Investment

Glossary

Investment Glossary

Acceleration: Calling a loan “due and payable,” meaning that the entire balance must be paid in full. Usually a loan is accelerated due to some type of default on the part of the borrower.

Advances: Amounts of money advanced by a lender, on behalf of the borrower, to protect the lender’s interest in the secured property, such as advances for property taxes and hazard insurance.

Alienation: Transfer of property without consent of the lender, when the loan agreement forbids such transfer.

Amortization: The method by which the outstanding balance of a loan is reduced by making equal payments on a regular schedule (usually monthly). The payments are structured so that the borrower pays a portion of both interest and principal with each equal payment.

Annual Fees: A yearly membership or maintenance fee for having the home equity line of credit available. It is charged whether or not the line is used.

Appraisal: An estimate of value, usually performed by a licensed appraiser. Appraisals for homes and smaller 2-4 family dwellings and condominiums commonly use a “sales comparison” approach, while properties such as apartment or commercial buildings held primarily for the production of income use the “income approach.”

Appreciation: A property’s increase in value due to inflation or economic factors.

APR (Annual Percentage Rate): The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction.

ARM (Adjustable Rate Mortgage): A type of mortgage in which the interest rate paid on the outstanding balance varies according to a specific benchmark. The initial interest rate is normally fixed for a period of time after which it is reset periodically, often every month. The interest rate paid by the borrower will be based on a benchmark plus an additional spread, called an ARM margin. An adjustable rate mortgage is also known as a “variable-rate mortgage” or a “floating-rate mortgage”.

Arrears: Mortgage interest is paid at the end of the period during which it accrues, i.e. the interest portion of the payment due on the first of the month is for funds outstanding during the previous month. Delinquent payments are also known as being “in arrears”.

Assessment: Charges levied against a property for tax purposes or to pay for municipality or association improvements such as curbs, sewers, or grounds maintenance.

Assignment: The process by which ownership in some portion of future payments is transferred from one party to another (contract right or other asset). The Assignment Form is signed by the seller at closing and then recorded.

Assignment of Trust Deed: A conveyance, generally recorded, of a full or partial interest in an existing deed of trust. The intent of recording an assignment of a deed of trust is to provide public (recorded) notice of the assignee’s interest in the trust deed.

Assumption: An agreement between a buyer and a seller which may require lender approval, when the buyer takes over the payments for a mortgage and accepts the liability. Assuming a loan can be advantageous for a buyer because there are no closing costs and the loan’s interest rate may be lower than current market rates. Depending on the terms of the mortgage or deed of trust, the lender may raise the interest rate or require the buyer to qualify for the mortgage.

Automated Valuation Model: A computer model used to estimate the current market value of a home using property records and various analytic methodologies such as comparable sales prices, home characteristics and historical home price appreciation.

Balance Transfer: The movement of outstanding balances from other lenders to a home equity line of credit.

Balloon Mortgage: A mortgage that has level monthly payments which are insufficient to amortize the loan so that a balloon or lump sum payment is due at the end of the term. Frequently, balloon mortgages contain an opportunity to refinance when the balloon payment is due.

Balloon Payment: Generally, a balloon payment refers to a clause in a note or mortgage that requires the entire balance due on the loan to be paid off in full at a certain date. The actual definition of a balloon payment is “any loan payment required, that is more than twice the amount of the smallest payment required in the loan.”

Bankruptcy: A proceeding in a federal court in which a debtor (who owes more than his/her assets or cash flow) is relieved from the payment of debts. This can affect the borrower’s personal liability or the mortgage debt but not the lien of a mortgage.

Basis Points: Used to describe mortgage yield, one 100th of 1% or 0.01%. A mortgage yield increase from 9.50% to 9.75% is an increase of 25 basis points.

Beneficiary: (Usually the lender) The party whose interests are secured by the deed of trust (holder of the beneficial interest).

Biweekly Mortgage: A loan requiring payments of principal and interest at two-week intervals. Each biweekly payment is half the amount of a monthly payment. The borrower makes the equivalent of 13 monthly payments each year. As a result, this type of loan amortizes much faster than monthly payment loans.

