acceleration adjustable rate mortgage amortization amortization table annual percentage rate

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1 acceleration A demand for immediate payment of all amounts remaining unpaid on a loan or extension of credit by a mortgage lender or carryback seller. Also known as calling the loan. adjustable rate mortgage A variable interest rate note based on a particular index, often starting out with an introductory teaser rate, only to reset at a much higher rate in a few months or years. amortization The liquidation of a financial obligation on an installment basis; also, recovery over a period of cost or value. amortization table A tabular schedule detailing the apportionment of principal and interest on each periodic payment due on an amortizing loan. annual percentage rate The relative cost of credit as determined in accordance with Regulation Z of the Board of Governors of the Federal Reserve System for implementing the Federal Truth in Lending Act.

2 anti-deficiency A limitation placed on a mortgage lender s ability to recover losses on a default when the secured property s value is insufficient to satisfy the mortgage debt. applicable federal rate Rates set by the Internal Revenue Service for carryback sellers to impute and report as minimum interest income when the note rate on the carryback debt is a lesser rate. assumption An undertaking or adoption of a debt or obligation primarily resting upon another person. balloon payment Any final payment on a note which is greater than twice the amount of any one of the six regularly scheduled payments immediately preceding the date of the final/balloon payment. [See RPI Form and 419] bankruptcy, Chapter 11 A proceeding in which the homeowner s financial obligations are restructured, allowing them to repay their debts over a three-to-five period.

3 bankruptcy, Chapter 7 A proceeding in federal court in which the homeowner s assets are liquidated to pay off their debts. blanket mortgage A single mortgage which covers more than one piece of real property. California Housing Finance Agency (CalHFA) An independent California state agency that makes low-rate housing loans through the sale of taxable and tax exempt bonds. call A lender s demand for the balance of the loan to be paid in full. CalVet A program administered by the State Department of Veterans Affairs for the direct financing of farm and home purchases by eligible California veterans of the armed forces.

4 capitalization rate The annual rate of return produced by the operations of an income property or sought by an investor. The cap rate is calculated by dividing the net operating income by the price asked or offered for income property. closing costs The miscellaneous expenses buyers and sellers normally incur in the transfer of ownership of real property over and above the cost of the property. closing statement An accounting of funds made to the buyer and seller separately. Required by law to be made at the completion of every real estate transaction. [See RPI Form 402] collateral Tangible assets attached to a loan which are worth more than the cash value of the loan. construction loan A loan made to finance the actual construction or improvement on land. Funds are usually dispersed in increments as the construction progresses.

5 consumer price inflation An increase in the general price level of all goods and services consumed in the economy. conventional mortgage A mortgage securing a loan made by investors without governmental underwriting, i.e., which is not FHA insured or VA guaranteed. The type customarily made by a bank or savings and loan association. cramdown The reduction of the principal balance of a loan. credit score A numerical representation of a borrower s creditworthiness, based on credit report information obtained from a credit bureau. creditworthiness An individual s ability to borrow money, determined by their present income and previous debt payment history.

6 debt That which is due from one person or another; obligation, liability. debt-to-income ratio Percentage of monthly gross income that goes towards paying debt. deed-in-lieu of foreclosure A deed from a borrower to a mortgage holder conveying title to property which is security for a mortgage, given in consideration for canceling the remaining debt and as an alternative to foreclosure. default Failure to fulfill a duty or promise or to discharge an obligation; omission or failure to perform any act. deficiency judgment A judgment given by a court when the value of security pledged for a loan is insufficient to pay off the debt of the defaulting borrower.

7 deflation A fall in the pricing of goods or property (the opposite of inflation). due-on clause A trust deed provision used by lenders to call the loan due and immediately payable, a right triggered by the owner s transfer of any interest in the secured real estate. equity The interest or value which an owner has in real estate over and above the liens against it. Branch of remedial justice by and through which relief is afforded to suitors in courts of equity. Federal Reserve The federal banking system of the United States under the control of central board of governors (Federal Reserve Board) involving a central bank in each of twelve geographical districts with broad powers in controlling credit and the amount of money in circulation. financial crisis An economic downturn resulting from the failure of banking and government agencies to regulate and adjust to developing market conditions.

8 foreclosure Procedure whereby property pledged as security for a debt is sold to pay the debt in event of default in payments or terms. good faith estimate of costs An estimate of a buyer s settlement charges and mortgage terms handed to the buyer on a standard form within three business days following the lender s receipt of the mortgage application. [See RPI Form 204-5] government loan programs State and federal programs designed to facilitate homeownership, such as Federal Housing Administration (FHA)-insured loans, U.S. Department of Veterans Affairs (VA)- guaranteed loans, and the California Housing Finance Agency (CalHFA). graduated payment mortgage A mortgage providing for installment payments to be periodically increased by predetermined amounts to provide for an accelerating payoff of principal. hard money loan Real estate loans made by private lenders funded in cash.

