in the consumer’s interest. This is prohibited by the Dodd-Frank Act.
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Contingent liability
A liability that may be incurred as the result of a future action. A good example of this in a mortgage transaction is the debt that is produced when a person has co- signed for another person’s debt (like a student loan) but the actual payments are being made by the other person (known as the “primary obligor”). Such liabilities do NOT have to be taken into consideration when calculating the borrower’s debt ratio if the payments have been made on- time for the previous 12 month period by the primary obligor.
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Extenuating circumstances
Events beyond a person’s control that may have a temporary negative impact on his/her credit history. Death of a close family member or an unexpected job loss are examples of extenuating circumstances that may be taken into account during the underwriting process.
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Financing contingency date
In real estate transactions, the contractually determined date by which the buyer’s financing must be in place.
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Annual percentage rate (APR)
A measurement of the total cost of the credit, expressed as an annual rate. The APR includes specific costs of financing, both those paid at the time of closing and those paid over the term of the loan. It includes all items that are part of the finance charge, such as interest, discount points, mortgage insurance premiums and administrative fees.
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Index
An economic measurement that is used to make periodic interest adjustments for an adjustable-rate mortgage. The index plus the margin equals the fully indexed rate.
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Commercial bank
A financial institution organized to accumulate funds primarily through time and demand deposits and to make these funds available to finance the nation’s commerce and industry.
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Escrow payments
Funds used by the lender to pay the property tax bill and hazard insurance premiums.
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Dual compensation
A prohibited act under the CFPB’s Loan Originator Compensation Rule, this refers to a broker receiving compensation from multiple parties (such as the lender AND the borrower) on the same transaction.
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MI factor
Another word for the premium on a mortgage insurance policy. It can be paid monthly, annually or in a lump sum.
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Business day
Depending on the law in question, either any date on which the creditor is open to the public for carrying on substantially all of the creditor’s business functions (when providing the initial Loan Estimate and any disclosures required under RESPA) OR any day except Sunday and federal holidays (when providing the Closing Disclosure and other disclosure required under TILA EXCEPT the Loan Estimate). Many mortgage-related disclosures must be provided to consumers within a certain number of business days.
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Subordinate lien
Any mortgage or other lien that has priority lower than that of the first mortgage. Such a lien is also referred to as a “junior lien.”
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Fully indexed rate
The amount of interest that is calculated by adding the index to the margin. Unless caps prevent it, the fully indexed rate becomes an ARM’s interest rate at the start of each adjustment period.
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Compensating factors
Positive characteristics about a borrower that might help to offset some negative information on the borrower’s application. For example, a high credit score might be a compensating factor for a borrower who has a high debt-to-income ratio.
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Promissory note
A document that evidences the borrower’s obligation to repay the debt to the lender. Unlike the mortgage, the promissory note does not state that the property will be used as collateral in order to obtain the loan.
