COLORADO REALTY INC

COMMON MORTGAGE-RELATED TERMS

A
Accrual Rate - The stated annual rate at which interest is calculated. On an adjustable-rate mortgage (ARM), the accrual rate is based on a combination of an independent market index, which fluctuates, plus a margin, which is fixed, and is established by the lender. The accrual rate is also called the "note rate," the "coupon rate" or the "contract rate."

Accrued Interest - The interest that has accumulated over the time elapsed since the borrower's last payment. (See Interest.)

Addendum - Something added, for example, a list or other material added to a document, letter, contractual agreement, etc.

Add-On Interest - Interest, which is calculated on the original principal for the full term of the loan and then added to the original amount borrowed. This sum is then divided into a number of equal payments. (See Interest.)

Adjustable-Rate Mortgage - A general term for any mortgage in which the interest rate and, generally, the payments change over the life of the loan. The interest rate is adjusted to match the rise or fall of a preselected interest rate index and the borrower's regular payments will increase or decrease accordingly. Different types of adjustable-rate mortgages (ARMs) have different frequencies for these adjustments. Some ARM's have limits on payment and interest rate changes and the maximum interest rate over the life of the loan. To the borrower's advantage, the initial rate of an ARM is usually low, permitting the purchase of real estate that otherwise would be unaffordable with a fixed-rate mortgage, but there is a risk of higher payments later on. (See Index, Initial Interest Rate.)

Adjustment - The amount added to or subtracted from the sales price of comparable properties to obtain an adjusted sales price that more accurately reflects the subject property's value.

Adjustment Period - An adjustable-rate mortgage (ARM) contains a provision for the adjustment of the interest rate. The time period between adjustments is known as the adjustment period.

Amortization - The systematic and continuous repayment of an obligation through periodic installments until the debt has been paid off in full.

Amortization Period - That period of time over which a calculated mortgage payment will fully repay a set loan amount at a specific interest rate.

Annual Percentage Rate - The actual interest rate the borrower pays when all the costs of obtaining credit are included.

Applicant - One who applies for a real estate loan (the prospective borrower/mortgagor).

Application - A form used by a borrower to submit pertinent financial and property information concerning a borrower/mortgagor and the proposed security.

Appraisal - A report made by a qualified appraiser setting forth an opinion or estimate of value. The term also refers to the process by which this estimate is obtained.

Appraised Value - An estimation of property value made by a qualified expert.

Appraiser - An expert qualified by education, training and experience who sets forth an opinion or estimate of value of a property, based on available facts and an inspection of that property.

Appreciation - An increase in the value of a property. Appreciation may be the result of an increased demand for a property, any improvements or additions made, improvements to the neighborhood, etc

APR - See Annual Percentage Rate.

ARM - See Adjustable-Rate Mortgage.

Assessment - Tax on real property either by an annual property tax based on current fair market value or via special assessments for sewers, public improvements, etc.

Assignment of Rents - A legal document, sometimes included in the mortgage, that assigns all rents and income from a property to the mortgagee. If properly invoked after default, the mortgagee has a right to assume management of the property and collection of the rents from the subject property.

Assumption - A means by which the title/mortgage may be transferred to another party with or without release of liability on the note.

B
Balloon Mortgage - A mortgage with periodic installments of principal and interest that, at the end of such a period, do not fully amortize the loan. The balance of the mortgage due is usually paid in a lump sum at a specified date, usually at the end of the term of such periodic installments.

Balloon Payment - The unpaid, principal amount of a mortgage loan that is due on a specified date, and paid in a lump sum at the end of the term.

Bankruptcy - Legal relief from the payment of all debts after the surrender of all assets to a court-appointed trustee. Assets are distributed to creditors as full satisfaction of debts, with certain priorities and exemptions. A person, firm or corporation may declare bankruptcy under one of several chapters of the U.S. Bankruptcy Code: Chapter 7 covers liquidation of the debtor's assets; Chapter 11 covers reorganization of bankrupt businesses; Chapter 13 covers payments of debts by individuals through a bankruptcy plan.

Basis Point - 1/100 of 1% (0.01%).

Beneficiary - The entity or individual designated to receive the income from a trust, insurance policy, estate or trust deed. In a deed of trust, the lender is referred to as the beneficiary.