BPO (Broker Price Option): A BPO is conducted by a local, licensed real estate professional and combines information from a drive-by exterior examination, or an interior inspection and external data sources including comparable sales and neighborhood listings. It includes estimate of repairs to obtain fair market value, neighborhood information, and value estimate (90, 120, 180 day marketing time for “as is” and “as repaired” values). Photographs include subject and street scene photographs.

Bridge Loan: A loan, usually a second mortgage, that is collateralized by the borrower’s present home (that is usually for sale).

Broker: Note Broker, Cash Discounter, Note Buyer, Mortgage Broker, Paper Broker, Real Estate Broker. An individual or company in the business of assisting in arranging funding or negotiating contracts for a client but who does not necessarily advance the funds himself. Brokers usually charge a fee or receive a commission for their services.

Buy-Down: Where the buyer pays additional discount points in return for a below market interest rate; or the buyer or seller deposits sufficient funds with the lender to reduce the rate during the first one to three years of the loan; or pays closing costs such as the origination fee. During times of high interest rates, buy-downs may induce buyers to purchase property they may not otherwise have purchased.

Buyer’s Market: Economic conditions in which the supply of available housing exceeds demand. This may occur during periods where interest rates are high and can drive down housing prices.

Cap: A limit on how much an adjustable rate mortgages monthly payment or interest rate can increase. A cap is meant to protect the borrower from large increases and may be a payment cap, an interest cap, a life-of-loan cap or periodic cap.

A payment cap is a limit on the monthly payment.
An interest cap is a limit on the amount the interest rate can increase.
A life-of-loan cap restricts the amount the interest rate can increase over the entire term of the loan.
A periodic cap limits the amount the interest rate can change at the time of each periodic adjustment.

Certificate of Occupancy (CO): Written authorization given by a municipality that allows a structure to be inhabited. Many municipalities only require a C of O for new construction or improvements; however, some require a C of O anytime title to the property changes.

Certificate of Reasonable Value (CRV): A Veteran’s Administration appraisal that establishes the maximum VA mortgage loan amount for a specified property.

Chattel: Security other than real estate; i.e., inventory, equipment, etc.

Clear Title: Title to real property that is free of liens, claims or encumbrances except for items such as property taxes that are not yet due and payable or routine utility easements.

Closed End Loan: Another term for a single advance loan, more commonly used when contrasting a closed end loan with an open end loan.

Closed-End Mortgage: A mortgage principal amount that is fixed and cannot be increased during the life of the loan.

Closing: The process of finalizing the purchase of property or making of a mortgage loan. At the closing of a purchase money loan, the deed is delivered, the mortgage and note are signed, financial adjustments are made, and loan proceeds are disbursed. For refinances and home equity lines and loans, funds are disbursed after the 3 business day rescission period has expired. For home equity lines of credit, checks are generally sent to the borrower 7 to 10 business days after closing.

Closing Statement/Settlement Statement: Also known as a HUD1. This document is prepared by the title company or closing attorney and details all funds received and disbursed at the time of purchase and closing on the property.

Closing Costs: Costs payable by either seller or buyer at the time of settlement when the purchase of a property is finalized, or by borrower when a loan is refinanced. They include expenses such as points, taxes, title insurance, mortgage insurance and attorneys’ fees. You will receive more specific information about types and amounts of closing costs applicable to your transaction and the state where your property is located when you apply for a loan.

Co-Borrower/Co-Applicant: One who is individually and jointly obligated to repay a mortgage loan and may or may not share ownership of the property with one or more borrowers.

Collateral: Something of value pledged as security for a loan. In mortgage lending, the property itself serves as collateral for a mortgage loan.

Collateralize: Applies to the use of notes or mortgages as collateral for a debt or other obligation. Collateralized loans or mortgages have been pledged as collateral for debt. (Often used in referring to investments in a pool that holds mortgages.) Investors are provided with certificates that are secured by the “collateralized” notes or mortgages.

Commitment Fee: A fee charged when an agreement is reached between a lender and a borrower for a loan or specific terms and conditions. Rate and points may be locked-in or may be “floating”.

