UW Glossary Flashcards
(38 cards)
A Piece, B Piece, etc.
One piece of a split loan. The first piece is called the “A” piece, the second piece is called the “B” piece, and so on. These terms are also used to describe tranches in a CMBS. The “A” piece is the top-quality piece and the one for which investors would be paid first if there were a lack of funds to pay all investors on a timely basis; the “B” piece in a CMBS is considered to be below investment grade and, therefore, more risky.
9% LIHTC Cash Loan
A type of mortgage that provides financing for borrowers for affordable multifamily properties that have received 9% Low-Income Housing Tax Credits (LIHTCs).
Abatement
The reduction in or reprieve from tax, debt or any other payment obligation. An abatement is sometimes included in a contract, for example abatement of rent in the event that a building is destroyed by fire, flood or other accident.
Above-ground storage tank (AST)
A storage tank that is aboveground. It can be used to store a variety of materials including petroleum products, hazardous waste, or other hazardous materials. Occasionally, water can be stored in such a tank as well, especially if the community relies on well water.
Acquisition
Mortgage funds are applied toward purchasing a property.
Actual/360
A method of calculating interest payments that typically results in a lower interest rate for multifamily borrowers. The alternative method is 30/360.
Ad Valorem
A tax, duty or fee that varies based on the value of the products, services or property on which it is levied.
Adjustable Rate Mortgage or Floating Rate Loan (ARM)
A loan on which interest rates change periodically according to a preselected index. Ideal for borrowers who want to take advantage of lower short-term rates with prepayment flexibility; either called an adjustable-rate mortgage, ARM, or Floating Rate Loan.
Agency Lender
A term used by brokers and Optigo Lenders to refer to Freddie Mac and Fannie Mae. For example, they might say a deal is going “agency” as opposed to Freddie Mac or Fannie Mae. Freddie and Fannie are actually not federal agencies, which is why the media only refers to us as the “GSEs”. However, brokers lump us in with HUD, which is a federal agency and Ginnie Mae, which is a wholly owned government corporation. In terms of competition, the lending landscape looks as follows: agencies, life companies (LifeCos), CMBS, and Other (Banks, S&Ls, Mortgage Co. etc.). See Government Sponsored Enterprise for more details.
Amortization
The process of paying off debt over time in regular installments of interest and principal sufficient to repay the loan in full by the end of the amortization period. In multifamily lending, the amortization period is often longer than the term of the loan.
Anchor Tenant or Major Tenant
The premier retail or office tenant that attracts other tenants. Can be used when discussing apartment buildings that contain some retail or office space. Also called “major tenant.”
Annual Debt Service (ADS)
The amount of the annual mortgage payment.
Annual Percentage Rate (APR)
The annual rate charged for borrowing or earned through an investment. In mortgage finance, APR is expressed as a percentage that represents the actual yearly cost of funds over the term of the loan. This includes any fees or additional costs associated with the transaction but does not take compounding into account. In other words, from the perspective of the borrower, APR attempts to calculate what percentage of the principal he/she will pay per period (in this case a year), taking every charge from monthly payments over the course of the loan, upfront fees, etc. into account.
Appraisal
A report that provides an estimate or opinion of value. This report must meet Freddie Mac’s requirements as outlined in our Multifamily Seller/Servicer Guide.
Area Median Income (AMI)
The household income for the median — or middle — household in a region. Each year, the Department of Housing and Urban Development (HUD) calculates the median income for every metropolitan region in the country. HUD focuses on the region — rather than just the city — because families searching for housing are likely to look beyond the city itself to find a place to live.
Asbestos containing materials (ACM)
A potential environmental hazard sometimes found in pipe and boiler insulation, texture-finished ceiling and wall materials, structural coverings, drywall or joint compounds. Friable ACM is asbestos-containing material that releases fibers when pushed with a finger. The environmental survey or report must address whether and where asbestos is found on the property, its type, location, condition, approximate quantity and the asbestos concentration.
Assessment
The value assigned to a piece of real estate. Often used to determine the taxes the owner must pay on that property. Tax assessments are sometimes used as a starting point for valuing a property during underwriting.
Asset
A property or right that has monetary value. In the multifamily context, we are generally referring to the real estate.
Asset Management & Operations (AMO)
Manages Optigo Servicer relationships and Optigo Seller/Servicer performance reviews along with ongoing risk and loss mitigation efforts for the Multifamily portfolio. Provides guidance for business transformation, including strategic planning, systems and processes. In addition, the department leads loan funding and document custody, loan servicing, Optigo Seller/Servicer counterparty risk, data management, governance and operational risk for the division.
Asset Summary Report (ASR)
An ASR is a portion of the Investment Brief. It is the section used to summarize critical information about the deal using a long form narrative. Asset Summary Reports are part of the due diligence sent to K-Deal investors.
Assisted Living (AL)
A type of seniors apartment that is sometimes licensed and which provides all meals, assistance with medication, assistance with Activities of Daily Life (ADLs) and which may include Alzheimer’s care. Most assisted-living facilities offer private or semi-private rooms that may or may not have kitchenettes. Freddie Mac will purchase loans on assisted living properties.
Assumption
An agreement in which the buyer of a property agrees to take over the liability for the existing mortgage (and all other related mortgage documents) and begins to make the monthly payments. Assumptions are popular with borrowers because they are less expensive than a new loan.
Balloon
A large payment due at the end of the loan term. Many multifamily loans amortize over 30 years, but have a 10-year loan term. This means that the principal is repaid at a rate that will pay off the full loan amount in 30 years, but the loan is actually due in 10 years. At the end of 10 years, the amount of remaining principal must be paid off with a balloon payment.
Basis Points (BP)
One one-hundredth of one percent (0.01%). Used to measure changes in interest rates, delinquency as a percentage of our total mortgage portfolio, and servicing spreads. Often abbreviated, “bp” and pronounced “bip.” Example: “If we could just improve our price by a couple of bps, we could clench this deal.”