Buydown - A sum of money paid to the lender at closing to reduce the borrower's out-of-pocket monthly payment. A buydown can be temporary or permanent.

C
Cap - A limit placed on payments, interest rates and/or the balance of a loan. Caps can limit increases by either a dollar amount or a percentage.

Co-Borrower - A party who signs the mortgage note along with the borrower and who shares the title to, and the obligation to pay for, the property with the borrower. Also called "co-mortgagor."

Commitment - An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to compliance with stated conditions.

Commitment Fee - A sum of money paid by the seller of mortgages to the investor in return for the investor's commitment to purchase a package of loans at some future date. This can be a nonrefundable fee or it can be in the form of a refundable fee to be repaid to the seller upon fulfillment of the commitment.

Co-Mortgagor - See Co-Borrower.

Condominium - A form of ownership of real property. The purchaser receives title to a particular unit and a proportional interest in certain common areas. A condominium generally defines each unit as a separately owned space limited to the interior surfaces of the perimeter walls, floors and ceilings. Title to the common areas is in terms of percentages and refers to the entire project less the separately owned units.

Constant Renewal - An insurance renewal where the premium amount is based on the original amount of the loan -- not on the outstanding balance.

Construction Loan - A short-term interim loan for financing the cost of construction of real property. Payments are made to the builder at periodic intervals as the construction progresses.

Construction Loan Agreement - A written agreement between a lender and/or a borrower and a builder in which the specific terms and conditions of construction and/or the construction loan, including the schedule of payments, are spelled out.

Construction Loan Draw - The periodic/partial disbursement of the construction loan, based on the schedule of payments in the loan agreement.

Contingent Liability - A debt for which the borrower has cosigned or that the borrower has guaranteed on behalf of another party who is not part of the mortgage insurance request, such as a car loan or a property sold through an assumption. The debt, or "liability" is contingent because the borrower is only obligated for its payment if the other party fails to make timely, regular payments.

Conventional Loan - A mortgage loan not insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA) or Farmers Home Administration (FmHA). No governmental agency approval is required of the lender, borrower or property. It is called "conventional" because it conforms to accepted standards, modified within legal bounds by mutual consent of the borrower and the lender. Also called "conventional residential mortgage."

Co-Operative - A form of multiple ownership of real estate in which a corporation or business trust entity holds title to a property and grants the occupancy rights to particular apartments or units to shareholders by means of proprietary leases or similar arrangements.

Co-Signer - A party who signs the mortgage note along with the borrower, but who does not own or have any interest in the title to the property.

Coupon Rate - The annual interest rate shown on the face of a mortgage note.

Creditor - A person to whom a debt is owed by another person who is the "debtor."

Credit Report - A document completed by a credit-reporting agency providing information about the buyer's credit cards, previous mortgage history, bank loans and public records dealing with financial matters.

D
Debt - A sum of money due by certain and express agreement.

Deed - The formal written document that transfers the rights of ownership and possession (that is, the title) from the seller to the buyer.

Deed in Lieu of Foreclosure - A transfer of title to real property, from a delinquent mortgagor to the mortgagee, given voluntarily to satisfy the balance due on a defaulted loan and to avoid foreclosure proceedings. Also called "voluntary conveyance."

Deed of Trust - A legal document, which conveys title to real estate to a disinterested third party (trustee) who holds the title until the owner of the property has repaid the debt. In states where it is used, a deed of trust accomplishes essentially the same purpose as a regular mortgage. Also called "trust deed" or "trust indenture." In some states, this is used in place of a mortgage. Three people are involved in a deed of trust: the borrower, the lender and the trustee. The borrower transfers the legal title for the property to the trustee who holds the property as a security for the debt. If the borrower pays the mortgage as agreed, the trustee gives the legal title to the owner. If the borrower does not pay the mortgage as agreed, the trustee can sell the property. (See Mortgage.)

Default - 1) A breach or nonperformance of the terms of a note or the covenants of a mortgage or deed of trust. 2) The failure to do what law or the terms of a contract requires.

