Below are some terms and their meaning, these terms are commonly used in the mortgage process.
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[accordion-item title=”Adjustable-Rate Mortgage (ARM)”]
A mortgage with an interest rate and payment that change periodically over the life of the loan based on changes in a specified index.
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[accordion-item title=”Callable Debt”]
A debt security whose issuer has the right to redeem the security at a specified price on or after a specified date, but prior to its stated final maturity.
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[accordion-item title=”Charge-Off”]
The portion of principal and interest due on a loan that is written off when deemed to be uncollectible.
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[accordion-item title=”Common Stock”]
A security that represents ownership in a company but gives no legal claim to a definite dividend or to a return of capital.
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[accordion-item title=”Conventional Mortgage”]
A mortgage loan that is not insured or guaranteed by the federal government.
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[accordion-item title=”Credit Enhancement”]
A method to reduce credit risk by requiring collateral, letters of credit, mortgage insurance, corporate guarantees, or other agreements to provide an entity with some assurance that it will be recompensed to some degree in the event of a financial loss.
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[accordion-item title=”Credit Loss Ratio”]
The ratio of credit-related losses to the dollar amount of MBS outstanding and total mortgages owned by the corporation.
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[accordion-item title=”Credit-Related Expenses”]
The sum of foreclosed property expenses plus the provision for losses.
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[accordion-item title=”Credit-Related Losse”]
The sum of foreclosed property expenses plus charge-offs.
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[accordion-item title=”Credit Scoring”]
A process that uses recorded information about individuals and their loan requests to assess—in a quantifiable, objective, and consistent manner – their future performance regarding debt repayment.
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[accordion-item title=”Debt Security”]
A security in which the issuing company generally agrees to repay the principal (typically, the original amount borrowed) and make interest payments according to an agreed schedule.
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[accordion-item title=”Default”]
The failure of a borrower to comply with the terms of a note or the provisions of a mortgage.
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[accordion-item title=”Delinquency”]
A mortgage loan on which a payment has not been made by the due date.
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[accordion-item title=”Derivative”]
A financial instrument which derives its value from an underlying security or notional amount.
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[accordion-item title=”Duration”]
The weighted-average life of the present value of all future cash flows, both principal and interest, of a security. It is used as a measure of the sensitivity of the value of a security to changes in interest rates.
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[accordion-item title=”Earnings per Share (EPS)”]
The net earnings of a corporation divided by the average number of shares of its common stock outstanding during a period. A common method of expressing a corporation’s profitability.
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[accordion-item title=”Fixed-Rate Mortgage”]
A mortgage loan in which the interest rate does not change during the entire term of the loan.
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[accordion-item title=”Forbearance”]
The lender’s postponement of legal action when a borrower is delinquent. It is usually granted when a borrower makes satisfactory arrangements to bring the overdue mortgage payments up to date.
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[accordion-item title=”Foreclosure”]
The legal process by which property that is mortgaged as security for a loan may be sold to pay a defaulting borrower’s loan.
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[accordion-item title=”Global Debt Facility”]
A debt issuance facility through which U.S. dollar and foreign currency debt securities may be offered to investors worldwide with the feature of clearing and settlement through a variety of clearing systems.
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[accordion-item title=”Guaranty Fee”]
Compensation paid by a lender to Fannie Mae for the guarantee of timely payments of principal and interest to MBS security holders.
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[accordion-item title=”Interest Rate Swap”]
A transaction between two parties in which each agrees to exchange payments tied to different interest rates or indices for a specified period of time, generally based on a notional principal amount.
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[accordion-item title=”Intermediate-Term Mortgage”]
A mortgage loan with a contractual maturity at time of purchase equal to or less than 20 years.
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[accordion-item title=”Lender Option Commitments”]
An agreement giving a lender the option to deliver loans or securities by a certain date at agreed-upon terms.
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[accordion-item title=”Loan Servicing”]
The tasks a lender performs to protect a mortgage investment, including collecting monthly payments from borrowers and dealing with delinquencies.
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[accordion-item title=”Loan-to-Value (LTV) Ratio”]
The relationship between the dollar amount of a borrower’s mortgage loan and the value of the property.
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[accordion-item title=”Loss Mitigation”]
Activities designed to reduce either the likelihood of the corporation suffering financial losses on a loan or the final dollar value of those losses in the event of a borrower default.
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[accordion-item title=”Mandatory Delivery Commitment”]
An agreement that a lender will deliver loans or securities by a certain date at agreed-upon terms.