Condominium: A form of ownership where the dwelling units are individually owned and homeowners share ownership of common areas such as the grounds, the parking facilities and the tennis courts.

Conforming Loan: A loan that conforms to Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines.

Construction Loan: A short-term loan financing improvements to real estate, such as the building of a new home. The lender advances funds to the borrower as needed while construction progresses. Upon completion of the construction, the borrower must obtain permanent financing or pay the construction loan in full.

Contracts: The written understanding between the parties. May be a mortgage, land contract, contract for deed, deed of trust, etc.

Contracts for Deed: Similar to a mortgage in that it secures the obligation with the underlying real estate, it differs in that the property has not yet been transferred (deeded over). Transfer of the deed is contingent upon all terms of the Contract having first been fulfilled.

Conventional Loan: A mortgage loan that is not insured, guaranteed or funded by the Veterans Administration (VA), the federal Housing Administration (FHA) or Rural Economic Community Development (RECD) (formerly Farmers Home Administration).

Convertible Mortgage: An adjustable rate mortgage (ARM) that allows a borrower to switch to a fixed-rate mortgage during a specified period.

Co-Operative: A co-op is a form of ownership in which a corporation or business entity holds title to a property and grants the occupancy rights to particular apartments or units to shareholders by means of proprietary leases or similar arrangements. A loan granted for a co-op is collateralized by an assignment of the proprietary lease and a pledge of the shares of stock allocated to the unit.

Credit Bureau: A company that is engaged in the preparation of reports that are used by credit grantors to determine the credit of an individual. The agency obtains data for these reports from national repositories and other sources (e.g., Experian, TransUnion, Equifax, and public record data).

Credit Limit: The maximum amount that can be borrowed under a home equity line of credit.

Credit Repository: An organization that complies credit history data directly from lenders and creditors to build in-file credit reports for individuals; the main repositories are Experian, TransUnion, and Equifax.

Credit Score: A rating given to a person by a credit bureau, or credit repository, based upon payment history for existing and past debt. (for more details, see the FAQ page)

Credit Report: A report to a prospective lender on the credit standing of a prospective borrower, used to aid in the determination of creditworthiness.

Cross-Collateralize: The securing of a loan by more than one parcel of real estate. Also referred to as a “blanket encumbrance.” Loans can be generally be cross-collateralized by recording separate deeds of trust, one on each parcel being used as collateral, or by recording one deed of trust that properly describes all of the parcels being used as collateral.

Debt Consolidation: The consolidation and payment of multiple debts with one home equity loan or line.

Debt-To-Income Ratio (DTI): The ratio of the borrower’s total monthly obligations, including housing expenses and recurring debts, to monthly income. It is used to determine the borrower’s capacity to repay the mortgage and all other debts.

Deed of Trust: A document, used in many states in place of mortgage, whereby title to the property is held by a trustee pending repayment of the loan. It is a recorded document that in conjunction with the mortgage note creates a security interest in real property.

Default: A breach of nonperformance of the terms of a note or the covenants of a mortgage (usually a failure to make required payments).

Default Interest (rate): A higher interest rate that is charged only if the borrower defaults on the regularly required loan payments. Usually, if the borrower makes all payments as required, the default interest rate would never go into effect.

Department of Housing and Urban Development (HUD): The U.S. government agency that administers FHA, GHMA and other housing programs.

Discount Point: An amount of money paid at the close of escrow to allow a borrower to obtain a lower interest rate. One point to equal 1% of the loan amount.

Document / or Instrument / Recording Number: A number placed on a document by the county recorder, when accepting that document for recording, that indicates the time and date of recording, as well as the fact the document was recorded in that county. Primarily referred to as “doc number” or “instrument number”.

Down Payment: The difference between the purchase price and mortgage amount. The down payment becomes your property equity. Typically it should be cash savings, but it can also be a gift that is not to be repaid or a borrowed amount secured by assets.

Draw Period: For a home equity line of credit, this is the length of time during which the mortgagor can borrow money – usually ten years. During this time period, funds can be borrowed up to the available credit limit, usually by drawing on the line using special checks.

