Mortgage Glossary

Ability to Repay (ATR)

An individual's financial capacity to make good on a debt. The phrase "ability to repay" was used in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act to describe the requirement that mortgage originators substantiate that potential borrowers can afford the mortgage they are applying for.

Abstract of Title

A written history of all the transactions related to the title for a specific tract of land. An Abstract of Title covers the period from the original source of the title (often the original land grant from the United States government to an individual) to the present time and summarizes all subsequent documents that have been recorded against that tract.

Acceptance

A verbal or written acceptance of an offer to buy a home, made from the seller to the buyer.

Accept Mortgage

A mortgage ran through Loan Product Advisor^® that receives a Risk Class of Accept.

Acre

A land measurement commonly used in U.S. property negotiations. One acre equals 43,560 square feet.

Additional Principal Payment

Additional payments made above the scheduled principal amount due. Additional Principal Payments are made in order to reduce the outstanding balance on the loan, to save on interest over the life of the loan, and pay off the loan early.

Adjustable-Rate Mortgage (ARM) (a.k.a. Variable-Rate Mortgage)

A mortgage in which the interest rate and monthly payments may change periodically during the life of the loan, based on the fluctuation of an index. Lenders may charge a lower interest rate for the initial period of the loan. Most ARMs have a rate cap that limits the amount the interest rate can change, both in an adjustment period and over the life of the loan.

Adjustment Cap

A limit to how much a variable interest rate can increase or decrease in a single adjustment period.

Adjustment Date

The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

Adjustment Period

The period of time between adjustment dates for an adjustable-rate mortgage (ARM).

Adjusted Gross Income (AGI)

Gross Income minus income adjustments. Gross income includes wages, dividends, capital gains, business income, retirement distributions as well as other income. Adjustments to Income include such items as Educator expenses, Student loan interest, Alimony payments or contributions to a retirement account.

Adverse Action

Notice to a potential borrower of a denial of credit.

Affordable Seconds^®

Subsidized secondary financing or other type of financial assistance, evidenced in land records, that is provided by an Agency and meets the requirements of Section 4204.2.

Affordability Analysis (a.k.a. Pre-Qualification)

Preliminary analysis of a borrower’s ability to afford the purchase of a home that takes into consideration factors such as income, liabilities and available funds, as well as the type of home loan, the likely taxes and insurance for the home and the estimated closing costs.

Affiliated Projects

Condo, co-op, and PUD projects that are under the same master association or share the use of common facilities that are either owned individually or as part of a master association or development. Multiple condo, co-op, or PUD projects that do not have one of these characteristics, but are managed by the same management company, are considered unaffiliated projects.

Agency

Sponsor or provider of financial assistance through an agency grant, Affordable Seconds^®, an IDA or an unsecured loan, as applicable. An Agency is typically one of the following:

• • • • • A municipality which includes any duly authorized authority or agency of the federal, State, local or municipal government

        • A nonprofit community or religious organization, other than a credit union

        • The Borrower's employer, or

        • A regional Federal Home Loan Bank under one of its affordable housing programs

Allonge

An addendum attached to a Note that can be used for endorsements. An allonge is necessary when there is insufficient space on the document itself for the endorsements.

All-Risk Insurance

An insurance policy that provides coverage for every conceivable risk except those specifically excluded by the policy itself, as opposed to a “Named-Perils” policy that covers only those risks specifically set forth in the policy.

Alt 97^® Mortgage

A mortgage eligible and delivered for Freddie Mac's Alt 97^® Mortgage offering Alt 97^® Mortgages are no longer eligible for sale to Freddie Mac.

Amenities

Portion or type of Common Elements that enhance project attractiveness and owner enjoyment even though the feature is not essential to the project's use.

American Land Title Association (ALTA)

A national association of title insurance companies, abstracters, and attorneys specializing in real property law. The association speaks for the title insurance and abstracting industry and establishes standard procedures and title policy forms.

American Securitization Forum (ASF)

Broad-based professional forum through which participants in the U.S. securitization market advocate their common interests on important legal, regulatory and market practice issues. ASF members include over 330 firms, including issuers, investors, servicers, financial intermediaries, rating agencies, financial guarantors, legal and accounting firms, and other professional organizations involved in securitization transactions.

A-Minus Mortgage

Loan Product Advisor^® Mortgage that:

• • • • • Has a Risk Class of Caution

        • Has assessment results of eligible for A-minus, and

        • Meets the requirements of Section 5101.9.

Amortization

Gradual reduction in the principal amount owed on a debt. During the earlier years of the loan, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.

Amortization Table or Schedule

A timetable or schedule giving a breakdown of monthly payments into principal and interest.

Amortization Term

The amount of time required to amortize (pay off) the loan, expressed in months. For example, a 15-year fixed-rate mortgage amortization term is 180 months.

Annual Adjustment Cap

A limit on the increase or decrease each year of a variable-interest rate loan.

Annual Percentage Rate (APR)

The annual cost of a loan to a borrower. Like an interest rate, the APR is expressed as a percentage. Unlike an interest rate, however, it includes other charges or fees (such as mortgage insurance, most closing costs, discounts points and loan origination fees) to reflect the total cost of the loan. The Federal Truth in Lending Act requires that every consumer loan agreement disclose the APR. Since all lenders must follow the same rules to ensure the accuracy of the APR, borrowers can use the APR as a basis for comparing the costs of similar credit transactions.

Application (a.k.a. 1003 and URLA)

The form used to apply for a mortgage loan, containing information about a borrower's income, savings, assets, debts, and more. An application is considered received when the consumer provides the following information: Consumer’s name, income, Social Security number, property address, estimate of the value of the property, and mortgage loan amount sought.

Application Date (a.k.a. Application Received Date)

The date the Borrower's financial information is received and first triggers the federal Truth-in-Lending disclosure requirements.

Application Fees

Nonrefundable fees paid when applying for a loan. These fees may include charges for items such as, a credit report or property appraisal.

Application Received Date (a.k.a. Application Date)

The date the Borrower's financial information is received and first triggers the federal Truth-in-Lending disclosure requirements.

Appraisal

Informed estimate of the value of a property. When made in connection with an application for a loan secured by a home, a professional appraiser usually performs the appraisal.

Appraisal Contingency

A sales contract contingency that the property must appraise at a value that is equal to or greater than the purchase price.

Appraisal Identifier

A unique identifier assigned by the Uniform Collateral Data Portal^® (UCDP^®) to the appraisal data delivered to the UCDP^® for the subject Mortgage.

Appraisal Management Company (AMC)

An independent entity used by mortgage lenders to order residential real estate valuation services for properties on which they are considering extending loans to homebuyers.

Appraisal Waiver (a.k.a. Property Inspection Waiver or Property Fieldwork Waiver)

An optional offer to waive the appraisal requirement for certain loan casefiles underwritten.

Appraised Value

An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.

Appraiser

An individual who, by education, training, and experience, estimates the value of real property and records the findings on industry accepted appraisal forms. Although some appraisers work directly for the mortgage lenders, most are independent.

Appreciation

The increase in the value of property over time. Important factors in a home’s appreciation are its location, condition and the selling price of similar homes in the area. Appreciation increases the amount of equity, which may also increase the amount that can be borrowed for an equity loan.

Approved Term (a.k.a. Term)

The number of months that it will take to pay off the loan. The approved term is used to determine the payment amount, repayment schedule, and total interest paid over the life of the loan.

Area Median Incomes (AMI)

The measure of residents’ median income in a broad area and is calculated annually by HUD, the U. S. Department of Housing and Urban Development. Median incomes are used as the basis for income limits in several HUD programs, including the Public Housing, Section 8 Housing Choice and Project-Based Voucher, Section 202 housing for the elderly, and Section 811 housing for persons with disabilities programs, as well as in programs run by agencies such as the Department of the Treasury, the Department of Agriculture, and the Federal Housing Finance Agency. Community planning and development programs, as well as HOME investments, also rely on HUD income limits in their administration.

Assessed Value

The value of a property established by a public tax assessor. The assessed value is used to determine property taxes.

Assessor

A public official who establishes the value of a property for taxation purposes.

Assignee

An entity receiving an assignment.

Assignment

The method of transferring a contract, such as terms of a loan, from one person to another.

Assignment of Mortgage

A document sufficient under the laws of the jurisdiction where the related mortgaged property is located, to reflect or record the sale of a mortgage.

Assignment of Rents

A written agreement wherein the owner of a property gives another party, such as the mortgagee or creditor, the right to collect rents, manage the property, pay expenses, and apply the net income toward delinquent mortgage payments.

Assignor

The entity making an assignment.

Assumable Loan

A loan that may be transferred to someone else while maintaining the same terms. For example, a seller has an assumable loan (not all loans are assumable), the seller is able to transfer that loan to the new owner with no change in the interest rate and repayment schedule.

Assumption

The transaction in which the purchaser of real property takes over the seller’s existing and assumable mortgage. The seller remains liable for the mortgage unless released by the lender from this obligation. The terms describing whether or not the loan is assumable are typically set forth in the security instrument.

Attorney-in-Fact (AIF)

One who holds a power of attorney to execute documents on behalf of the grantor of power.

Automated Clearing House (ACH)

An electronic drafting system that debits (or credits) an authorized bank account and electronically transfers funds to (or from) another designated account.

Automated Collateral Evaluation (ACE)

The Automated Collateral Evaluation from Freddie Mac provides Sellars with the option to waive the appraisal requirements for certain Loan Product Advisor^® mortgages.

Automated Underwriting System (AUS)

A technology-driven underwriting process that provides a computer generated loan decision. Each loan type uses a specific AUS.

• Catalyst - FHA

• Desktop Originator^® (DO^®) - Fannie Mae

• Desktop Underwriter^® (DU^®) - Fannie Mae

• Guaranteed Underwriting System (GUS) - USDA

• Loan Product Advisor^® (LPA^®) - Freddie Mac

• Loan Prospector^® (LP^®) - Discontinued - Freddie Mac

• TOTAL Mortgage Scorecard (TOTAL) - FHA

Automated Valuation Model (AVM)

An Automated Valuation Model is a mathematically based software program that produces a value or value range for a subject property.

Back-End Ratio

Calculations that are used in determining whether a borrower can qualify for mortgage. There are two ratios. The “top” or “front” ratio is a calculation of the borrower's monthly housing cost (principal, taxes, insurance and Homeowners' Association fees) as a percentage of monthly income. The “back” or “bottom” ratio includes housing cost as well as all other monthly debt.

Balance Sheet

A dated financial statement (in table form) that shows the assets, liabilities, and net worth of a business.

Balances-to-Limits Ratio (a.k.a. Credit Utilization)

The relationship between the outstanding balance(s) on an individual’s revolving debt(s) to the total credit limit allowed for the revolving debt(s).

Balloon Loan (a.k.a. Balloon Mortgage)

A loan that provides lower-than-usual monthly payments for a set period of time followed by a payment larger than usual at the end of loan repayment period. A balloon loan may lower monthly payments but it can also mean higher interest payments over the life of the loan.

Balloon Mortgage (a.k.a. Balloon Loan)

A loan that provides lower-than-usual monthly payments for a set period of time followed by a payment larger than usual at the end of loan repayment period. A balloon loan may lower monthly payments but it can also mean higher interest payments over the life of the loan.

Balloon Payment

The final lump sum payment that is due at the termination of a balloon mortgage.

Bankruptcy

Legal proceeding in federal court in which a debtor seeks to restructure their obligations to creditors pursuant to the Bankruptcy Code. This generally affects the borrower’s personal liability for a mortgage debt, but not the lien securing the mortgage. Chapter 7, Chapter 11, and Chapter 13 are types of bankruptcies.

Base Price

The starting price of a loan, usually taken from the rate sheet, to which all other feature price adjusters are added or subtracted.

Base Rate

Interest rate that is used as a benchmark, or index, for pricing variable-rate loans such as adjustable-rate mortgages, auto loans and credit cards.

Basis Points (bps)

Amount equal to 1/100th of a percentage point. For example, a fee calculated as 50 basis points of $200,000 would be 0.500% or $1,000.

Beneficiary

Anyone receiving or going to receive benefits, as funds from a will, insurance policy, or other legal document granting valuable rights.

Best Efforts

The designation of a Rate Commitment Period requiring Wholesale Broker to register mortgage loans in good faith with the intent to deliver the mortgage loans to a Lender for purchase.

Blanket Insurance Policy

A single insurance policy that covers more than one piece of property (or more than one person).

Blanket Mortgage

A mortgage that is secured by a co-op project, as opposed to the share loans on individual units within the project.