Deferred Interest - With adjustable-rate mortgages (ARMs), if monthly payments do not cover the interest cost, the interest left unpaid is deferred to later years by adding it to the unpaid principal balance. In subsequent months, charged interest is added to this unpaid interest. Many lenders limit deferred interest. For example, by not allowing it to go above 125% of the original mortgage loan balance. If the unpaid balance exceeds the limit placed by the lender, the borrower can no longer defer interest and must begin making payments large enough to fully pay what is due over the remaining term. In this case, the payments can increase suddenly and significantly. Deferred interest can occur when choosing a graduated-payment option (see Graduated Payments), where the loan starts out below current rates but an agreement to pay the difference (the deferred interest) in later years is made. Deferred interest can also occur when choosing a monthly payment cap. (See Cap.)

Delinquent - A loan payment that has not been received 30 days after its due date.

De Minimus PUD - A planned unit development (PUD) in which the common areas are of minimal value and have little influence on the enjoyment of the premises or the value of the property.

Depreciation - A lowering of value based on physical deterioration or functional or economic obsolescence.

Disbursements - Payments made during the course of an escrow or at closing.

Discount - The amount of money, usually stated as a percentage, deducted from the face value of a note. The borrower receives the net amount after the discount has been deducted. The discount is computed to give the effective rates of interest agreed upon.

Down Payment - The difference between the sales price of real estate and the amount of the mortgage loan.

Dwelling Unit - The living quarters occupied, or intended for occupancy, by a household.

E
Early-Ownership Mortgage - A mortgage in which the monthly payments will generally increase at a specified level for a set period of time and then remain constant. The initial monthly payments will generally equal the normal amortizing payment for the stated initial amortization period with increases in the payment being applied to the outstanding principal balance of the loan causing the loan term to be less than the initial amortization period. For example, a loan with an initial amortization period of 30 years, interest rate of 7.5% and four annual payment increases of 5% will be paid off in approximately 20 years.

Easement - A right to the enjoyment or access of land held by another. An easement is a no ownership interest in land.

Encroachment - An improvement that intrudes or invades illegally upon another's property.

Equity - The owner's interest, or the amount of cash the owner has, realized, paid in or invested in real estate.

Equity Erosion - A loss of equity due to negative amortization, a decline in property value, or a combination of both.

Equity Refinance - The borrower obtains a new loan, taking cash out of the equity, which has built up, in the original loan, resulting in a larger loan balance than the original loan. Also called "cash take-out refinance."

Escrow Account - An account held by the lending institution to which the borrower pays monthly installments for property taxes, insurance and special assessments, and from which the lender disburses these sums as they become due.

Escrow Agreement - An agreement to allocate funds to be set-aside in a special account to guarantee payments that occur after settlement.

Escrow Cushion - A small excess amount of funds, which many lenders may require, be kept in an escrow account.

Escrow Payment - The portion of a borrower's monthly payment that is set aside by the lender in an escrow account to pay the taxes, hazard insurance, mortgage insurance, ground rents and other special items as they come due.

F
Fannie Mae - See Federal National Mortgage Association.

Federal Home Loan Mortgage Corporation (FHLMC) - A publicly owned corporation created by Congress to support the secondary mortgage market. It purchases and sells conventional residential mortgages as well as residential mortgages insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA).

Federal Housing Administration - A federal agency within the U.S. Department of Housing and Urban Development (HUD). Using loan insurance programs to insure mortgages for lenders, the Federal Housing Administration (FHA) stimulates the availability of housing for low- and moderate-income families.

Federal National Mortgage Association (FNMA) - A publicly owned corporation created by Congress to support the secondary mortgage market. It purchases and sells conventional residential mortgages as well as residential mortgages insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA).

FHLMC - See Federal Home Loan Mortgage Corporation.

Fixed Interest Rate - A mortgage feature that structures the loan so that there will be no increases or decreases in the interest rate during the life of the loan.

Fixed Monthly Payment - A feature in a loan that prevents increases or decreases in the monthly payment amount during the life of the loan.

Fixed-Rate Mortgage - The type of loan in which the interest rate will not change for the entire term of the loan.

FNMA - See Federal National Mortgage Association.

Forbearance - An effort made by the lender to offer the borrower a method of, or alternatives to, making a loan current if it is in default.

Forbearance Agreement - A verbal or written agreement that the lending institution will delay exercising its right to foreclose on a loan as long as the borrower performs certain agreed-upon terms and conditions.