Drive-By Appraisals: An estimate of the current market value of a home as determined by a broker, real estate professional or appraiser by suing comparable values of similar homes in the area and an exterior examination or “drive-by” of the property.

Earnest Money: Cash given to a seller by a buyer as good faith assurance that the buyer intends to go through with the purchase of a property.

Encumbrance: A lien, judgment, deed of trust or other claim against real property, generally recorded in public records.

Environmental Hazard: Natural or man-made forces that may be hazardous to the health or safety of the homeowner. Examples include: hazardous wastes, toxic substances, radon gas and materials containing asbestos. These types of hazards can adversely affect the value and marketability of the property.

Equal Credit Opportunity Act: A federal law prohibiting lenders and other creditors from discriminating based on race, color, sex, religion, national origin, age, marital status, receipt of public assistance or because an applicant has exercised his or her rights under the Consumer Credit Protection Act.

Equity: The difference between the current market value of a property and the principal balance of all outstanding mortgage loans or liens. It is also referred to as owner’s interest.

Escrow: A third party stakeholder who holds funds or documents on behalf of others, pending their instructions. The term escrow is commonly used to refer to escrow companies who act as escrow holders in real estate sales and loan transactions. The term escrow is also used to refer to impound (sometimes called escrow) accounts held by lenders, where borrower’s funds are set aside for taxes, insurance and other charges.

Escrow Analysis: Once a year, the servicer reviews escrow funds on hand, monthly tax and insurance payments, and tax and insurance bills to determine if the amount collected each month should be increased or decreased, or whether excess funds should be refunded to the mortgagor.

Escrow Closing: In certain regions, an escrow agent holds in escrow funds as well as documents to be signed by both buyer and seller. Once all conditions of the closing have been satisfied, the documents and the funds are distributed by the escrow agent to the interested parties.

Escrow Funds: Money held by the lender for payment of the taxes and insurance on your home.

Estoppel: Certificates executed by tenants or other holders of interests in real property, confirming the terms of their tenancy or lease, the amount of rent, deposits, and other agreements existing between themselves and the property owner.

Fair Market Value: The price established in a free market between a buyer and seller in an arm’s length transaction where neither one is compelled to buy or sell. In an appraisal, this is the final value derived after examining the Sales Comparison, Costs, and if applicable, Income approaches; sometimes referred to as “Market Value.”

Fannie Mae: Nickname for Federal National Mortgage Association (FNMA).

Federal Emergency Management Agency (FEMA): Federal agency which oversees the administration of flood insurance programs and the designation of certain areas as flood prone.

Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac): A quasi-governmental, federally sponsored organization that acts as a secondary market investor to buy and sell mortgage loans. FHLMC sets many of the guidelines for conventional mortgage loans, as does FNMA.

Federal Housing Administration (FHA): An agency within the Department of Housing and Urban Development that sets standards for underwriting and insures residential mortgage loans made by private lenders. One of FHA’s objectives is to make available affordable mortgages to those with low or moderate income. FHA loans may be high loan-to-value, and they are limited by loan amount. FHA mortgage insurance requires a fee of up to 3.8 percent of the loan amount to be paid either at closing or added to each monthly payments, as well as an annual fee of 0.5 percent of the loan amount added to each monthly payment.

Federal National Mortgage Association (FNMA or Fannie Mae): A private corporation that acts as a secondary market investor to buy and sell mortgage loans, FNMA sets many of the guidelines for conventional mortgage loans, as does FHLMC. The major purpose of this organization is to make mortgage money more affordable and more available.

Fee Simple: The maximum form of ownership, with the right to occupy a property and sell it to a buyer at any time. Upon the death of the owner, the property goes to the owner’s designate heirs. Also known as fee simple absolute.

Fifteen-Year Mortgage: A loan with a term of 15 years. Although the monthly payments of a 15-year mortgage is higher than that of a 30-year mortgage, the amount of interest paid over the life of the loan is substantially less.

Financial Code 4970: A California law, similar to HOEPA, which imposes somewhat stricter limits and regulations on loans that exceed specified rates or fees, when made to owner/occupants of one to four family dwellings.