Bona-Fide Discount Points

Loan discount points knowingly paid by the borrower for the express purpose of reducing , and which in fact do result in a bona fide reduction of, the interest rate applicable to the home loan. However, the undiscounted interest rate for the home loan cannot not exceed more than two percentage points above the required net yield for a 90 day standard mandatory delivery commitment for a home loan with a reasonably comparable term from either the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, whichever is greater. The number of discount points that can be excluded depends on the loan’s rate:

• If the pre-discount is <APOR+1%, 2 discount points can be considered Bona-Fide.

• If the pre-discount is between APOR+1% & APOR+2%, 1 discount points can be considered Bona-Fide.

Bond

Interest-bearing certificate of debt with a maturity date. A real estate bond is a written obligation that is usually secured by a mortgage or a deed of trust.

Bond Market

The bond market, often called the debt market, fixed-income market, or credit market, is the collective name given to all trades and issues of debt securities. Governments typically issue bonds in order to raise capital to pay down debts or fund infrastructural improvements. Publicly-traded companies issue bonds when they need to finance business expansion projects or maintain ongoing operations.

Borrower

The party obligated to repay the indebtedness secured by the Mortgaged Property. For a Residential Mortgage, the Borrower must be one of the following:

• • • • • An individual or individuals (not a corporation or partnership)

        • A Living Trust, subject to the conditions in Section 5103.5.

Break-Even Point

The point at which total income equals total expenses. Also used in connection with decisions related to purchasing discount points on a mortgage. Calculating the break even point will identify how many months it will take to recoup the costs associated with paying for the discount point amount under consideration. In other words, if $3,600 is paid toward discount points to reduce the interest rate and the reduced rate would decrease the monthly mortgage payment by $100, it would take 3 years to break even on the choice to pay the discount point amount.

Bridge Loan (a.k.a. Swing Loan)

A type of mortgage financing between the termination of one loan and the start of another loan. For example, a bridge loan might be taken out by a borrower and secured by that borrower’s present home so that the closing on a new house can take place before the present home is sold.

Broker

A Third-Party who arranges funding or negotiates a contract between parties, but does not lend the money.

Broker Fees

Fees charged by a real estate broker or a mortgage broker for providing assistance in a real estate transaction.

Broker Origination

A mortgage loan that is originated under circumstances where a person or firm other than a mortgage loan seller or lender correspondent is acting as a “broker” and receives a commission for bringing together a borrower and a lender. The broker performs some of the loan processing functions (such as taking loan applications; ordering credit reports, appraisals, and title reports; and verifying a borrower’s income and employment), but does not underwrite the loan, fund the loan at settlement, or service the loan. Typically, the mortgage loan is closed in the name of the mortgage loan seller or lender correspondent that commissioned the broker’s services, but may also include so-called “table-funded” mortgage loans where the loan is closed in the broker’s name, but is funded by the mortgage loan seller or the lender correspondent.

Broker Price Opinion (BPO)

A Real Estate Broker's written estimate of the probable sale price of a property.

Builder’s Risk Insurance

A type of property insurance that is obtained for improvements that are being constructed, which protects against losses during the construction period that are the result of theft, vandalism, and acts of nature (including fire, flood, and wind damage). (This type of insurance was previously referred to as construction site insurance.)

Bulletin

Publication that is issued by Freddie Mac and amends, supplements, revises or terminates a provision of the Guide.

Bureau of Citizenship and Immigration Services (BCIS) (a.k.a. U.S. Citizenship and Immigration Service (USCIS)

The U.S. government agency that oversees lawful immigration.

Business Day

The word "day" without the modifier "business" refers to a calendar day. Unless it is one of the following:

• • • • • A Saturday or Sunday

        • A day on which the Federal Reserve Bank of New York is authorized or obligated by law or executive order to remain closed

        • A day on which the offices of the Lender are closed

        • Business Etiquette dictates if the total number of days are under 10, then the word “day” without the modifier “business” refers to a calendar day.

Business Day (Specific)

For the purposes of providing the Closing Disclosure, a business day is all calendar days except Sundays and all federal holidays.

Buy-down

A lump-sum prepayment of all or a portion of the mortgage interest by a lender or homebuilder to lower the monthly mortgage payment, typically for a period of 1-3 years.

Buyer's Agent

Real estate agent that works on behalf of the homebuyer.

Buy-down Account

An account in which funds are held to apply as part of the mortgage payment as each payment comes due during the period of the interest rate buydown plan.

Buy-out Affidavit

Borrower's notarized statement of intent to accept an employer's offer to purchase borrower's current residence if borrower is unable to dispose of the residence prior to the expiration of the employer's buyout offer.

Date of Closing

Date upon which all paperwork associated with a mortgage/property sales exchange is finalized.

Date of Possession

Actual date upon which the buyer will move into a home or property; it is usually the closing date, but may be another agreed upon date as well.

Debt Consolidation

Single loan to pay off multiple debts, usually over a longer term. This is a popular use for a home equity line of credit.

Debt-to-Income Ratio

Total monthly debt payments (for example: loans, credit cards and court-ordered payments) divided by the gross monthly income before taxes and expressed as a percentage. Federal Housing Administration (FHA) guidelines in early 2017 recommend that the monthly mortgage payment should be no greater than 31% of monthly income before taxes and the total monthly debt should be no greater than 43% of the monthly income before taxes.

Deed (Warranty or Quit-Claim)

Document that legally transfers ownership of real estate from a seller to a buyer and delivered to the buyer at closing. Before making a loan, a lender will usually require a title search or a title report to make sure the borrower legally owns the real estate tthat is being used to secure the loan.

Deed of Trust

Document used in some states instead of a mortgage; title is vested in a trustee to secure repayment of the loan.

Default

Failure to make mortgage payments on time or to meet other terms of a loan. Default can lead to foreclosure.

Detached Condominium Project

Condominium Project comprised solely of Detached Condominium Units.

Detached Condominium Unit

Condominium Unit that is completely detached from any other unit in a Condominium Project. A Detached Condominium Unit can be in a Detached Condominium Project or in a Condominium Project that contains a mixture of attached, detached and/or semi detached units.

Delinquency

Failure to make payments on time.

Discount Points

See: Points

Documentation Level

The Feedback Certificate indicates the minimum level of documentation acceptable for a Loan Product Advisor® Mortgage.

Down Payment

Difference between the purchase price and the First Lien amount on a purchase transaction.

Draw

Process of obtaining an advance against an available line of credit.

Draw Period

Period during which a borrower can obtain advances (also called draws) from an available line of credit. At the end of the draw period, borrowers may be able to renew the credit line or be required to pay the outstanding balance in full or in monthly installments.

Due Date

Date on which the Borrower's monthly installment of principal, interest and where applicable, Escrow, is due as stated in the Note.

Due-on-Sale Provision

Provision in a mortgage home loan that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the loan.

de minimis correction

Minor amount not to exceed $500 (or such higher amount as the lender and Fannie Mae may agree) that, when remitted, refunded, or otherwise provided, corrects or otherwise resolves an identified significant defect.

debt

Borrowed money, the repayment of which may be either secured or unsecured, with various possible repayment schedules.

debt-to-income ratio

A ratio derived by dividing the borrower’s total monthly obligations (including housing expense) by his or her stable monthly income. This calculation is used to determine the mortgage amount for which a borrower qualifies. This term is used interchangeably with “total debt-to-income ratio” and “expense ratio.”

deed in lieu of foreclosure (or deed-in-lieu)

A transfer of title from a delinquent borrower to the lender in satisfaction of the mortgage debt to avoid foreclosure; also called a voluntary conveyance.

default

The failure to make a mortgage payment or to otherwise comply with one or more covenants of the mortgage.

defect

A loan-level deficiency that breaches a term contained in the Lender Contract in effect at the time of loan purchase or securitization.

defect rate

The number of loans, expressed as a percentage, reflecting the total loans with defects discovered in the loan review process divided by the total loans reviewed.

delinquency advance

An amount advanced by a lender in respect of interest or principal on one or more mortgage loans, as required by their servicing contract, even though the lender has not collected the actual funds from the related borrowers. A lender may reimburse itself for delinquency advances from subsequent collections in accordance with its servicing contract.

delivery versus payment settlement

Also called “delivery against funds” or “existing issue.” A settlement option for trades of existing MBS under which Fannie Mae will credit the lender’s account at the institution that wires the security to its trading desk as soon as the security is received.

demand

A repurchase or other remedy request issued by Fannie Mae to a responsible party to provide a specific remedy as provided in the Lender Contract.

demand deposit account

A bank account in which the funds are available for withdrawal at any time without penalty.

Demotech, Inc.

A company that establishes ratings for property and casualty insurance carriers and title insurance companies by evaluating their assets and liabilities.

Desktop Originator (DO)

A Web-based application that gives originators access to DU through a sponsoring lender.

Desktop Underwriter (DU)

Fannie Mae’s automated underwriting system.

designated threshold amount

A level of unsecured exposure an “in the money” party will accept before making a margin call on the “out of the money” party.

deterioration

See physical depreciation.

direct surety bond

A class of bond that is written to afford protection for the direct acts of the principal in the event of a loss caused by the principal’s negligence, lack of ability, or dishonest act.

disbursement date

The date the loan funds are disbursed for the subject mortgage. The disbursement date may occur on or after the note date.

discount

The amount by which the sales price of a note is less than its face value. The purpose of a discount is to adjust the yield upward in lieu of interest.

Document Certification

A Web-based application for document custodians to electronically submit whole loan and MBS pool certifications to Fannie Mae and the lender. It also can be used to give a warehouse lender notification about the lender’s wiring instructions.

document custodian

A financial institution that maintains custody of certain mortgage documents on behalf of Fannie Mae.

domestic partner

An unrelated individual who shares, and intends to continue sharing, a committed relationship with a borrower who signs the note.

due-on-sale provision

A provision in a mortgage that allows the lender to demand full payment of the outstanding balance if the mortgaged property is transferred without the lender’s permission.

Duff & Phelps Credit Rating Company

A company that, among other things, establishes ratings for title insurance companies by evaluating their assets and liabilities.

Earnest Money

Deposit made toward a down payment as a sign of good faith. The deposit is typically made when a purchase agreement is signed.

Encumbrance

Any lien or liability attached to a property that affects or limits the title to that property, for example unpaid taxes, mortgages and leases.

Equal Credit Opportunity Act (ECOA)

Federal law that requires lenders and other creditors to make credit available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs. Learn more about the ECOA

Equity

Difference between the fair market value (appraised value) of a home and the outstanding mortgage balances and other liens.

Escrow

Funds deposited with a third party, to be held until a specific date is reached and/or a specific condition is met.

Escrow Impound Account

Typically refers to an account set up by a lender in which funds to pay for real estate taxes and homeowners insurance are deposited as part of the borrower's monthly mortgage payment, then disbursed as tax and insurance payments come due.

Escrow Analysis

Periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance and other bills when due.

earnest money deposit

A deposit submitted with a purchase offer to show that the buyer’s offer is being made in good faith.

eBoutique

A Web-based application that supports the servicing of reverse mortgages.

economic obsolescence

See external depreciation.

electronic

Relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.

electronic imaging

A method of reproducing a facsimile of a document or photograph with a computer or another electronic device.

electronic mortgage (eMortgage)

A mortgage for which the promissory note and possibly other documents (such as the security instrument and loan application) are created and stored electronically rather than by using traditional paper documentation that has a pen and ink signature. Most (but not all) eMortgages typically consist of a paper security instrument and an electronic note. The terms “electronic mortgage,” “electronic mortgage loan,” “eMortgage,” and “eMortgage loan” used in this Guide have the same meaning.

electronic record

A contract or other record created, generated, sent, communicated, received, or stored by electronic means.

electronic signature

An electronic sound, symbol, or process, attached to or logically associated with, a contract or other record executed or adopted by a person with the intent to sign the record.

employer-assisted housing mortgage

Any mortgage for which a borrower’s employer is either offering mortgage payment assistance or providing down payment or closing costs assistance (through a grant, an unsecured loan, or a secured subordinate mortgage).

environmental hazard assessment

An evaluation of the environmental soundness of a project development based on information gathered from various sources. A Phase I assessment involves a screening process that focuses on reviewing available documentation, interviewing people knowledgeable about the project, and inspecting the site, the building, and adjoining properties. A Phase II assessment provides a more detailed review of the site (with specific physical sampling for each hazard that was not acceptable under the Phase I assessment) and a review of historical records to determine the presence or absence of specific environmental liabilities or to quantify the extent of an observed or suspected environmental liability.

errors and omissions coverage

A type of indirect loss insurance used to cover losses that occur because of an error or neglect on the part of an employee to whom a specific responsibility has been assigned.

escrow account

A trust account that is established to hold funds allocated for the payment of a borrower’s property taxes and assessments by special assessment districts, ground rents, insurance premiums, condo or homeowners’ association or planned unit development association dues and similar expenses as they are received each month in accordance with the borrower’s mortgage documents and until such time as they are disbursed to pay the related bills.