Foreclosure - An action to eliminate the interest of a borrower in real estate so as to give the lender good title.

Freddie Mac - See Federal Home Loan Mortgage Corporation.

Fully Indexed Accrual Rate - The base index value of an adjustable-rate mortgage (ARM) plus the highest gross margin during the life of the loan.

G
GEM - See Growing Equity Mortgage.

Gift Letter - A letter or affidavit that indicates that part of a borrower's down payment is supplied by relatives or friends in the form of a gift and that the gift does not have to be repaid.

Good Faith Estimate - Provides a breakdown of the estimated closing charges.

Government National Mortgage Association - A government corporation within the Department of Housing and Urban Development (HUD) that provides assistance for the purchase of certain Federal Housing Administration (FHA) and Veterans Administration (VA) mortgages and guarantees securities backed by pools of mortgage loans.

GPM - See Graduated-Payment Mortgage.

Graduated-Payment Mortgage - A mortgage in which the monthly payments will generally increase for a set period of time and then reach an amount that remains constant for the rest of the amortization period. This increasing payment feature can be incorporated into fixed-rate or floating-rate loans. For example, the borrower may agree to make initial monthly payments of $700 that will rise gradually to $900 by the fifth year, where the payment will stay for the remainder of the loan.

Graduated-Payment Period - The time frame during which a borrower's monthly payments cover only part of the actual amount needed to amortize the loan, with the payment obligation increasing annually. This time period and the specific payment amounts may result in negative amortization if there is no pledged account to supplement the borrower's payment.

Graduated Payments - The amount a borrower pays initially covers only part of the actual amount needed to amortize the loan. Payments increase annually during the first few years of the loan and then ultimately level off. Such payments may result in negative amortization if there is no pledged account to supplement the borrower's payment.

Growing Equity Mortgage - A fixed-rate mortgage that has varying monthly payments. Principal and interest payments may rise monthly, semi-annually or yearly, depending on the payment schedule agreed upon. Any extra payments reduce the loan principal and the loan term.

H
Hazard Insurance - A broad form of casualty insurance coverage for real estate that includes protection against loss from fire, certain natural causes, vandalism and malicious mischief.

Homestead Exemption - A state statutory exemption that protects homestead property, usually to a set amount, against the attachment rights of creditors. Property tax exemptions for all or part of the tax are also available in some states. Statutory requirements to establish a homestead may include a formal declaration to be recorded.

I
Improvements - Any permanent structures on land such as buildings, fences and driveways, as well as landscaping, drainage, utilities, etc.

Income Approach - A method of establishing market value by using rental income as a factor for calculating value.

Index - 1) Measurement used by lenders in a market to determine changes in an accrual rate. This can be based on a published, independent measure of current interest rates, such as a Treasury bill. An index must be readily verifiable by the borrower and beyond the control of the lender. It provides a guideline that should accurately reflect the current cost of lending money. 2) A measure of prevailing market interest rates. The index is used with the margin to determine a new interest rate at the time of adjustment. If the index increases, the interest rate increases unless an interest rate cap is reached. Often, these interest rates are the rates for the U.S. Treasury securities. Treasury securities have become popular as indexes because they are easy to monitor and reflect economic conditions accurately.

Initial Interest Rate - The beginning interest rate at the start of an adjustable-rate mortgage (ARM). It may be lower than the fully indexed rate or "going market rate" and it will remain constant until it is adjusted up or down on the adjustment date.

Insured Loan - A loan insured by the Federal Housing Administration (FHA) or a private mortgage guaranty insurance company.

Interest - 1) A charge for borrowing money. It is usually expressed on an annual rate, or as a percentage, of the money still owed. For example, the interest rate might be 10%. If a person borrowed $10,000 and agrees to pay it in full at the end of one year, the interest will be $1,000. 2) A right, share or title in property. 3) A general term meaning partial or total right to a property. An interest in real estate might be a right, such as an easement (see Easement), a lease or partial or full ownership.

Interest-Only Mortgage - A mortgage in which the borrower makes monthly payments of interest only for a specified period of time.

Interest Rate - The percentage of an amount of money, which is paid for its use for a specified time; usually expressed as an annual percentage.

J
Judicial Foreclosure - A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court. Also called "foreclosure by action and sale."