Fixed Rate: An interest rate that is constant for the life of the loan.

Forbearance: An agreement between a lender and a borrower, where the lender agrees to “forbear” and not to foreclose or take other action against the borrower and the borrower agrees to the payment of certain sums of money and/or the performance of other acts required by the lender (such as the payment of property taxes, maintenance of the property, etc.).

Foreclosure: The legal process by which a borrower in default under a mortgage or deed of trust, loses his/her interest in the mortgaged property; this process usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

Fractionalized Investing: (split into percentages) In trust deed investing, applies to a loan being provided by two or more investors, where the note and deed of trust is issued in the names of the various investors in accordance with their percentage (fractionalized) share of ownership.

Freddie Mac: Nickname for Federal Home Loan Mortgage Corporation (FHLMC).

Full Credit Bid: An opening bid amount at a trustee’s sale, set by a lender, which includes the full amount of the debt owed including late charges, interest, penalties, allowable third party fees and trustees fees.

Future Value: An appraised value, based on the completion of certain improvements that are not actually complete at the time the appraisal is done. These appraisals are usually based on plans showing what improvements are to be completed and the appraised “future value” is contingent on completion of those improvements.

Gift Funds: Funds donated to the borrower from certain eligible sources to assist the borrower in meeting closing costs. Generally, eligible sources are: a relative, church, municipality, or nonprofit organization.

Government National Mortgage Association (GNMA or Ginnie Mae): A government organization that participates in the secondary market, buying, selling and guaranteeing FHA and VA loans.

Grace Period: A period of time (usually measured in days) after an obligation is due during which a borrower can perform without incurring a penalty and without being considered in default.

Graduated Payment Mortgage (GPM): A mortgage that has initial monthly payments set at an amount lower than that required for full amortization of the debt. The payments are then increased by a specified percentage each year during the graduated payment period. At the end of the period, payments are in an amount that will fully amortize the mortgage.

Hard Money (also referred to as Private Money): Generally applies to lenders or loans made with private investor funds, as opposed to loans made by institutional lenders (see institutional loans/lenders). This term is used for mortgage products that allow a borrower who can’t qualify for conventional underwriting guidelines. These loans are typically characterized by borrowers with a lot of equity in their homes who have come across an isolated life event (e.g. divorce, illness, loss of job) and the loans are in place for a fairy short period of time until the borrowers rebound from their situation.

Hazard Insurance: A form of insurance that protects the insured property against physical damage such as fire, tornadoes, earthquakes, etc. Mortgage lenders often require a borrower to maintain an amount of hazard insurance on the property that is equal to the amount of the mortgage loan.

HOEPA: The Home Ownership and Equity Protection Act. A law, passed as section 32 of RESPA and as an amendment to TILA, imposing stricter limits and regulation on certain loans made to owner occupants of one to four family residences, and exceeding specified rates or fees.

Home Equity Line of Credit (HELOC): A real estate loan, usually in a subordinate position, that allows a borrower to borrow against equity in real estate owned (usually a primary residence or second/vacation home) with specific limitations. This is an open-end loan that permits the borrower to repay and re-borrow the funds available.

Home Equity Loan: A mortgage on the borrower’s principal residence (or second/vacation home) usually for the purpose of making home improvements or non-housing expenditures such as debt consolidation or tuition. This is a closed-end loan repayable in accordance with a fixed schedule.

Homeowner’s Association (HOA): A nonprofit association, whose directors and officers are elected by the unit owners of a condominium or PUD project; primary responsibilities are to manage the common areas, expenses and services of the project.

Homeowners Insurance: A form of insurance that protects the insured property against loss of theft, liability and most common disasters. Also referred to as hazard insurance.

Housing and Urban Development (HUD): Government agency that administers FHA, GNMA, and other housing programs. Created in 1965 to support community development and increase home ownership. HUD does this by improving affordable home-ownership opportunities, increasing safe and affordable rental options, reducing chronic homelessness, fighting housing discrimination by ensuring equal opportunity in both the rental and purchase markets, and supporting vulnerable populations.