ESIGN

Electronic Signatures in Global and National Commerce Act. A federal law that gives broad legal effect to the use of electronic signatures and records in interstate commerce.

existing issue

See delivery versus payment settlement.

external depreciation (economic obsolescence)

A loss in value that is caused by negative influences that are outside of a property’s site, such as economic factors or environmental changes.

Fair Credit Reporting Act (FCRA)

Law passed by Congress to give borrowers certain rights when dealing with consumer reporting agencies, or credit bureaus. All credit bureaus are required to provide accurate credit histories to authorized businesses for use in evaluating applications for insurance, employment, credit or loans. Learn more about the FCRA

Fair Market Value

The likely selling price of a home. The fair market value is usually determined by an appraisal.

Fannie Mae

Federal National Mortgage Association, a government-sponsored enterprise that buys and securitizes mortgages for resale in the secondary market. Visit the Fannie Mae website

Federal Housing Administration (FHA)

An agency of the Department of Housing and Urban Development. The FHA provides mortgage insurance for certain residential mortgages. It also sets standards for underwriting these mortgages and for construction of homes secured by these mortgages. Visit the FHA website

Fee Simple

Clear and absolute ownership of a piece of property. The fee simple owner of a property has the right to use the land in any way desired, for example: build on it, sell it or lease it.

FHA Home Loan

Mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government loan. FHA mortgage insurance protects the lender (not the borrower) if a borrower defaults on the FHA loan. This insurance enables a lender to provide loan options and benefits often not available through conventional financing.

FICO®

An acronym for Fair Isaac Corporation, which develops the mathematical formulas used to produce credit scores for assessing credit risk. FICO scores fall between a low of 300 and a high of 850. The higher the FICO score, the lower credit risk a consumer presents.

Finance Charge

Cost of consumer credit expressed as a dollar amount. It includes the amount of interest paied during the terms of the loan, origination points and certain other items. Some closing costs are not treated as finance charges.

First Mortgage

Mortgage that is the senior lien against a property.

Fixed-Rate Mortgage

Home loan with a predetermined fixed interest rate for the entire term of the loan.

Fixed-Rate Loan Option

Option available on certain home equity lines of credit allowing borrowers to fix the payments and interest rate on a portion of their outstanding principal balance for a specific term. Customers may be charged a fee for this privilege.

Floating Rate

Loan rate for which the lender has not "locked" or committed to lend at a particular interest rate. The floating interest rate and any discount points are not guaranteed. The actual interest rate and discount points will be based on the market price available for the loan product at the time the interest rate is locked.

Flood Certification

Determination by a reputable source about whether property is located within a special flood hazard zone.

Flood Insurance

Insurance that protects against loss due to floods. When available, this type of insurance is required by law when a property is located within a special flood hazard zone.

Forbearance

Period during which monthly loan payments are temporarily suspended or reduced. During forbearance, principal payments are postponed but interest continues to accrue.

Foreclosure

Legal procedure in which property securing a defaulted loan is sold by the lender in order to repay a borrower’s loan. The amount paid by a buyer at the foreclosure may not be enough to fully repay the loan and the borrower may continue to owe the lender the difference.

Forfeiture

Loss of money, property, rights or privileges due to a breach of legal obligation.

Form 1098

Legal tax form that reports the amount of interest and points paid during the previous year.

Freddie Mac

Government-sponsored enterprise that buys and securitizes mortgages for resale in the secondary market. Visit the Freddie Mac website.

Funding Date

Date on which the proceeds from a loan are available to or disbursed for the benefit of the borrowers.

facsimile signatures

A form of signature that is electronically reproduced or copied in another acceptable manner. Such signatures are acceptable under certain conditions as long as they are valid and enforceable in the jurisdictions in which they are used.

factory-built housing

Prefabricated single-family housing (such as panelized, modular, or sectional housing), which is constructed in a factory (and, if applicable, in accordance with the building codes of the state in which the factory is located) and is subsequently joined together at a permanent building site, assumes the characteristics of site-built housing (such as permanent connections to water, electrical, and waste disposal systems), and is legally classified as real property. (Collectively, this term also may refer to manufactured homes. See the definition of that term for distinctions between the different types of factory-built housing.)

Fair Access to Insurance Requirement (FAIR) plan

A program established within a state to provide access to insurance for property owners in designated urban areas or specific beach and windstorm areas.

Fannie Mae

Federal National Mortgage Association.

Fannie Mae Connect

A Web-based application that allows lenders to access, view, and download reports on pools and whole loans submitted to Fannie Mae through Loan Delivery.

Fannie Mae losses

Losses, damages, penalties, settlements, liabilities, judgments, claims, counterclaims, defenses, actions, costs, expenses, attorneys' fees, and other legal fees (collectively, “Fannie Mae losses” or “losses incurred by Fannie Mae”).

Fannie Majors

See multiple pool.

Federal Emergency Management Agency (FEMA)

A federal agency that provides assistance in areas that have suffered a major disaster or other emergency. It also maintains flood insurance rate maps that identify the Special Flood Hazard Areas in which Fannie Mae requires flood insurance.

Federal Emergency Management Agency (FEMA) disaster area

A city, county, or parish designated by FEMA as eligible for individual assistance as a result of a natural disaster.

Federal Housing Administration (FHA)

FHA, also a part of HUD, provides mortgage insurance on loans made by FHA-approved lenders.

Federal Housing Finance Agency (FHFA)

The safety, soundness, and mission regulator for Fannie Mae. FHFA replaced the former regulator, the Office of Federal Housing Enterprise Oversight (OFHEO).

fee simple estate

An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condo project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.

FHA-insured mortgage

A mortgage by the FHA; may be referred to as a "government" mortgage.

fidelity bond

A type of bond that is obtained by an employer to protect against economic loss from dishonest acts of its employees.

fidelity/crime insurance

A type of insurance that a condo or PUD homeowners' association or a co-op corporation obtains to protect itself against economic loss from dishonest or fraudulent acts of anyone who either handles (or is responsible for) funds the association or corporation holds or administers, whether or not that individual receives compensation for services.

final project approval

The eligibility determination that is issued for a condo, PUD, or co-op project to indicate that the project's physical characteristics and marketability are acceptable to Fannie Mae, and that mortgages or share loans on units within the project may be delivered to Fannie Mae for purchase or securitization.

financed mortgage insurance premium

A mortgage insurance premium for which the borrower is not required to make an advance payment from his or her own funds. Rather, the amount required to pay for a lump-sum premium is financed by including it as part of the original mortgage amount.

Financial Institutions Reform, Recovery, and Enforcement Act

The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 modified federal laws governing thrift and bank regulation. Title XI of the Act includes real estate appraisal reform amendments.

first mortgage

A mortgage that is the primary lien against a property.

first-time home buyer

An individual is to be considered a first-time home buyer who (1) is purchasing the security property; (2) will reside in the security property as a principal residence; and (3) had no ownership interest (sole or joint) in a residential property during the three-year period preceding the date of the purchase of the security property. In addition, an individual who is a displaced homemaker or single parent also will be considered a first-time home buyer if he or she had no ownership interest in a principal residence (other than a joint ownership interest with a spouse) during the preceding three-year time period.

fiscal year

Any 12-month period used for financial reporting and preparation of balance sheets, profit and loss statements, and other financial summaries.

Fitch, Inc.

A credit rating agency that, among other things, assigns credit ratings to debt issuers and the debt instruments themselves, as well as to title insurance companies and custodial depositories by evaluating their assets and liabilities.

fixed installment

That portion of a mortgage payment that is applied toward principal and interest. When a mortgage negatively amortizes, the fixed installment does not include any amount for principal reduction.

fixed-rate mortgage

A mortgage that provides for only one interest rate for the entire term of the mortgage. Fannie Mae acquires fixed-rate mortgage loans that are fully amortizing.

flood insurance

Insurance that compensates for physical property damages resulting from flooding. It is required in federally designated Special Flood Hazard Areas.

Flood Insurance Rate Map (FIRM)

The official map of a community on which FEMA has delineated both the special hazard areas and the risk premium zones applicable to the community.

forbearance

Willingness to refrain, in full or in part, from pursuing remedies against a delinquent borrower for a period of time (specified or unspecified), but without modification of the loan terms. See also modification.

foreclosure

The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

Freddie Mac

Federal Home Loan Mortgage Corporation (FHLMC). A congressionally chartered corporation that purchases mortgage loans in the secondary mortgage market.

full payment amount

The monthly payment required, at each interest change date, to amortize the then outstanding principal balance of an ARM at the new interest rate over the remaining mortgage term.

fully amortizing ARM

An adjustable-rate mortgage that has a monthly payment sufficient to amortize the unpaid principal balance-at the interest accrual rate-over the mortgage term.

functional depreciation (obsolescence)

A loss in value that is caused by defects in the design of a structure or by changes in market preferences that result in some aspect of a property being considered obsolete by current standards.

Good Faith Estimate (GFE)

Itemized, detailed list of certain estimated costs associated with a home loan that the lender is required to provide to the borrower within 3 business days of the application.

Government Loan

Loan that is insured by the Federal Housing Administration (FHA), guaranteed by the Department of Veterans Affairs (VA) or guaranteed by the Rural Housing Service (RHS). The insurance protects the lender (not the borrower) if a borrower defaults on the loan. This insurance enables a lender to provide loan options and benefits often not available through conventional financing.

Government National Mortgage Association (GNMA or Ginnie Mae)

Government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA assumed responsibility for the special assistance loan programs formerly administered by Fannie Mae. Visit the Ginnie Mae website.

good delivery

The delivery of mortgage-backed securities to Fannie Mae’s trading desk at the parameters agreed on at the time of the trade and in an amount that meets the minimum trade requirements; the delivery of eligible portfolio mortgages that meet all of Fannie Mae’s legal and underwriting criteria and that satisfy the terms of the original cash commitment before the expiration date of the commitment.

government mortgage loan

A mortgage loan that is insured or guaranteed by a government agency. Examples include FHA-guaranteed mortgage loans, VA-insured mortgage loans, and RD-guaranteed mortgage loans.

ground rent

The amount of money that is paid for the use of land when title to a property is held as a leasehold estate, rather than as fee simple.

group home

A residential structure utilized for occupancy by persons with disabilities.

guaranty fee

Compensation that a lender pays Fannie Mae for the right to participate in the MBS program. The amount of the fee will differ depending on whether the lender selects the regular or special servicing option.

guaranty fee buydown

An agreement to reduce the guaranty fee remittance rate for an MBS mortgage below the contractual rate for the applicable servicing option and remittance cycle in return for the lender’s payment of a fee to Fannie Mae.

guaranty fee buyup

An agreement to increase the guaranty fee remittance rate for an MBS mortgage above the contractual rate for the applicable servicing option and remittance cycle in return for Fannie Mae’s paying a fee to the lender.

Guide

The Fannie Mae Selling Guide and Servicing Guide, as modified, amended, or supplemented from time to time.

gut rehabilitation project

A project that has been developed by rehabilitating an existing building and creating individual units. The building is stripped down to its shell and, as rehabilitated, contains all new mechanical equipment including heating, exhaust, insulation, roofing, plumbing, and electrical. Individual units and common areas have new interiors, fixtures, appliances, and flooring.

Hazard Insurance (a.k.a. Homeowners' Insurance)

Insurance coverage available for owner-occupied properties to protect against personal liability and physical property damages for a dwelling and its contents. Usually, homeowners' insurance protects a home against damage from fire, hurricanes and other catastrophes, theft and vandalism, as well as personal liability in case someone is hurt or injured on a property. A lender will require to be named as a payee under the insurance.

Home Equity Line of Credit (HELOC)

Line of credit secured by the borrower's residence. The typical HELOC term is 30 years: a 10-year draw period followed by a 20-year repayment period. A HELOC is often used for home improvements, debt consolidation or other major expenses. In most cases, they can withdraw funds up to the available credit limit for the first 10 years (the draw period) using convenience checks, debit cards or money transfer via Online Banking.

Homeowners' Insurance (a.k.a. Hazard Insurance)

Insurance coverage available for owner-occupied properties to protect against personal liability and physical property damages for a dwelling and its contents. Usually, homeowners' insurance protects a home against damage from fire, hurricanes and other catastrophes, theft and vandalism, as well as personal liability in case someone is hurt or injured on a property. A lender will require to be named as a payee under the insurance.