Junior Lien - A loan secured by a mortgage that does not stand in a first lien position. Also called "junior (or second or third) mortgage."

Junior Lien holder - An individual or entity owning a junior lien.

L
Late Charge - An additional charge a borrower is required to pay as a penalty for failure to pay a regular mortgage loan installment when due; a penalty for a delinquent payment.

Letter of Demand (Payoff Statement) - A prepared, formal statement showing the current status of the loan account, all sums due on a date certain to fully pay the loan balance, and the daily rate of interest.

Lien - A legal encumbrance or claim of one person on the property of another as security for a debt or charge.

Lien holder - Any person or organization that holds a legal claim over the specific property of another as security for debt.

Liquidity - The amount an individual or entity holds in cash, checking and savings accounts and other assets quickly convertible to cash without any significant loss.

Loan - The letting out or renting of money by a lender to a borrower, to be repaid with or without interest.

Loan Balance - The amount of principal that a borrower owes.

Loan Balance Cap - Only applicable to adjustable-rate mortgages (ARM's) with deferred interest or negative amortization (see Deferred Interest). Because the loan balance may increase with ARM's, many lenders place limits on how much deferred interest may be added to the original loan balance. If, during the life of the loan, the unpaid principal owed exceeds this limit, the borrower can no longer defer interest. The monthly payment must be increased (perhaps significantly, resulting in "payment shock") to pay all monthly interest due and enough of the monthly principal to fully pay off the loan within its remaining life.

Loan Closing - A meeting between borrower and lender in which transfer of ownership is accomplished, funds and deed are exchanged, and all loan documents, including the promissory note and mortgage, are signed.

Loan Modification - Any change in the terms of the loan, any change in the property on any change in borrower's liability for the loan.

Loan Servicing Department - The division of a mortgage lending institution that is responsible for servicing the terms and conditions of the loan agreement. The duties of a loan servicing department include the collection of payments, interest, principal, trust items such as hazard insurance and taxes, and conducting foreclosures. Servicing duties also consist of operational procedures covering accounting, bookkeeping, insurance, tax records, loan payment follow-up and loan analysis. A fee is charged to the borrower for these services.

Loan to Value - Mathematical computation that compares the loan amount to the value of the property.

Loan-to-Value Ratio - The ratio, expressed as a percentage, of the amount of a loan (numerator) to the value or selling price of real property (denominator). Usually, the higher the percentage, the greater the interest charged. Maximum percentages for banks, savings and loans, or government-insured loans are set by statute.

Lot Equity - If a borrower owns the land and is seeking a mortgage for a home under construction, the value of the land may be recognized as a down payment equivalent to cash.

LTV - See Loan to Value and Loan-to-Value Ratio.

M
Margin - Under the terms of an adjustable-rate mortgage (ARM), the margin is a premium that a lender charges which is added to the index. This premium is typically two or three percentage points. Once the lender specifies the margin, it remains fixed.

Market Value - An estimate of the probable price a property would sell for within a reasonable period of time, on the open market under normal conditions, and between a willing, ready and able buyer and seller.

Mortgage - A pledge or security for the payment of a debt.

Mortgage Banker - An entity or individual active in the field of mortgage banking. Mortgage bankers, as local representatives of regional or national institutional lenders, act as correspondents between lenders and borrowers.

Mortgage Banking - 1) The origination, sale and servicing of mortgage loans by a firm or individual. 2) The packaging of mortgage loans secured by real property to be sold to a permanent investor with servicing usually retained by the originator for the life of the loan for a fee.

Mortgage Broker - An individual or firm that acts as an agent for both the borrower and the lender of a mortgage loan. The broker places the borrower and lender in contact with each other, and receives a commission from the borrower if a loan results. Unlike a mortgage banker, a mortgage broker does not negotiate the terms of the loan, issue a loan commitment, prepare the loan documents or service the loan.

Mortgage Commitment - An agreement between the borrower and the lender to disburse a mortgage loan at a future date if specified terms and conditions are satisfied.

Mortgagee - The institution, group or individual that lends money on the security of pledged real estate; the association, the lender.