9 home equity line of credit A mortgage loan enabling a homeowner to borrow against their home s wealth, as an ATM. hypothecate To pledge a thing as security without the necessity of giving up possession of it. implicit rent The dollar value of the use of a property by the owner. impound account A money reserve of the borrower s funds held by a lender or carryback seller to pay for annual obligations owed by the owner to others. inflation The price change in consumer goods and services, stated in the consumer price index (CPI) as a figure which is reported as a percentage change over one year ago.

10 interest rate The percentage of a sum of money charged for its use. Rent or charge paid for use of money, expressed as a percentage per month or year of the sum borrowed. intermediation The process of pooling and supplying funds for investment by financial institutions called intermediaries. The process is dependent on individual savers placing their funds with these institutions and foregoing opportunities to directly invest in the investments selected. judicial foreclosure The court-ordered sale by public auction of the secured property. Also known as a sheriff s sale. junior mortgage A mortgage recorded subsequently to another mortgage on the same property or made subordinate by agreement to a later recorded mortgage. land contract A contract used in a sale of real property whereby the seller retains title to the property until all or a prescribed part of the purchase price has been paid. Also commonly called a land sales contract, conditional sales contract, installment sales contract or real property sales contract.

11 late charge A provision in a promissory note, lease or rental agreement imposing an additional charge if payments are not received when due or during a grace period. lien A form of encumbrance which usually makes specific property security for the payment of a debt or discharge of an obligation. Example judgments, taxes, mortgages, deeds of trust, etc. loan brokerage The business of originating mortgages for lenders or selling existing mortgages to investors. mortgage An instrument recognized by law by which property is hypothecated to secure the payment of a debt or obligation; a procedure for foreclosure in event of default is established by statute. mortgage insurance premium The cost for default insurance incurred by a borrower on an FHA-insured mortgage set as a percent of the mortgage amount paid up front and an annual rate on the principal balance paid with monthly principal and interest for the life of the mortgage.

12 mortgage interest deduction (MID) An itemized deduction for income tax reporting allowing homeowners to deduct interest and related charges they pay on a mortgage encumbering their primary or second homes. mortgage-backed bond An asset-backed security representing a claim on the cash flows received on a mortgage loan. negative amortization Occurs when monthly installment payments are insufficient to pay the interest accruing on the principal balance, so that the unpaid interest must be added to the principal due. negative equity The condition of a property owner owing more on a mortgage than the current fair market value of the encumbered property. non-conforming loan A conventional loan with a loan amount greater than the loan amount limits set by Fannie Mae and Freddie Mac. Non-conforming loans are also known as jumbo loans.

13 nonjudicial foreclosure When property is sold at a public auction by a trustee as authorized under the power-of-sale provision in a trust deed. nonrecourse mortgage A debt secured by real estate for which the holder s sole source of recovery of amounts owed is the value of the property securing the debt, no money judgment permitted for a deficiency in the value of the secured property on foreclosure or short payoff. notice of default The notice filed to begin the nonjudicial foreclosure process. Generally, the NOD is filed after three or more months of delinquent mortgage payments. [See RPI Form 471] open-ended mortgage A mortgage containing a clause permitting the mortgagor to borrow additional money after the loan has been reduced without rewriting the mortgage. par interest rate The interest rate without the addition of a yield spread premium or discount points.

14 passive income Profits and losses from rental real estate, operations and sales, and from non-owner-operated businesses. penalty An extra payment or charge required of the borrower for deviating from the terms of the original loan agreement. Usually levied for being late in making regular payment or for paying off the loan before it is due, known as late charges and prepayment penalties. points A fee charged by a lender as prepaid interest which in turn reduces the note rate on the mortgage, with a point equaling 1% of the amount of the mortgage. portfolio category income Unearned income from interest on investments in bonds, savings and trust deeds notes; dividends on stocks; profits on the resale of these investments and land held for profit; and income from management-free long-term income property ownership. prepayment penalty A provision in a promissory note giving a lender the right to levy a charge against a borrower who pays off the outstanding principal balance on a mortgage prior to its maturity.