HUD

An acronym for the U.S. Department of Housing and Urban Development. HUD is a government agency responsible for the implementation and administration of housing and urban development programs. Among other things, HUD administers the Federal Housing Administration, enforces RESPA regulations and oversees Fannie Mae and Freddie Mac. Visit the HUD website.

higher-priced mortgage loan

A mortgage loan that meets the corresponding definition under Regulation Z of the Truth in Lending Act. Only principal residences are included in this category.

higher-priced covered transaction

A mortgage loan that meets the corresponding definition under Regulation Z of the Truth in Lending Act, and applies to both principal residences and second homes.

home equity combined-loan-to-value ratio (HCLTV)

A ratio that is used when a mortgage financing package includes home equity lines that are potential liens; a ratio that is developed by dividing the sum of the original loan amount of the first mortgage, the amount of the HELOC (whether or not there have been any draws), and the unpaid principal balance of all other subordinate financing by the lower of the property’s sales price or appraised value.

home equity line of credit (HELOC)

A mortgage loan, which is usually in a subordinate position, that allows the borrower to obtain cash advances at his or her discretion, up to an approved amount that represents a specified percentage of the borrower’s equity in a property.

homeowners’ association (HOA)

An entity formed to manage the day-to-day operation and long term interests of residential dwelling communities, including condo, co-op, and PUD projects. The HOA is typically created and vested with specific roles, responsibilities, and rights by the project’s legal documents in compliance with applicable laws. For Fannie Mae’s purposes, the term “HOA” includes a homeowners’ association, a common interest community association, a cooperative corporation, and other similar entities.

HomePath property

A HomePath property is a property that was owned and sold by Fannie Mae through a transaction resulting in the disposition of its real estate owned.

HomeReady

Fannie Mae’s flexible, affordable lending product designed to meet the needs of low- to moderate-income homebuyers and homeowners. HomeReady is a standard product with underwriting recommendations available through DU and manual underwriting.

HomeStyle Renovation Mortgage

Mortgage type enabling eligible borrowers to obtain financing to renovate, remodel, repair, or upgrade their existing home or a home that they are purchasing.

Housing Expense Ratio

Ratio derived by dividing the borrower’s housing expense by his or her stable monthly income.

HUD-1

HUD-1 Settlement Statement. See Settlement Statement

HUD-Guaranteed Mortgage

A mortgage guaranteed under Section 184 of the Housing and Community Development Act of 1992, which created the Native American Housing Loan Guarantee Fund.

Judgment

Decree by a court of law that one person is indebted to another for a specified amount. In some states, the court may place a lien against the debtor’s real property as collateral for payment of the judgment to the creditor.

Jumbo Loan

Also known as a nonconforming loan. The amount of the loan exceeds standards that would make it eligible for sale to Fannie Mae and Freddie Mac. Certain geographical areas have temporary conforming loan limits higher than typical conforming limits. Lenders may charge additional fees and place certain restrictions due to the large loan amounts.

Impound Account

See: escrow impound account

Impounding

Collection and placement of monies by a lender into an account in order to pay the borrower’s property taxes and insurance premiums when they become due.

Income

Regular income from earnings, commissions, investments, rental payments or other sources.

Income Property

Real estate developed or improved to produce income.

Index

When used in a mortgage note or credit agreement, a financial index is the measurement used to decide how much the annual percentage rate will change at the beginning of each adjustment period. Generally, the index plus or minus margin equals the new rate that will be charged, subject to any caps. Lenders use various financial index rates: London Interbank Offered Rate [(LIBOR and Treasury-Indexed ARMs (T-Bills)]

Inflation Rate

Increase in price of consumer goods, usually expressed as a percentage over a specific period of time.

Initial Advance

Process of obtaining an advance against available credit under a line of credit.

Initial draw amount

Proceeds of the home equity line of credit or construction loan up to an amount the borrower is allowed to request at closing.

Initial rate

Starting interest rate. Some people call this the “teaser rate,” because it gives a low interest and low monthly payments at the beginning, but may adjust up at the next adjustment period (it will usually adjust even if the index doesn’t go up, since it’s lower than index plus margin for the initial period).

Inquiry

Request for a credit report, made by a company considering an offer of credit.

Installment Loan

Loan that is repaid in equal payments, known as installments.

Insurance

Contract that provides compensation for specific losses in exchange for a periodic payment. An individual contract is known as an insurance policy, and the periodic payment is known as an insurance premium.

Insurance Binder

Document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.

Insured Mortgage

Mortgage that is protected by an insurer in case of default. The insurance protects the lender (not the borrower) if a borrower defaults on the loan.

Interest Accrual Rate

Percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.

Interest-Only Loan

Loan for which the payment is only the interest due for a portion of the loan term. This lowers the periodic payment but does not decrease the principal balance on the loan. Making interest-only payments will result in larger payments being due at the end of the interest-only payment period. See also: Balloon loan

Interest Rate

Annual cost of a loan to a borrower, usually expressed as a percentage. The interest rate does not include fees charged for the loan. See also: Annual percentage rate (APR)

Interest Rate Buydown

See: Buydown

Interest Rate Cap (a.k.a. Cap)

Limit on how much a variable interest rate can increase. Many adjustable-rate mortgages have both annual (or semiannual) rate caps and lifetime caps. They limit the amount payments can increase in an adjustment period and over the life of the loan. Many caps allow a rate increase of 2-5% over the starting interest rate in an adjustment period (for example, a starting rate of 5% could increase to 7% or, depending on the loan guidelines, to as much as 10%). A lender’s lifetime interest rate cap is typically 6% over the life of the loan.

Interest Rate Differential (a.k.a Yield Difference)

Difference between Fannie Mae’s required yield and the net note rate of an ARM. Fannie Mae limits the amount of this difference.

Investment Property

Property that is purchased to generate rental income, or to be sold once it has appreciated in value.

impasse process

An option available to an eligible lender to use to resolve loan-level disputes that were not resolved through the appeal process.

inclusionary zoning

A practice by which state or local governments impose zoning restrictions that require a specified percentage of new development in a designated area to be set aside to provide housing for low- and moderate-income persons.

income approach to value

A method of measuring the value of a property based on the market rent or income that the property can be expected to earn.

Independent Dispute Resolution (IDR)

IDR is a process that is available for eligible lenders to use to resolve loan-level disputes that were not resolved through the appeal, impasse, or management escalation processes.

index

A number used to compute the interest rate for an ARM. The index is generally a published number or percentage, such as the average interest rate or yield on U.S. Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM. This interest rate is subject to any caps on the maximum or minimum interest rate that may be charged on the mortgage, as stated in the note.

index disclosed to the borrower

The value of the selected index for an ARM that is given to the borrower when the mortgage is closed. When subsequent index values differ from this value, it reflects changes in market conditions.

in-file credit report

An objective account, normally computer-generated, of credit and public record information obtained from a credit repository.

initial interest rate

The original interest rate of the mortgage when it is closed. This rate (which is often referred to as the “start rate”) changes for adjustable-rate mortgages. Also referred to as the initial note rate.

installment debt

Borrowed money that is repaid in several successive payments, usually at regular intervals, for a specific amount and for a specified term (for example, an automobile loan or a furniture loan).

installment land contract

An agreement to transfer title to a property once conditions of the contract have been fulfilled. Also known as a contract or bond for deed.

institutional lender

A financial institution that invests in mortgages and keeps them in its own portfolio.

inter vivos revocable trust (or living trust)

A trust that an individual creates during his or her lifetime that becomes effective during his or her lifetime, but which can be changed or canceled at any time for any reason during its creator’s lifetime.

interest accrual rate

The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.

interest rate buydown plan

An arrangement wherein the property seller or any other party deposits money to an account so that it can be released each month to reduce the borrower’s payments during the early years of a mortgage. During the specified period, the borrower’s effective interest rate is “bought down” below the actual mortgage interest rate.

interest rate cap

For an adjustable-rate mortgage (ARM), a limitation on the amount the interest rate can change per adjustment or over the lifetime of the loan, as stated in the note.

interest rate change date

The date on which the mortgage interest rate changes for an ARM; the date on which interest begins to accrue at a new rate for an ARM MBS pool.

interest rate change interval

The period that elapses between interest rate change dates for an ARM.

interest rate differential

See yield difference.

interest rate shortfall

The interest rate shortage that occurs when Fannie Mae’s return on a mortgage (the net note rate) is less than Fannie Mae’s required yield.

interested party contributions

Costs that are normally the responsibility of the property purchaser that are paid (directly or indirectly) by someone else who has a financial interest in, or can influence the terms and the sale or transfer of, the subject property. These persons or entities include, but are not limited to, the property seller, the builder/developer, and the real estate agent or broker (or an affiliate who may benefit from the sale of the property and/or the sale of the property at the highest price possible).

intermediate-term mortgage

A mortgage that amortizes over an original term from 10 to 20 years.

investor-purchased mortgage insurance

Mortgage insurance coverage obtained by Fannie Mae after the purchase of a mortgage; a type of financial backing used for some second mortgages in lieu of borrower-purchased or lender-purchased mortgage insurance.

issue date

The first day of the month in which MBS backed by an MBS pool of mortgage loans are issued.

issue date principal balance

The principal balance of each mortgage in an MBS pool after crediting the principal portion of any monthly payments due on or before the issue date for the related MBS (whether or not it was actually collected) and after crediting any unscheduled partial payment or other recovery of principal received on or before the issue date (as long as it was not accompanied by payment of an interest amount that represented scheduled interest due for the month after the payment was made).

Kroll Bond Rating Agency, Inc. (Kroll)

A nationally recognized statistical rating organization that, among other things, provides independent financial strength ratings for title insurance companies and for regulated depositories in the U.S. based upon their financial information.

Liabilities

Debts or financial obligations includes long-term and short-term debt, as well as potential losses from legal claims.

Liability Insurance (a.k.a. Homeowners' Insurance)

LIBOR

London Interbank Offering Rate; an index commonly used for some adjustable-rate mortgages (ARMs).

Lien

Legal claim of a creditor on a borrower’s property, to be used as security for a debt.

Lien Holder

Individual or entity that has placed a lien on real property.

Lifetime Adjustment Cap

Limit on how much the variable interest rate can increase during the term of a loan.

Line of Credit

Agreement by a lender to extend credit up to a maximum amount for a specified time. In a home equity line of credit, the line of credit is secured by the borrower’s home. Learn more about a home equity line of credit

Loan Commitment

Formal notification from a lender stating that the borrower’s loan has been conditionally approved and specifying the terms under which the lender agrees to make the loan.

Loan Estimate (LE)

Disclosure to help consumers understand the key loan terms and estimated costs of a mortgage before they make a complete application. After a consumer submits 6 key elements: name, income, social security number, property address, estimated property value and desired loan amount, the lender is required to provide this form. All lenders are required to use the same standard loan estimate form to make it easier for consumers to compare and shop for a mortgage.

Loan Modification

Changes to one or more of the terms of a loan.

Loan Origination

Process by which a mortgage lender makes a home loan and records a mortgage against the borrower’s real property as security for repayment of the loan.

Loan Term

See: Term

Loan-to-Value Ratio (LTV)

Ratio between the unpaid principal amount of the loan, or credit limit in the case of a line of credit, and the appraised value of the collateral. Expressed as a percentage. For example, an $80,000 first mortgage on a property with an appraised value of $100,000, the LTV is 80% ($80,000 / $100,000 = 80%).

Lock Period

Amount of time prior to closing that the interest rate is secured. Lock periods typically range from 30 days to more than 90 days. Generally, the longer the lock period, the more paid in points or interest.

late charge

A penalty that a borrower must pay when a mortgage payment is made a stated number of days (usually a minimum of 15) after its due date.

last paid installment date

The due date of the last paid installment that had been collected for the mortgage.

lease

A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time and rent.

leasehold estate

A way of holding title to a property wherein the borrower does not actually own the property but rather has a recorded long-term lease on it.

lender-purchased mortgage insurance

Mortgage insurance coverage for a conventional mortgage loan that the lender pays for by using its own funds, rather than requiring the borrower to include periodic accruals for such coverage as part of his or her mortgage payment.

liability insurance

Insurance coverage that offers protection against claims alleging that a property owner’s negligence or inappropriate action resulted in bodily injury or property damage to another party.

limited cash-out refinance

A refinance transaction in which the mortgage amount generally is limited to the sum of the unpaid principal balance of the existing first mortgage, closing costs (including prepaid items), points, and the amount required to satisfy any mortgage liens if the documented proceeds of the subordinate financing were solely used to acquire the property (if the borrower chooses to satisfy them), and other funds for the borrower’s use (as long as the amount does not exceed the lesser of $2000 or 2% of the principal amount of the new mortgage).

limited liability company (LLC)

A flexible form of business enterprise that blends elements of partnership and corporate structures.

living trust

See inter vivos revocable trust.

loan amount

The original amount of the loan as indicated by the note; also known as the original loan amount or original principal balance.