Index: A published rate compiled from current economic or financial indicators such as U.S. Treasury bills or the prime rate published in the major daily newspapers. Mortgage lenders use the index to establish interest rates on adjustable rate mortgages and home equity lines of credit with periodic interest rate adjustments.

Individual Retirement Account (IRA): Accounts that can be established by individuals who meet IRS qualifications to build retirement funds, deferring the tax liability until funds are withdrawn. Under permitted circumstances, they may deduct their annual contributions from their taxable income.

Installment Debt: Debt that is repaid in installments at regular intervals, usually monthly.

Institutional: Applies to loans made or serviced by institutional lenders, often banks, credit unions, insurance companies or large mortgage banking companies. Institutional loans generally have more stringent credit and income requirements (particularly now), forcing many property owners into hard money type loans.

Interest Rate: The interest rate, stated as a percentage, charged by a lender on the principal amount of borrowed money.

Introductory Rate: A temporarily discounted rate for home equity lines of credit or adjustable rate mortgage loans – a rate that is usually low and lasts only for an introductory period.

Jumbo Loan: A loan that is for a larger dollar amount than the limits set by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage corporation (FHLMC) guidelines.

Junior Lien (see “Senior Lien”): A deed of trust or lien recorded after another deed of trust or lien, therefore causing it to be “junior” in lien priority to that earlier recorded deed of trust or lien.

Keogh: A retirement plan for self-employed individuals. Similar to an IRA, contributions may be deductible and the tax liability is deferred until the funds are withdrawn; sometimes known as HR 10 plans.

Land Contracts: Similar to a mortgage in that it secures the obligation with the underlying real estate, it differs in that the property has not yet been transferred (deeded over). Transfer of the deed is contingent upon all terms of the Contract having first been fulfilled. A land contract usually applies to the purchase of the land only, while a Contract for Deed typically covers structures as well.

Lien: A claim against a property for the payment of a debt. A mortgage is a lien; other types of liens a property might have include a tax lien for overdue taxes, or a court judgment lien, or a mechanics lien for unpaid debt to a contractor.

Liquidity: Cash or cash equivalents that a borrower has accumulated or the ability to readily convert other assets or investments into cash; a.k.a. cash reserves.

Loan Disclosure Statement: A statement provided to a borrower by a loan originator that spells out for the borrower, among other things, the interest rate, payments, existence of balloon payments, late charges and pre-payment penalties, and numerous other facts that might influence the borrower’s decision to enter into the loan transaction.

Loan Discount: See Points.

Loan Guaranty Certificate: Evidence that a portion of a loan is guaranteed by the Veterans Administration.

Loan Origination Fee: See Origination Fee.

Loan Servicing: The collection of payments; maintenance and provision of records; filing of required tax documents; monitoring of property tax and insurance payments; handling of delinquent loan payments; modification, forbearance and foreclosure; issuing of payoff statements and any other activity required to successfully collect, account for, and distribute funds due under a note or mortgage.

Loan-To-Value Ratio (LTV): The ratio of the principal balance of mortgages attached to real property to the appraised or “Market Value” of the real property. Example: A home worth $100,000 secured by an $80,000 mortgage would have an 80% LTV.

Lock-In: The guarantee of a specific interest rate and/or points for a specific period of time. Some lenders will charge a fee for locking in an interest rate.

Margin: The amount of lender adds to (or subtracts from) the index for the purpose of adjusting the interest rate on a variable rate product (ARM or HELOC). For example, a margin of 1.50 added to a 7 percent index establishes an interest rate of 8.50 percent. The margin remains the same throughout the loan. The exception is home equity lines of credit with an introductory variable rate which has two margins – one for the introductory period and another that becomes effective after the introductory period expires.

Market Value: The price a property can realistically sell for based upon comparable selling prices of other properties in the same area.

Maturity: The date on which full payment of the mortgage loan is due.

Minimum Payment: The minimum monthly amount required to be paid on a home equity line of credit. The minimum payment may be interest only or may include both principal and interest.

Modification: A mutual agreement between a borrower and a lender, to modify the terms of a mortgage, including, among other things, a change in the interest rate, monthly payment, due date, and/or principal balance.