15 principal residence profit exclusion A tax exclusion on profit from a home sale up to a certain dollar amount. private mortgage insurance Default mortgage insurance coverage provided by private insurers for conventional loans with loan-to-value ratios higher than 80%. purchase-money Nonrecourse mortgage financing created when a lender provides purchase-assist financing to fund the purchase or construction of a buyeroccupied one-to-four unit residential property or a seller carries back financing on the sale of property which is the sole security for repayment. purchasing power A homebuyer s ability to purchase property funded by mortgage money based on 31% of their gross income for mortgage payments and current interest rates. put option The provision in all trust deeds which, in tandem with anti-deficiency laws, grants an owneroccupant of a one-to-four unit residential property under a purchase-assist mortgage the right to default and force the lender to buy the property for the remaining loan amount through foreclosure.

16 qualified residential mortgage A home loan which meets low-risk criteria, exempting it from the originating lender 5% risk retention rule. QRMs are expected to meet abilityto-repay requirements, including the maximum debt-to-income ratio of 43%. The final federal QRM definition is still pending approval as of Q quantitative easing The purchase of government bonds by the Federal Reserve to drive down interest rates and increase liquidity. real estate owned property Property acquired by a lender through foreclosure. Real Estate Settlement Procedures Act Legislation prohibiting brokers from giving or accepting referral fees if the broker or their agent is already acting as a transaction agent in the sale of a one-to-four unit residential property which is being funded by a purchase-assist, federally-related loan. reconveyance A document executed by a trustee named in a trust deed to release the trust deed lien from title to real estate, commonly used when the secured debt is fully paid.

17 recourse On a debt secured by real estate and not subject to anti-deficiency defenses, the creditor may pursue a borrower on default for a loss due to a deficiency in the value of the secured property if the lender forecloses judicially. redemption A property owner or junior lienholder s right to clear title to property of a trust deed lien prior to the completion of the trustee s sale by paying all amounts due on the note and trust deed, including foreclosure charges. Regulation Z A component of the Truth-in-Lending Act requiring lenders to timely disclose a loan s annual percentage rate and all associated costs to potential borrowers, enabling borrowers to competitively shop for loans. reinstatement A property owner or junior lienholder s right to cure any monetary default on a mortgage prior to five business days before the trustee s sale by paying the delinquent amounts due on the note and trust deed, plus foreclosure charges. release clause Upon the payment of a specific sum of money to the holder of a blanket mortgage, the mortgage lien on a specifically described parcel is reconveyed, leaving the mortgage as a lien on the remainder of the secured parcels.

18 sale and leaseback A financial arrangement where at the time of sale the seller retains occupancy by concurrently agreeing to lease the property from the purchaser. The seller receives cash while the buyer is assured a tenant and a fixed return on buyer s investment. seasoned loan A loan in which payments by the borrower have been consistently made when due for an extended period of time. secondary mortgage market A market for the sale of bonds or securities collateralized by mortgage loans. seller financing A note executed by a buyer of real estate in favor of the seller for the unpaid portion of the sales price on closing. Also known as an installment sale, credit sale or carryback financing. shadow inventory The inventory of properties whose pending release onto the market (e.g., REOs, foreclosures, speculator holdings) impacts the stabilization of real estate prices and volume.

19 shared appreciation mortgage A type of split-rate note calling for the buyer to periodically pay interim interest at a fixed rate, and when the balance is due, to further pay the holder of the note as additional interest an agreed fraction of the property s increased value. short payoff A sale in which the lender accepts the net proceeds at closing in full satisfaction of a greater amount of mortgage debt. straight note A note calling for the entire amount of its principal to be paid together with accrued interest in a single lump sum when the principal is due. strategic default The intentional default on a mortgage, forcing the lender to foreclose and acquire the property in satisfaction of the mortgage debt. subordinate To make subject to, or junior or inferior to by use of a subordination agreement.

20 subordination An agreement entered into by a mortgage holder to permit their security interest in title to the mortgaged property to take an inferior position to another encumbrance. subprime mortgage A mortgage made to a borrower based on loose underwriting standards and resulting in a high risk of default. teaser rate A temporary, low introductory interest rate found in adjustable rate mortgages. tranches Investment pools divided into various levels of risk, reward and rate of maturity. Truth-in-Lending Act A law designed to protect buyers in their dealings with lenders through upfront disclosure of mortgage rates and charges.

21 usury A limit on the interest rate charged on nonexempt real estate loans. voluntary lien Any lien placed on property with consent of, or as a result of, the voluntary act of the owner. warehousing Mortgages held by loan brokers until they are bundled with other mortgages and sold on the secondary mortgage markets. wrap around mortgage A financing device whereby a lender assumes payments on existing trust deeds of a borrower and takes from the borrower a junior trust deed with a face value in an amount equal to the amount outstanding on the old trust deeds and the additional amount of money borrowed.