Loan Delivery

A Fannie Mae Web-based application that allows a lender to electronically prepare, edit, and transmit information from the Schedule of Mortgages for various MBS pool purchase transactions and whole loan/cash deliveries.

loan estimate

A form required by federal law that provides disclosures to borrower(s) to help them understand the key features, costs, and risks of the mortgage loan for which they are applying. References to the “loan estimate” include the Loan Estimate and Good Faith Estimate forms, as applicable, based on the application date of the mortgage loan.

Loan Quality Center (LQC)

A division of Fannie Mae that reviews acquired loans to confirm that the loans meet underwriting and eligibility requirements.

loan-level price adjustment (LLPA)

LLPAs are assessed based on certain eligibility or other loan features, such as credit score, loan purpose, occupancy, number of units, product types, etc. For whole loan transactions, LLPAs will be deducted from (or credited to) the loan proceeds.

loan-to-value (LTV) ratio

The relationship between the original loan amount of the first mortgage and the property’s appraised value (or sales price, if it is lower).

long-term standby purchase commitment

A negotiated structure that enables a lender to reduce its credit exposure by paying a monthly commitment fee on an identified portfolio of mortgages in exchange for the lender’s agreement to deliver on a mandatory basis, and Fannie Mae’s agreement to purchase any mortgage at par should it become a specified number of months delinquent after the date of the commitment.

look-back period

The date on which the index value that will be used to establish the next interest rate change for an ARM is determined. It is a specified number of days (at least 45) before the interest rate change date.

losses incurred by Fannie Mae

See Fannie Mae losses.

Negative Amortization

Results when monthly payments don’t cover all the interest due on the loan. The unpaid interest is added to the unpaid balance, which means the homebuyer will owe increasingly more than the original amount of the loan.

New Line Amount

Sum of the existing credit line and the amount of additional credit requested.

No Closing Cost Loan

Loan in which the borrower is not required to pay cash out-of-pocket at closing for the normal closing costs. The lender typically includes the closing costs in the principal balance or charges a higher interest rate than for a loan with closing costs to cover the advance of closing costs.

Nonconforming Loan

See: Jumbo loan

Non-owner Occupied

Properties in which the owner does not live.

Note

Written agreement in which the signer promises to pay to a named person or company a specific sum of money at a specified date or on demand.

Note Rate

Interest rate stated in a mortgage note.

Notice of Default

Formal written notice to a borrower that a default has occurred and that legal action may be taken.

National Credit Union Administration (NCUA)

The regulator of the credit union industry.

net cash flow

The income that remains for an investment property after the monthly operating income is reduced by the monthly housing expense (which includes PITI for the mortgage, homeowners’ association dues, leasehold payments, and subordinate financing payments).

net mortgage ceiling

The mortgage ceiling for an adjustable-rate mortgage after the minimum servicing fee has been subtracted.

net mortgage interest rate

The mortgage interest rate less the lender’s servicing spread (which may be a minimum servicing fee plus any excess yield or a servicing fee and a guaranty fee, depending on whether the mortgage is a portfolio mortgage or an MBS mortgage).

net mortgage margin

The mortgage margin shown in the ARM note and rider after the minimum servicing fee has been subtracted.

net note rate

The mortgage interest rate after the applicable servicing fee and any guaranty fee for Fannie Mae’s various product types have been subtracted.

net worth

The value of all of a company’s (or individual’s) assets—including cash—less its total liabilities. It is used to indicate financial strength.

newly converted project

A condo or co-op project that was converted from an apartment or other use is defined as a newly converted project until it fully meets Fannie Mae’s definition of an established project.

non-gut rehabilitation

A project that has been developed by rehabilitating an existing building and converted into individual units. The building, its mechanical equipment, and individual units typically have not been substantially rehabilitated or replaced.

Manufactured Housing

Structure that has been partially or entirely constructed at another location and moved onto the property (on a permanent foundation). A manufactured home may or may not be a mobile home.

Margin

Number of percentage points the lender adds to or subtracts from the index rate to determine the interest rate adjustments. The margin is constant throughout the life of the mortgage and is specified in the promissory note.

Maturity Date

Date on which the outstanding principal, interest and fees on a loan must all be repaid.

Mobile Home

Type of residence that’s built upon a wheeled chassis and can be transported from site to site.

Modular Home

Factory-built home that’s erected on-site, with the appearance and characteristics of a site-built residence.

Mortgage

Legal document giving a lender a lien on real estate to secure repayment of a loan. Mortgage loans generally run from 10 to 30 years, after which the loan is required to be paid off. Also called deed of trust and/or security deed.

Mortgage Insurance

For conventional loans, insurance that protects the lender if a default occurs on the loan. If the down payment is less than 20%, most lenders will require mortgage insurance. Also called private mortgage insurance (PMI).

Mortgage Points

See: Points

Mortgage Type

Generally, there are three basic mortgage programs: Federal Housing Administration (FHA) loans, Department of Veterans Affairs (VA) loans and conventional mortgage loans. VA loans are only offered to qualifying veterans and surviving spouses, while FHA loans are available to all qualifying borrowers. Both VA and FHA loans are guaranteed/insured by the federal government. This insurance protects the lender (not the borrower) should the borrower default and the lender sustains a loss. Conventional loans are available to all qualifying borrowers and are not insured or guaranteed by the federal government.

Multi-Family Residence (2 to 4 units)

Residential property with 2 to 4 individual housing units (duplex, triplex or quadplex).

make whole payment

The amount that a party responsible for a breach of a selling representation or warranty or a servicing breach must pay Fannie Mae so that Fannie Mae does not incur a loss on the mortgage or the property.

management escalation process

An option available to an eligible lender to use to resolve loan-level disputes that were not resolved through the appeal or impasse processes.

mandatory delivery commitment

A whole loan commitment that generally requires the lender to deliver eligible mortgages equal to at least the minimum required delivery amount (which is an amount that will not be less than the original commitment amount by more than $10,000 or 2.5% of the original amount) by the expiration date of the commitment.

margin

The amount that is added to an index value to create the mortgage interest rate for an ARM; an amount (expressed as a percentage) that is used in the calculation of the purchase price for an As Soon As Pooled transaction.

margin call

When two parties have entered into one or more MBS trades, one party has the right to request funds from the other party due to a change in the market value of the securities. The right of one party to make a margin call on another party may be subject to a designated threshold amount and minimum transfer amount.

market data approach

See sales comparison approach to value.

market-rate option

A post-conversion disposition option that allows the lender to determine whether it wants to redeliver a repurchased convertible adjustable-rate mortgage that was in an MBS pool to Fannie Mae following its conversion to a fixed-rate mortgage or to retain the repurchased mortgage for its portfolio.

Master Agreement

A negotiated contract that enables lenders to submit multiple transactions—both standard and negotiated—under the terms of a single agreement. Terms are specifically negotiated with each lender.

master association

A governing association in a large condo or PUD community that is made up of representatives from associations covering specific areas within the project. In effect, it is an “umbrella” association that handles matters affecting the entire development, while the “sub” associations handle matters affecting their particular portions of the project.

master servicer

A Fannie Mae approved servicer that is contractually obligated to service one or more mortgage loans for Fannie Mae and has contracted with a subservicer under a subservicing arrangement.

maximum claim amount

The lesser of the appraised value of a property and the maximum loan amount that FHA can insure for a one-unit residence in the area where the property is located; a component that is used in determining the borrower’s principal limit for an FHA home equity conversion mortgage.

maximum pool accrual rate

The maximum interest rate that can accrue on an ARM MBS pool. For stated-structure ARM MBS pools, it must be evenly divisible by 0.125% and must be less than or equal to the lowest mortgage interest rate ceiling in the pool (after appropriate deductions have been made for the guaranty fee and the minimum servicing fee).

maximum weighted-average pool accrual rate

The weighted average of the mortgage interest rate ceilings (less the lender’s retained spread) of the mortgages in a weighted-average ARM MBS pool.

MBS Express pool

An MBS pool for which the servicer remits “unscheduled” principal payments to Fannie Mae on the 4th business day of the month and “scheduled” principal and interest payments on the 18th calendar day (or the preceding business day if the 18th is not a business day).

MBS Express remittance cycle

A payment cycle used for scheduled/scheduled remittance types for MBS pools that has two different remittance dates—one for unscheduled principal payments and one for scheduled principal and interest payments.

MBS margin

One of the factors used to establish the pool accrual rate for an ARM MBS pool on each interest rate change date. For stated-structure ARM MBS pools, it is the difference between the lowest mortgage margin in the pool and the sum of the guaranty fee and the minimum servicing fee. For weighted-average ARM MBS pools, the MBS margin may be a fixed margin that the lender specifies or a weighted-average margin. A “fixed” MBS margin is attained by varying the servicing fee for individual mortgages to equalize the differences in their mortgage margins. A “weighted-average” MBS margin is attained by reducing the various mortgage margins by the applicable guaranty fee and a fixed servicing fee that the lender specifies, thus developing a different MBS margin for each mortgage.

MBS pool

All of the mortgages or participation interests in mortgages (delivered under one or more contracts) that will secure an individual issuance of MBS.

MBS pool delivery

Group or groups of mortgages (or participation interests in mortgages) delivered by a lender for the purpose of creating a pool to back an MBS issuance. These deliveries are accepted in one or more pool purchase transactions, rather than being accepted as individual mortgages (or participation interests) to be held in Fannie Mae’s portfolio. Deliveries under this program are, therefore, referred to as MBS pool deliveries.

MBS mortgage

A mortgage or participation interest in a mortgage that is part of an MBS pool.

Megas

A pass-through security backed by groups of existing Fannie Mae MBS or other existing Megas.

minimum borrower contribution

The minimum borrower contribution is an amount of funds described as a percentage that is generally required to be paid toward the down payment, closing costs, and financial reserves. The contribution may be required from the borrower’s own funds or in some cases from other eligible sources of funds.

minimum coupon rate

The rate of interest due Fannie Mae for a participation pool, which ensures that Fannie Mae receives the required yield and the servicer receives an appropriate servicing fee; it is generally derived by multiplying the required commitment yield by Fannie Mae’s percentage interest in the pool and then adding the applicable minimum servicing fee to the result.

minimum transfer amount

A specified amount of money that must be exceeded before a margin call can be made.

mixed use project

A project comprised of residential and non-residential (commercial) space, often featuring separate associations that represent the different components.

modification

The act of changing any of the terms of the mortgage by agreement between the borrower and the note holder.

monthly operating income

Income from the rental of an investment property that is determined by reducing the annual effective gross income for the property by the annual operating expenses and dividing the result by 12. This calculation is used to determine whether a borrower who will occupy one unit of a two- to four-unit property as his or her principal residence qualifies for a mortgage.

monthly payment

The monthly payment of principal and interest collected by mortgage lenders. This may also include escrow items for taxes and insurance and is therefore called the housing payment.

monthly payment mortgage

A mortgage that requires payments to reduce the debt once a month.

monthly remittance

The total of the interest and principal distribution amounts that a lender is obligated to remit to Fannie Mae on each remittance date. For scheduled/scheduled remittance types, this represents scheduled principal reductions and scheduled interest accruals, whether or not payments were collected from the borrowers. For scheduled/actual remittance types, this represents scheduled interest accruals (whether or not payments were collected from the borrowers) and actual principal collections.

Moody’s Investors Service

A credit rating agency that, among other things, assigns credit ratings to debt issuers and the debt instruments themselves, as well as to title insurance companies and custodial depositories, by evaluating their assets and liabilities.

mortgage

Collectively, the security instrument, the note, the title evidence, and all other documents and papers that evidence the debt (including the chattel mortgage, security agreement, and financing statement for a co-op share loan).

mortgage-backed security (MBS)

An investment instrument that represents an undivided interest in a pool of mortgages.

mortgage impairment insurance

A type of insurance coverage that protects the lender against the lack or inadequacy of insurance coverage for a specific mortgage if the lender is not directly responsible for the insufficiency.

mortgage insurance (MI)

A financial backing type under which a private insurer (and sometime a state or local entity) insures the mortgagee against losses from borrower default, by agreeing to cover a percentage of the losses in return for the payment of a specified mortgage insurance premium.

mortgage interest rate

The rate of interest in effect for the periodic installment due. For fixed-rate mortgages or for ARMs that have an initial fixed-rate period, it is the rate in effect during that period. For ARMs after any initial fixed-rate period, it is the sum of the applicable index and the mortgage margin (rounded as appropriate and subject to any per-adjustment or lifetime interest rate ceilings).

mortgage interest rate ceiling

For an ARM, the maximum interest rate over the life of the loan. It is determined by applying a “lifetime cap” to the initial mortgage interest rate.

mortgage loan

An individual secured loan that is sold to Fannie Mae as a whole loan or in a pool of mortgages underlying Fannie Mae-guaranteed MBS. The term includes a participation interest in a mortgage loan where context requires. In this Guide, a mortgage loan also may be referred to as a mortgage or a loan.

mortgage margin

The amount that is added to the index value to establish the mortgage interest rate on each interest rate change date (subject to any limitations on the interest rate change) for an ARM.

mortgage note

The note or other evidence of indebtedness for a mortgage loan.