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[accordion-item title=”Medium-Term Notes”]
Unsecured general obligations of Fannie Mae with maturities of one day or more and with principal and interest payable in U.S. dollars.
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[accordion-item title=”Modification”]
Any change to the original terms of a mortgage.
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[accordion-item title=”Mortgage”]
A legal document that pledges property to a lender as security for the repayment of the loan. The term also is used to refer to the loan itself.
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[accordion-item title=”Mortgage-Backed Security (MBS)”]
A Fannie Mae security that represents an undivided interest in a group of mortgages. Principal and interest payments from the individual mortgage loans are grouped and paid out to the MBS holders.
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[accordion-item title=”Multifamily Housing”]
A building with more than four residential rental units.
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[accordion-item title=”NOD”]
Abbreviation for Notice Of Default.
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[accordion-item title=”Notice of Default”]
An official notice filed and recorded by a designated trustee at the request of a lender indicating lender has commenced foreclosure action.
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[accordion-item title=”Nonperforming Asset”]
An asset such as a mortgage that is not currently accruing interest or on which interest is not being paid.
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[accordion-item title=”Notional Principal Amount”]
The hypothetical amount on which interest rate swap payments are based. The notional principal amount in an interest rate swap generally is not paid or received by either party.
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[accordion-item title=”Preferred Stock”]
Stock that takes priority over common stock with regard to dividends and liquidation rights. Preferred stockholders typically have no voting rights.
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[accordion-item title=”Preforeclosure Sale”]
A procedure in which the borrower is allowed to sell his or her property for an amount less than what is owed on it to avoid a foreclosure. This sale fully satisfies the borrower’s debt.
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[accordion-item title=”Real Estate Mortgage Investment Conduit (REMIC)”]
A security that represents a beneficial interest in a trust having multiple classes of securities. The securities of each class entitle investors to cash flows structured differently from the payments on the underlying mortgages.
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[accordion-item title=”Repayment Plan”]
An agreement between a lender and a borrower who is delinquent on his or her mortgage payments, in which the borrower agrees to make additional payments to pay down past due amounts while still making regularly scheduled payments.
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[accordion-item title=”Return on Average Common Equity”]
Net income available to common stockholders, as a percentage of average common stockholders’ equity.
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[accordion-item title=”Reverse Mortgage”]
A financial tool which provides seniors with funds from the equity in their homes. Generally, no payments are made on a reverse mortgage until the borrower moves or the property is sold. The final repayment obligation is designed to not exceed the proceeds from the sale of the home.
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[accordion-item title=”Risk-Based Capital”]
The amount of capital necessary to absorb losses throughout a hypothetical ten-year period marked by severely adverse circumstances.
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[accordion-item title=”Secondary Mortgage Market”]
The market in which residential mortgages or mortgage securities are bought and sold.
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[accordion-item title=”Security”]
A financial instrument showing ownership of equity (such as common stock), indebtedness (such as a debt security), a group of mortgages (such as MBS), or potential ownership (such as an option).
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[accordion-item title=”Serious Delinquency”]
A single-family mortgage that is 90 days or more past due, or a multifamily mortgage that is two months or more past due.
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[accordion-item title=”Short Refinance”]
Short refinance is the replacement of a mortgage, usually with a reduced mortgage, when the borrower is already in default. This is done to transition the borrower to a more affordable payment structure. The lender has to write off the difference between the old mortgage and the new mortgage, but in some cases this may be preferable to foreclosure.
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[accordion-item title=”Short Sale”]
To sell a home through negotiation with the bank or lender, who agrees to accept less than the full amount owed to satisfy the debt allowing the debt to be ‘paid off’, short. Short sales are subject to bank approval and are often used as options in lieu of foreclosure.
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[accordion-item title=”Stockholders’ Equity”]
The sum of proceeds from the issuance of stock and retained earnings less amounts paid to repurchase common shares.
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[accordion-item title=”Stripped MBS (SMBS)”]
Securities created by “stripping” or separating the principal and interest payments from the underlying pool of mortgages into two classes of securities, with each receiving a different proportion of the principal and interest payments.
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[accordion-item title=”Transfer Agent”]
A bank or trust company charged with keeping a record of a company’s stockholders and canceling and issuing certificates as shares are bought and sold.
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[accordion-item title=”Underwriting”]
The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower’s ability and willingness to repay the debt and the value of the property.
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