Mortgage/Mortgages: A recorded document that in conjunction with the mortgage note creates a security interest in real property. In some States, referred to as a Deed of Trust. Contrary to a note secured by a deed of trust, a mortgage (which is almost never used in California) does not contain a “power of sale clause,” which means that the lender must go through a judicial foreclosure (a lawsuit) to obtain title to the property. Generally, the trust deed that secures a note in a typical California loan transaction will contain a “power of sale,” enabling the trustee under the deed of trust to conduct a “non-judicial” foreclosure and sale of the property.

Mortgage Banker: A lender that originates, closes, services and sells mortgage loans to the secondary market.

Mortgage Broker: An intermediary between a borrower and a lender. A broker’s expertise is to help borrowers and financing that they might not otherwise find themselves.

Mortgage Fund: An entity formed to hold securities, including trust deeds, for investment purposes. Typically, mortgage funds are set up as limited liability companies, and investors are issued certificates indicating their membership in the limited liability company. The terms mortgage fund and mortgage pool are used interchangeably.

Mortgage Insurance (MI): Insurance that protects a mortgage lender against loss in the event of default by the borrower. This insurance allows lenders to make loans with lower down payments (LTVs above 80%, in most cases). The cost is usually borne by the borrower.

Mortgage Insurance Premium (MIP): The amount paid to FHA or to a private company for mortgage insurance.

Mortgage Note: A written promise to repay funds advanced by the mortgage lender on the agreed upon terms.

Mortgage Pool: A mortgage pool is an investment vehicle that allows individuals to invest in trust deeds on multiple parcels of residential or commercial property. It divests the investor’s risk, as the funds are used for multiple properties. These are traditionally used in Hard Money lending.

Mortgagee: The lender or party receiving the mortgage payments.

Mortgagees Title Policy: A title insurance policy protecting the holders of the mortgage against possible defects in title.

Mortgagor: The borrower or the party making the mortgage payments. Also known as the “Payor”.

National Mortgage Licensing System (NMLS): A licensing system put into effect on January 1, 2011, requiring originators of consumer loans secured by one to four family residences obtain an NMLS endorsement to the current license under which they originate loans. (Originators working for Federally insured banks and credit unions are exempt from this requirement.)

Negative Amortization: A situation in which a borrower is paying less interest than what is actually being charged for a mortgage loan. The unpaid interest is added to the loan’s principal. The borrower may end up owing more than the original amount of the mortgage.

Net Rental Income: The remaining income generated by an investment property after deducting all mortgage related expenses, including HOA fees (if applicable) and operating expenses from the gross rental income.

Net Worth: The amount by which an individual’s assets (or assets of a business) exceed total liabilities.

NMLS License: A license endorsement issued under the National Mortgage Licensing System.

No Income Verification Option: This option limits the need to produce K-1s or other income documentation which is typically required for credit approval, but which is sometimes problematic for self-employed applicants and applicants with a complicated financial picture. The applicant may need to meet certain additional requirements to qualify, such as having a certain level of verified liquid assets.

Non-Conforming Loan: A loan that does not conform to Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines either because the loan amount is too high or FNMA/FHLMC underwriting or other criteria are not met. Jumbo loans are non-conforming.

Non-Permanent Resident Alien: A non-U.S. citizen who resides outside of the United States.

Note: See Mortgage Note.

Notice of Default: A notice recorded with the county recorder, indicating that a loan secured by a deed of trust is in default and beginning the foreclosure process. Recordation of a notice of default begins a 90 day period during which the borrower can reinstate the loan by resolving the default (usually paying payments and late charges due) and paying any fees associated with the notice of default.

Notice of Trustee’s Sale: A notice recorded with the county recorder, indicating that specific real property, that is the security for a loan secured by a deed of trust, will be sold at a trustee’s sale auction at a specific time, date and location. The notice of trustee’s sale references a minimum bid price. However, the beneficiary has the option of opening the bidding at, and accepting a bid lower than the published minimum bid price.

Open End Mortgage: A mortgage that permits the outstanding loan amount to be increased. See Home Equity Line of Credit.

Open End Loan: A loan that allows for additional advances of