Mortgage Selling and Servicing Contract (MSSC)

The contract that establishes the basic legal relationship between a lender and Fannie Mae.

mortgagee interest insurance

See mortgage impairment insurance.

multi-dwelling units

Properties that provide separate housing units for more than one family, although they secure only a single mortgage; e.g., two to four units.

multifamily mortgage

A residential mortgage on a dwelling that is designed to house more than four families, such as a high-rise apartment complex.

multiple pool

An MBS pool that consists of pools of mortgages delivered by more than one lender; also called Fannie Majors.

multiple pool transaction

An MBS transaction in which mortgages delivered by several individual lenders are combined into one large pool for the sole purpose of backing all or part of an issuance of MBS.

multiwidth manufactured home

A manufactured home that is created by joining two or more single-width sections that are built and towed separately to the site and joined together to create one living unit. Typical models are 24 feet wide and 60 feet long, offering about 1,400 square feet of living area.

municipal utility districts

See special assessment districts.

Option ARM

Type of adjustable-rate mortgage (ARM) that offers the borrower a choice of 4 monthly payment options to help provide financial flexibility to manage payments in rising rate markets and take advantage of falling interest rates.

Origination or Origination Date

Date on which a loan is funded or disbursed.

Origination Fee

Fee imposed by a lender to cover certain processing expenses in connection with making a mortgage loan. Usually a percentage of the amount loaned (often 1%). The origination fee is stated in the form of points. See also: Points

Owner Financing

Property purchase transaction in which the property seller provides all or part of the financing.

Owner-Occupied

Property that the owner occupies as a principal residence.

obsolescence

See functional depreciation.

operating expenses

The costs of maintaining an investment property, such as expenses for electricity, gas, fuel oil, water/sewer, trash removal, pest control, license fees, painting/decorating, general repairs/maintenance, supplies, casual labor, professional management fees, and replacement reserves.

original issue settlement

The standard settlement option for a newly originated MBS, which results in the mortgage-backed security being assigned directly to Fannie Mae when the pools are delivered, and subsequently being delivered to the trading desk (which will wire the funds to pay for the security to the lender on the settlement date).

original loan amount

See loan amount.

origination fees

The fee(s) charged by a lender to prepare loan documents, make credit checks, inspect, and sometimes appraise a property. The fee(s) are usually computed as a percentage of the face value of the mortgage.

Payment Cap

Limit on how much a monthly payment can increase at any one time. Some adjustable-rate mortgages have payment caps in addition to annual (or semi-annual) interest rate caps and lifetime interest rate caps. Payment caps don’t limit the amount of interest charged and may cause negative amortization. See also: Interest rate cap

Payment Change Date

Date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM). Generally, the payment change date occurs in the month immediately after the interest rate adjustment date. The borrower is notified 30 days before the new rate and payment take effect.

Payoff

Payment of the outstanding balance of a loan in full. Also, the amount required to pay the outstanding balance in full.

Per Diem Interest

Amount of interest that accrues daily on a loan. This is calculated by multiplying the outstanding loan balance by the annual rate of interest, then dividing the result by 365.

PITI

An acronym for principal, interest, taxes and insurance. Also referred to as the monthly housing expense.

Points

Amount paid to the lender, typically at closing, to lower (or buy down) the interest rate. One discount point equals one percentage point of the loan amount. For example, 2 points on a $100,000 mortgage would cost $2,000. Negative points indicate the amount to be credited at closing to reduce closing costs. Also called discount points or mortgage points.

Preapproval

Lender’s conditional agreement to lend a specific amount of money to a homebuyer under a specified set of terms.

Prearranged Refinancing Agreement

Formal or informal arrangement between a lender and a borrower where the lender agrees to offer special terms (such as a reduction in the rate or closing costs) for a future refinancing as an inducement for the borrower to enter into the original mortgage transaction.

Preforeclosure sale

See: Short sale

Prepaid Expenses

Expenses that are usually paid in advance, such as escrows for taxes and insurance (which are paid at closing).

Prepaid Interest

Interest collected at closing of a first mortgage, covering the period from the date of disbursement to the start of the next payment period.

Prepayment

Amount paid to reduce the principal balance of a loan before the principal is due.

Prepayment Penalty (a.k.a. Account Termination Fee)

Penalty assessed by some lenders if a loan is paid off before the specified term. This is a lump-sum amount due and payable in addition to the loan balance, and is usually limited to the early years of a mortgage.

Pre-Qualification (a.k.a. Affordability Analysis)

Process of providing financial and other information (such as employment history and proposed collateral) by a prospective borrower in order for the lender to preliminarily estimate how much the borrower may obtain for the purchase of a home. A prequalification is not a commitment to lend.

Prime Rate

Interest rate that banks charge their best customers when lending them money. The U.S. Prime Rate, as published daily by The Wall Street Journal, is based on a survey of the prime rates of the 10 largest banks in the United States. The U.S. Prime Rate is used by some financial institutions to calculate variable interest rates for credit cards. Changes in the U.S. Prime Rate influence changes in other rates, including mortgage interest rates.

Principal & Interest

Principal is the amount of money borrowed on a loan. The interest is the charge paid for borrowing money. Principal and interest account for the majority of the mortgage payment, which may also include escrow payments for property taxes, homeowners insurance, mortgage insurance and any other costs that are paid monthly, or fees that may come due.

Principal Balance

Unpaid portion of the loan amount. The principal balance does not include interest or any other charges.

Principal Payment

Portion of the monthly payment that reduces the principal balance of a home loan. This term also refers to prepayments made to the principal balance.

Private Mortgage Insurance (PMI)

See: Mortgage insurance

Processing Fee

Fee charged to cover the administrative costs of processing a loan request.

Promissory Note

Written promise to repay a specified amount over a specified period of time.

Purchase Agreement

Written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

pair-off

A process under which a lender that is unable to meet the terms of a mandatory delivery commitment either pays Fannie Mae a fee or, under certain circumstances for whole loan transactions, receives cash back from Fannie Mae, calculated against the unused portion of the commitment.

par

The face value of the mortgage (the unpaid principal balance) equals its selling price (100%—there are no discounts or premiums).

participation certificate

The instrument that evidences an undivided interest in mortgages and obligations secured thereby.

participation interest

An individual interest in a mortgage, as specified in the applicable participation certificate.

pass-through rate

The rate at which interest is paid to Fannie Mae for a mortgage. For mortgages held in Fannie Mae’s portfolio, it is the lower of the required yield or the mortgage interest rate after deduction of a minimum servicing fee.

payee code

A number used to identify warehouse or wire transfer banks, which the lender places on its loan schedule for cash deliveries to ensure that purchase proceeds are sent to the appropriate party (if they are to be paid to anyone other than the lender).

payment change date

The date on which the payment changes for an ARM; the effective date that a new amount is due from a borrower. It must fall in the month immediately following an interest rate change date (unless an ARM provides for the monthly payment to change more frequently than the interest rate).

payment rate

The percentage rate used to calculate the mortgage payment when the payment will not fully amortize the mortgage. It differs from the interest accrual rate.

paystub

A paystub, pay slip, pay advice, paycheck notice, or payroll earnings statement is a document produced by the borrower's employer and provided to the borrower that evidences the borrower's income. Paystubs typically detail the gross income and all taxes and other deductions, such as retirement plan contributions, insurance, garnishments, or charitable contributions taken out of the gross amount for the current pay period. Paystubs generally include year-to-date earnings.

physical depreciation (deterioration)

A loss in value that is caused by deterioration in the physical condition of a property’s improvements.

planned unit development (PUD)

A real estate project in which each unit owner has title to a residential lot and building and a nonexclusive easement on the common areas of the project. The owner may have an exclusive easement over some parts of the common areas (for example, a parking space). Fannie Mae does not purchase or securitize mortgages secured by PUD projects; it does purchase or securitize mortgages on individual units in a project.

pool

A collection of mortgages (or participation interests) delivered pursuant to one or more pool purchase contracts that secure an individual issuance of MBS.

pool accrual rate

The rate of interest that accrues to the security holder of a stated-structure ARM MBS pool. It is subject to change in accordance with adjustments to the index.

pool issue date

The first day of the month in which MBS are issued.

pool purchase contract

A contract between Fannie Mae and a lender to buy and sell mortgages or participation interests for inclusion in an MBS pool. It will be uniquely identified by a pool purchase contract number that appears on its face.

pool purchase transaction

Any MBS transaction between Fannie Mae and a lender in which Fannie Mae purchases a group of mortgages or participation interests from the lender for the sole purpose of backing all or part of an issuance of MBS.

pool transaction amount

The total of the issue date principal balances of all mortgages or participation interests included in a pool purchase transaction.

portfolio mortgage

A whole mortgage purchased by Fannie Mae to hold in its mortgage portfolio.

prearranged refinancing agreement

A formal or informal arrangement between a lender and a borrower wherein the lender agrees to offer special terms (such as a reduction in costs) for a future refinancing of a mortgage being originated as an inducement for the borrower to enter into the original mortgage transaction.

premium pricing

When a borrower elects to pay a higher interest rate on a mortgage loan in exchange for a lender credit provided at closing (also referred to as premium financing).

prepayment penalty

A charge imposed for paying all or part of the transaction’s principal before the date on which the principal is due, other than a waived, bona fide third-party charge that the lender imposes if the borrower prepays all of the transaction’s principal sooner than 36 months after loan closing.

price-adjusted loan (PAL)

One or more defects that, when considered with other loan features, and based on the facts of the loan as purchased or securitized by Fannie Mae, result in a loan that was otherwise eligible for delivery to Fannie Mae had the correct data been delivered and LLPA been paid to Fannie Mae by the lender.

price differential

The aggregate amount obtained by applying the pricing rate for an As Soon As Pooled Plus transaction to the purchase price on a daily basis (using a 360-day year) for the actual number of elapsed days beginning with the purchase date and ending with the date preceding the repurchase date.

pricing rate

The per annum percentage rate that is used for determining the price differential between the purchase price and the repurchase price for an As Soon As Pooled Plus transaction.

principal distribution amount

For a particular remittance date, Fannie Mae’s share of the aggregate principal portions of the monthly installments for mortgages in an MBS pool that became due from the second day of the preceding month to and including the first day of the remittance month (whether or not they were actually collected) and those unscheduled principal recoveries that were collected during the month preceding the month in which the remittance is made. This is the principal amount that will be drafted from the servicer’s custodial account.

project

A dwelling or dwellings comprising two or more single-family units established as a condo, co-op, or PUD project.

project documents

Recorded legal documents for a project and any master association that pertain to the formation of the project, the rights of the developer and limitations on the actions of the developer, the operation of the association, and sales of units in the project. The documents include, but are not limited to, the declaration of condominium or master deed; by-laws, rules, and regulations; articles of incorporation; governing documents; covenants, conditions, and restrictions (CC&Rs); offering circulars; and agreements as applicable to the project as well as any documents related to a master association or the overall project.

project legal phase

A development phase that is defined in the project documents. A project legal phase is not the same as a construction or marketing phase.

property insurance

Insurance coverage that compensates for physical damage—by fire, wind, or other natural disasters—to the property. (This type of coverage was previously referred to as hazard insurance.)

proprietary lease

A lease that a co-op corporation gives to a tenant-stockholder to cover the unit that he or she will occupy. The lease is called proprietary because the tenant-stockholder is both a shareholder in the landlord co-op corporation and a tenant under the lease.

purchase date

The date on which Fannie Mae disburses the purchase proceeds for a whole loan delivery; the date on which Fannie Mae purchases a pool or mortgage loan in an early funding transaction.

purchase money transaction

The acquisition of property through the payment of money or its equivalent.

Qualifying Ratios

Calculations that are used to determine whether a borrower can qualify for a mortgage. They consist of 2 separate calculations: a housing expense as a percent of income and total debt obligations as a percent of income.

Rate

Amount of interest on a loan, expressed as a percentage.

Rate Cap

See: Interest rate cap

Rate Lock

Commitment issued by a lender to a borrower guaranteeing a specific interest rate for a specified period of time.

Rate Lock Expiration

Rate lock periods are for a fixed number of days, and rate lock expiration occurs when that period has passed, subjecting the interest rate on the loan to market fluctuations since the date of the initial rate lock.

Rate Reduction Option

Provision in a fixed-rate mortgage that gives the borrower the option to reduce the interest rate at a later date without having to refinance. Exercising a rate reduction option typically does not require requalifying for the loan.

Real Estate Settlement Procedures Act (RESPA)

Consumer protection law that, among other things, requires advance disclosure of settlement costs to home buyers and sellers, prohibits certain types of referral and other fees, sets rules for escrow accounts and requires notice to borrowers when servicing of a home loan is transferred.

Reamortize

To take the remaining balance of a mortgage loan and establish a new period of amortization after which the principal balance will be zero. Typically used after the end of the term of an interest-only loan.

Recorder

Charge for a public official (typically a Registrar of Deeds or County Clerk) noting in the public record the terms of a legal document affecting title to real property such as a deed, a security instrument, a satisfaction of mortgage or an extension of mortgage.

Recording

Charge for a public official (typically a Registrar of Deeds or County Clerk) noting in the public record the terms of a legal document affecting title to real property such as a deed, a security instrument, a satisfaction of mortgage or an extension of mortgage.

Recording Fee

Charge for a public official (typically a Registrar of Deeds or County Clerk) noting in the public record the terms of a legal document affecting title to real property such as a deed, a security instrument, a satisfaction of mortgage or an extension of mortgage.

Reduced Documentation

Method used to determine income when qualifying a borrower for a loan. Borrower(s) provide their income, however no verification documentation is typically required.

Refinance

Paying off an existing loan with the proceeds from a new loan, generally using the same property as collateral, in order to take advantage of lower monthly payments, lower interest rates or save on financing costs.

Rehabilitation Loan

First mortgage that enables borrowers to purchase or refinance and rehabilitate homes. With this mortgage product, borrowers can qualify for loan amounts based on the as-completed value of the property, up to the maximum loan limits.

Repayment Period

Time to fully repay the outstanding balance, according to the payment terms.

Rescission

Cancellation of a contract. In certain real estate-secured transactions that involve the refinance of a primary residence, applicants have 3 business days to cancel the transaction.

Reserves

Amount of savings, separate from the down payment, that a homebuyer sets aside in case of unforeseen events or emergencies. During the loan approval process, many lenders require reserves (typically the equivalent of 2 monthly mortgage payments) to be verified.

Right of First Refusal

Provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

Rural Housing Loan

Loan offered by the Rural Housing Service (RHS), an agency within the Department of Agriculture. The RHS provides financing to farmers and other qualified borrowers buying property in rural areas who are unable to obtain loans elsewhere. Funds are borrowed from the U.S. Treasury. See also: Government loan

Rural Housing Service (RHS)

Loan offered by the Rural Housing Service (RHS), an agency within the Department of Agriculture. The RHS provides financing to farmers and other qualified borrowers buying property in rural areas who are unable to obtain loans elsewhere. Funds are borrowed from the U.S. Treasury. See also: Government loan

rapid payment method (RPM)

A payment cycle used for scheduled/scheduled remittance types for MBS pools that has an early remittance date (usually the tenth of the month, although earlier or later dates can be negotiated) for both scheduled and unscheduled payments.

Real Estate Mortgage Investment Conduit (REMIC)

A type of multi-class mortgage-related security in which interest and principal payments from mortgages or mortgage-related securities are structured into separately traded securities.

real estate owned (REO)

Other real estate owned by the borrower (such as an investment property).

reciprocal easement

The right of unit owners in different phases of an overall condo development to use the roads, parking areas, etc., in other phases of the development, through the creation of cross-easements.

recognition agreement

An agreement on the part of a co-op corporation to recognize specific rights of lenders who finance share loans in the project (or those of the lenders’ successors and assigns).

recourse

The obligation of the lender to cover losses the buyer incurs as a result of a default on the note. Under a whole loan transaction, a lender that sells a mortgage to Fannie Mae under the “with recourse” servicing option assumes the entire risk of borrower default, while a lender that sells a mortgage under the “without recourse” servicing option transfers the risk of borrower default to Fannie Mae. (See regular servicing option and special servicing option for equivalent terms for MBS transactions.)

refinance transaction

The repayment of a debt from the proceeds of a new loan using the same property as security. Fannie Mae also considers the current owner’s placement of financing on a property that is not financed as a refinance transaction.

regular servicing option

A guaranty fee option for an MBS pool under which the lender assumes the entire risk of loss from a borrower default; a servicing option for RD-guaranteed mortgages under which the servicer is fully responsible for any losses not recovered from RD. (See recourse for the equivalent term for a whole loan delivery.)

regularly amortizing mortgage

A collective term that Fannie Mae uses to differentiate “forward” mortgages from reverse mortgages. Mortgages that fall into this category include fully amortizing mortgages and partially amortizing mortgages (such as balloon mortgages).

rehabilitation mortgage

A mortgage created to cover the costs of repairing, improving, and sometimes acquiring an existing property.

relocation loan

An owner-occupied purchase money loan, originated pursuant to an established employee relocation program, administered by the employer (or its agent), where the employer relocates employees as part of its normal course of business.

relative

The borrower’s spouse, child, or other dependent or any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship.

remaining term

Original term less the number of payments that have been applied.

remittance cycle

A schedule for determining when funds must be remitted to Fannie Mae each month. Portfolio mortgages generally have only a single remittance cycle (regardless of the remittance type), but MBS mortgages have three different remittance cycles (standard, RPM, or MBS Express).

remittance type

A way of determining the composition of the servicer’s required remittance to Fannie Mae. For portfolio mortgages, there are three types—Actual/Actual, Scheduled/Actual, and Scheduled/Scheduled.

replacement reserve fund

A dedicated fund set aside for the repair and replacement of common property in a condo, co-op, or PUD project.

repurchase date

The date through which interest must be calculated when a lender is required to repurchase a mortgage or an acquired property from Fannie Mae; the date on which the lender redelivers mortgages funded in certain early funding transactions to Fannie Mae for whole loan purchase or for securitization under an As Soon As Pooled Sale transaction.

required yield

Fannie Mae’s posted commitment yield plus all applicable adjustments. This yield does not include a servicing fee.

residential mortgage credit report

A detailed account of the credit, employment, and residence history (as well as public records information) of an individual.

responsible party

A seller, servicer, or other entity that is responsible for the selling representations and warranties and/or for the servicing responsibilities or liabilities on a mortgage loan.

retail origination

A mortgage loan for which the mortgage loan seller takes the mortgage loan application and then processes, underwrites, funds, and delivers the mortgage loan to Fannie Mae. The loan is closed in the name of the mortgage loan seller, which may or may not service the loan. This definition may include joint ventures between the mortgage loan seller and another entity, provided that the mortgage loan seller retains control of the joint venture (either through majority ownership or voting rights).

revolving debt

An arrangement for credit in which the customer receives purchases or services on an ongoing basis prior to payment. Repayment is usually at regular intervals but not for a specified amount or term. Example: charge cards.

right of first refusal

A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

right of ingress or egress

The right to enter upon or leave from designated premises.

Rural Development (RD)

A government agency within the U.S. Department of Agriculture (USDA) that makes direct loans and guarantees mortgages secured by residential properties located in rural areas, concentrating on borrowers who meet income eligibility requirements. Formerly the Rural Housing Service (RHS).

Second Home

Property occupied part-time by a person in addition to his or her primary residence.

Secured Loans

Loans for which the borrower gives the lender a lien on property such as an automobile, boat, other personal property or real estate that will serve as collateral for the loan.

Security

Property that will be pledged as collateral for a loan. If the borrower defaults, the lender can sell the collateral to satisfy the debt.

Settlement

Completion of a property’s sale or purchase, or the completion of all steps necessary to receive the proceeds of (and create an obligation to repay) a loan. See also: Closing

Settlement Agent

Person or entity that conducts the settlement to transfer title of the property and to close on the mortgage loan. May be an attorney, a title insurer, a title agent or an escrow agent.

Settlement Costs

See: Closing costs

Short Sale

Commonly used alternative to a foreclosure. If a homeowner can no longer afford to make mortgage payments and their home is worth less than they owe, a short sale allows them to sell the home to pay off the mortgage. In a short sale, the lender agrees to accept an amount less than is actually owed on the loan, based on a showing of financial hardship.

Single-Family Residence

Detached individual housing unit. The property shares no common ground with neighboring properties and shares no wall or roof, but can be part of a planned unit development (PUD).

Start Rate

Starting interest rate for an adjustable-rate mortgage (ARM) loan or variable-rate home equity line of credit. Also known as an initial rate or intro rate. It provides lower interest and lower monthly payments at the beginning but may adjust at the next adjustment period.

Subordinate Financing

Mortgage or other lien that has a priority lower than that of the first mortgage. The subordinate loan has a claim to payment in a foreclosure only after the first mortgage is paid.

Swing Loan

See: Bridge loan

sales comparison approach to value (or market data approach)

A method of measuring the value of a property based on an analysis of comparable sales, contract offerings, and listings of properties that are the most comparable to the property that is being appraised.

sales contract

A contract for the purchase/sale, exchange, or other conveyance of real estate between parties. The contract must be in writing, contain the full names of the buyer(s) and seller(s), identify the property address or legal description, identify the sales price, and include signatures by the parties. Sales contracts are also known as agreements of sale, purchase agreements, or contracts for sale.

same month pooling

An option for creating MBS pools that allows a lender to include in a pool mortgages that close in the same month that the related MBS is issued (which means that they will have their first payment due two months after the MBS issue date).

scheduled/actual remittance type

A method of sending mortgage payments to Fannie Mae requiring lenders to remit the scheduled interest due (whether or not it is collected from borrowers) and the actual principal payments collected from borrowers.

scheduled/scheduled remittance type

A method of sending mortgage payments to Fannie Mae requiring lenders to remit the scheduled interest due and the scheduled principal due (whether or not payments are collected from borrowers).

second mortgage (or subordinate lien mortgage loan)

A mortgage loan that has a lien position subordinate to the first mortgage. Also called subordinate lien mortgage loan.

secondary mortgage market

The financial market in which residential mortgages and mortgage-related securities are bought and sold.

security balance

The balance for an MBS mortgage (or a participation interest in an MBS mortgage) that is determined by reducing Fannie Mae’s share of the issue date principal balance of the mortgage by its share of any principal distribution amounts included in subsequent monthly remittances; the balance for an MBS pool that represents the aggregate security balance of all the mortgages (or participation interests) in the pool as of any date, which is equal to the aggregate issue date principal balances of the mortgages (or participation interests) less any subsequent principal distribution amounts.

servicer

A Fannie Mae approved servicer that is contractually obligated to service one or more mortgage loans for Fannie Mae. Also refers to a subservicer if there is a subservicing arrangement.

servicing compensation

The income that a servicer receives for the collection of payments and management of operational procedures related to a mortgage. It includes a base servicing fee, plus late charges, fees charged for special services, yield differential adjustments or excess yield, and, sometimes, prepayment premiums.

Servicing Execution Tool (SET)

SET is a web-based solution for facilitating the concurrent transfer of servicing rights from the lenders that commit and sell mortgage loans to Fannie Mae using Fannie Mae’s whole loan committing application to approved Fannie Mae servicers, while providing a servicing-released premium best execution price.

servicing fee

The monthly fee, generally expressed in basis points, that a lender retains from borrowers’ interest payments as compensation for servicing loans on an investor’s behalf.

servicing spread

The fixed percentage amount for each mortgage or participation interest in a weighted-average ARM MBS pool that consists of the guaranty fee and the servicing fee. It cannot be less than the sum of the minimum allowable servicing fee and the guaranty fee applicable to the pool, nor greater than the sum of the maximum allowable servicing fee and the guaranty fee.

settlement date

The date that the sale of an MBS is settled and funds are paid or transferred. It may be the same day that the securities are issued to the designated book-entry account.

settlement statement

A form required by federal law that provides disclosures to borrower(s) of the final loan terms and costs of the mortgage loan transaction. References to “settlement statement” include the HUD-1 Settlement Statement and Closing Disclosure forms, as applicable, based on the application date of the mortgage loan.

significant defect

One or more defects that either necessitate a change to the price on which the loan was acquired or result in the loan being unacceptable for purchase had the true and accurate information about the loan been known at time of purchase. In determining whether there is a significant defect, Fannie Mae must give due consideration to the severity of the defect. The defect must also meet certain criteria established in this Guide.

significant interest rate buydown

A temporary reduction in the initial interest rate of a mortgage loan that provides for either more than a 2% difference between the actual interest rate as stated in the note and the “bought-down” interest rate, or a buydown period greater than two years. Fannie Mae restricts the percentage of an MBS pool that can be comprised of mortgages with this type of buydown. Requires SFC 014 at delivery.

single entity owner

The same individual, investor group (e.g., developer, sponsor, builder), partnership, or corporation that owns multiple units in a condo or co-op project. In its examination for project eligibility, the lender must determine compliance with Fannie Mae’s single entity ownership requirements.

single pool

An MBS pool that consists of mortgages or participation interests delivered by a single lender.

single-family mortgage loan

A mortgage loan secured by a property that contains one to four residential dwelling units.

special assessment districts (or municipal utility districts)

Jurisdictions that have been granted the authority to assess owners of properties within their boundaries for funds that will be used to cover the operating costs and debt service they incur for providing water or other utilities for the area (since it is not served by existing city or municipal utility services).

special deposit account

An account that is established for renovation mortgages to hold the funds needed for the renovation work so they can be disbursed from time to time as particular portions of the work are completed.

special feature codes (SFC)

Codes that Fannie Mae uses to identify certain characteristics related to individual mortgage loans, mortgage products, or negotiated transactions. A lender must specify these codes when they apply to mortgages delivered to Fannie Mae.

Special Flood Hazard Area (SFHA)

The land in the flood plain within a community having at least a 1% chance of flooding in any given year, as designated by FEMA.

special lender obligations

Special requirements or undertakings that a lender agrees to honor in connection with the purchase or securitization of mortgages—such as credit support obligations; repurchase obligations; and recourse, loss-sharing, or indemnity obligations.

special servicing option

A guaranty fee option for an MBS pool under which Fannie Mae assumes the entire risk of loss from a borrower default; a servicing option for RD-guaranteed mortgages under which Fannie Mae will bear all losses not recovered from the RD. (See recourse for the equivalent term for a whole loan delivery.)

Standard and Poor’s Ratings Services

A credit rating agency that, among other things, assigns credit ratings to debt issuers and the debt instruments themselves, as well as to title insurance companies and custodial depositories, by evaluating their assets and liabilities.

standard pricing option

A pricing method under which all mortgages delivered under a single commitment will be priced based on the relationship of their specific pass-through rate to the commitment’s single required yield. Standard pricing can result in either a par price or a discount price, but not a premium price.

standard remittance cycle

A payment cycle used for scheduled/scheduled remittance types for MBS pools that requires the scheduled and unscheduled payments to be remitted to Fannie Mae on the 18th calendar day of each month (or on the preceding business day if the 18th is not a business day).

state

Any state, the District of Columbia, the Commonwealth of Puerto Rico, or any territory or possession of the United States.

stated-structure pooling

A method of creating an ARM MBS pool that results in interest accruals to the security holder at the stated pool accrual rate.

structured transactions

Multi-class or multi-tranche Fannie Mae securities and/or single-class Fannie Mae MBS that are resecuritizations of other single-class Fannie Mae MBS.

subdivision

A housing development that is created by dividing a tract of land into individual lots for sale or lease.

subordinate financing

Any mortgage or other lien that has priority lower than that of the first mortgage.

subordinate lien mortgage loan

Seesecond mortgage.

subservicer

A Fannie Mae approved servicer that is contractually obligated to a master servicer to perform substantially all of the ongoing servicing activities for one or more mortgage loans for the master servicer.

subservicing arrangement

An arrangement wherein the master servicer of one or more Fannie Mae mortgage loans hires a subservicer to subservice substantially all of its subservicing functions.

swing loan

See bridge loan.

Term

Number of years it will take to pay off a loan. The loan term is used to determine the payment amount, repayment schedule and total interest paid over the life of the loan.

Third-Party Fees

Fees charged for services rendered by parties other than the borrower or the lender. Such fees may include appraisal, credit report, title and flood certifications.

Title

Written evidence of ownership in property.

Title Company

Agency that will investigate a property’s title (or deed) for discrepancies or undiscovered liens and that will issue title insurance to the lender after the title is deemed clear.

Title Insurance

Insurance that protects an interested party, either the owner or the lender, against issues that would affect legal ownership of the property.

Title Search

Examination of records used to determine the legal ownership of property and all liens and encumbrances on it. Usually performed by a title company or attorney.

Total Expense Ratio

See: Debt-to-Income ratio

Transaction Fee

Fee that may be charged each time a draw occurs on a credit line.

Treasury Index

Index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury’s daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. See also: Prime rate

Trustee

Fiduciary that holds or controls property for the benefit of another.

Truth in Lending Act

Federal law requiring disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions. Read about the Truth in Lending Act on the Dept. of the Treasury website

take-out option

A post-conversion disposition option that requires the lender to redeliver as a whole loan a repurchased convertible adjustable-rate mortgage that was in an MBS pool following its conversion to a fixed-rate mortgage and to continue any recourse or credit enhancement that initially applied to the mortgage (unless Fannie Mae agrees it is no longer needed).

temporary interest-rate buydown

A temporary reduction in the effective interest rate that a borrower pays during the early years of a mortgage term, which is made possible by the property seller or another acceptable party depositing a lump sum of money into a buydown account so that it can be released each month to reduce the borrower’s payments.

tenant-stockholder

The obligee for a co-op share loan, who is both a stockholder in the co-op corporation and a tenant of the unit under a proprietary lease or occupancy agreement.

Texas Section 50(a)(6) loan

A loan originated in accordance with and secured by a lien permitted under the provisions of Article XVI, Section 50(a)(6), of the Texas Constitution, which allows a borrower to take equity out of a homestead property under certain conditions. Article XVI, Section 50(a)(6), of the Texas Constitution is sometimes referred to as Texas Constitution Section 50(a)(6).

timeshare project

A real estate development in which a purchaser can buy the exclusive right to occupy a unit for a specified period of time each year.

title insurance

Insurance against loss resulting from defects in the title to real property.

trade equity

Equity that results from a property purchaser giving his or her existing real property as trade as all or part of the down payment for the property that is being purchased.

transfer of ownership

Any means by which the ownership of property changes hands. Fannie Mae considers the transfer of all or any part of the property or any interest in the property to be a transfer of ownership, including: the purchase of a property “subject to” the mortgage, the assumption of the mortgage debt by the property purchaser, and any exchange of possession of the property under a land sales contract, grant deed, or any other land trust device. In cases in which an inter vivos revocable trust is the borrower, Fannie Mae also considers any transfer of a beneficial interest in the trust to be a transfer of ownership.

Treasury index

An index that is used to determine interest rate changes for certain ARM plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury’s daily yield curve, which is based on the closing market bid yields and actively traded Treasury securities in the over-the-counter market.

two- to four-unit condo project

A project comprised of two to four residential units in which each unit is separately owned. A two- to four-unit project may be either a new or established project and may be comprised of attached and/or detached units.

two- to four-unit property

A property that consists of a structure that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed.

Underwriter

Person who approves or denies a home loan, based on the lender’s underwriting and approval criteria.

Underwriting

Lender’s process of deciding whether to make a loan to a potential borrower based on credit, employment, assets and other factors, and the matching of this risk to an appropriate rate, term and loan amount.

Uniform Residential Loan Application (1003)

Standard loan application form published by the Federal National Mortgage Association (Fannie Mae) and used by most lenders.

Unsecured Lines of Credit

Typically used when referring to a loan or a line of credit (unsecured loan, unsecured line of credit) that is not backed by collateral.

Unsecured Loan

Typically used when referring to a loan or a line of credit (unsecured loan, unsecured line of credit) that is not backed by collateral.

Upfront Costs

Costs paid when applying for a loan.

underwriting documents

All of the documentation used to support the lending decision for a mortgage—such as the loan application and other documents used to verify a borrower’s employment, income, deposits, and credit history.

Uniform Commercial Code (UCC)

A comprehensive codification and modernization of commercial law (but excluding law dealing with real property).

Uniform Electronic Transactions Act (UETA)

Any of several state adoptions of an Act that has provisions for the use of electronic signatures and records in interstate commerce that are virtually identical in all material respects to similar provisions of ESIGN.

Uniform Mortgage-Backed Security (UMBS)

A common security issued by the GSEs that is eligible for trading in the To-be-Announced (TBA) market. The securities are backed by fixed-rate loans secured by single-family one-to-four unit properties and are identified by certain pool prefixes.

Unit mortgage

A mortgage (or share loan) on an individual residential unit in a planned unit development, condo, or co-op project.

Unpaid principal balance (UPB)

The actual balance of the mortgage as of the last paid installment date (also referred to as the “outstanding principal balance”).

U.S. Citizenship and Immigration Services (USCIS) (a.k.a. Bureau of Citizenship and Immigration Services (BCIS))

The U.S. government agency that oversees lawful immigration.

VA Loan (a.k.a. Government Loan; VA-Guaranteed Mortgage)

Mortgage that is guaranteed by the Department of Veterans Affairs (VA) for qualified veterans of U.S. military forces. See also: Government loan

Vacation Home

Vacation home is a single-family property that the borrower occupies in addition to his or her primary residence. The property cannot be considered income-producing and must not be part of a mandatory rental pool, but occasionally may be rented to friends and relatives. When property is classified as a second home, rental income may not be used to qualify the applicant. A 2- to 4-unit property is not eligible for second home status. Also known as second home.

Variable Rate

Interest rate that may fluctuate or change periodically, often in relation to an index such as the prime rate or other criteria. Payments may increase or decrease accordingly.

Variable-Rate Monthly Minimum Payment

Minimum amount paid each month on lines of credit. The payment amount includes both principal and interest. The monthly required payment may vary each month and is based on the outstanding loan balance and fluctuating interest rate.

VA-Guaranteed Mortgage (See VA Loan)

voluntary conveyance

See deed in lieu of foreclosure.

W-2

Wage and tax statement provided by an employer annually. The W-2 form details income and the various local and federal taxes withheld from the income.

Walk-through

Final inspection shortly before settlement to make sure the property is in the same condition that it was at the time the offer contract was written.

Weighted-Average Pool Accrual Rate

The weighted average of the net mortgage interest rates of the mortgages in a weighted-average ARM MBS pool, which is the rate at which interest will accrue on the MBS.

Weighted-Average Structure Pooling

A method of creating an ARM MBS pool that results in interest accruals to the security holder at the weighted average of the accrual rates of the mortgages in the pool.

What-if analysis

Affordability analysis that is based on a what-if scenario. A what-if analysis is useful if complete data is not available or exploring the effect of various changes to income, liabilities, or available funds, qualifying ratios or down payment expenses that are used in the analysis.

Whole Loan Delivery

The submission of a whole mortgage or a participation pool mortgage to Fannie Mae for purchase as a portfolio mortgage. Fannie Mae pays the mortgage seller cash for its mortgage delivery, rather than swapping the mortgage for a mortgage-backed security.

Windstorm Insurance

Coverage that is typically required in coastal areas and pays for property damage resulting from a windstorm. Like flood and earthquake coverage, windstorm insurance covers damage to the dwelling and, in some cases, personal property and living expenses if the dwelling is uninhabitable. Some states offer market assistance programs or joint underwriting associations to help homeowners find coverage in areas where coverage is scarce.

Wire Transfer

Transfer of money from one person’s bank to another person’s bank account, either domestically or internationally.

Yield

Return on an investment.

Yield Difference (a.k.a. Interest Rate Differential)

Difference between Fannie Mae’s required yield and the net note rate of an ARM. Fannie Mae limits the amount of this difference.

Yield Differential Adjustment

Amount paid to the servicer of a whole first mortgage when the initial interest rate of a mortgage exceeds Fannie Mae’s required yield for the commitment under which the mortgage was purchased. For adjustable-rate mortgages, a yield differential adjustment occurs if there is excess “margin” rather than yield.

Year-End Statement

Report shows how much was paid in interest during the year, as well as the remaining mortgage loan balance at the end of the year. If the bank has an impound account, it will also show how much was paid and reserved in property taxes. If the bank does not have a property tax impound account, then tax details are not displayed on the report.

1003 (a.k.a. Uniform Residential Loan Application; URLA; Freddie Mac Form 65)

Fannie Mae Form 1003 is a standardized document used by borrowers to apply for a mortgage.