Mortgage Guaranty Insurance - Insurance written by an independent mortgage guaranty insurance company that protects the mortgage lender against loss incurred by a mortgage default, thus enabling the lender to lend a higher percentage of the sales price. Private companies, such as MGIC, offer this insurance. The federal government writes this form of insurance through the Federal Housing Administration (FHA).

Mortgage Guaranty Insurance Premium - The amount paid by a mortgagor for mortgage guaranty insurance either to the FHA or a private mortgage guaranty insurance company.

Mortgage Lender - A classification used to describe those institutions or organizations at least partially engaged in the primary mortgage market -- that is, extending funds directly to the borrower.

Mortgage Note - A written promise to pay a sum of money at a stated interest rate during a specified term. It is usually secured by a mortgage.

N
Negative Amortization - The gradual increase in the balance of a loan, caused by adding unpaid interest to the loan balance. The unpaid interest is a result of monthly payments being less than the amount required to pay the interest. Negative amortization can occur on a potential or scheduled basis.Potential negative amortization: a) Negative amortization that results from borrower optional payment caps. b) Scheduled negative amortization: Negative amortization that is scheduled to occur during the life of the loan.

Nonowner-Occupied Property - Property purchased by a borrower not for a primary residence but as an investment with the intent of generating rental income, tax benefits and profitable resale.

Note - A written promise by one party to pay a specified sum of money to a second party under conditions agreed upon mutually. Also called "promissory note."

Note Rate - The interest rate on the mortgage loan.

Notice of Default - A notice recorded after the occurrence of a default under a deed of trust or mortgage. Typically required by an interested third party that has insured or guaranteed the loan.

O
Open-End Mortgage - A mortgage with a provision that the outstanding loan amount may be increased upon mutual agreement of the lender and the borrower.

Origination Fee - The fee that the lender charges the borrower to cover the cost of issuing a loan commitment. It pays for processing the loan, which includes collecting information about the borrower's creditworthiness and the property. The fee is usually computed as a percentage (for example, 1%) of the mortgage loan. It usually does not include fees for appraisals, credit reports, inspections and loan document preparation.

Owner-Occupied Property - The borrower lives in the property as a primary residence.

P
PITI - See Principal, Interest, Real Estate Tax, Insurance.

PITI Ratio - Compares the amount of the monthly income to the amount the borrower will owe each month in principal, interest, real estate tax and insurance on a mortgage. It is used by lenders in deciding whether to give the borrower a loan. (Compare to Qualifying Income Ratio.)

Planned Unit Development - A project that may consist of any combination of one- to four-family homes, condominiums and other styles of residential housing. The individual owner owns the individual unit and often the real estate under it. The common facilities are owned and maintained by a homeowners' association.

Pledged Account - Funds put into an account to cover the difference in monthly payments of a graduated-payment mortgage loan. Money is withdrawn to supplement the lower monthly principal and interest payment to bring it up to the necessary amount needed to amortize the loan within the contracted term.

Points - An amount equal to one percent of the principal amount of a note. Loan discount points are a one-time charge assessed at closing by the lender to increase the yield on the mortgage loan to a competitive position with other types of investments.

Prepaid Interest - Interest that the borrower pays the lender before it becomes due.

Prepayment - A loan repayment made in advance of its contractual due date.

Prepayment Penalty - A penalty under a note, mortgage or deed of trust imposed when the loan is paid before its maturity date.

Principal Balance - The outstanding balance of a mortgage, exclusive of interest and any other charges. The capital sum of a loan.

Principal, Interest, Real Estate Tax, Insurance (PITI) - The total mortgage payment, which includes principal, interest, taxes and insurance.

Property Appraisal - A supportable estimate of a property's market value determined by a trained and certified appraiser who measures the likelihood that a property will maintain its value over the duration of the loan.

Q
Qualifying Income Ratio - Income analysis used by lenders in deciding whether to offer the borrower a loan. One type of analysis compares only the amount of the proposed monthly mortgage payment to the monthly income. (See PITI Ratio.) Another compares the amount of the total monthly payments for all debt (for example, car, credit card and proposed mortgage payments) to the monthly income debt.

R
Real Estate Settlement Procedures Act - Federal legislation designed to help homebuyers compare settlement costs among lenders and to eliminate kickbacks.

Regulation Z - Federal regulation prescribed by the Federal Reserve Board to carry out the purposes of the Truth-in-Lending Act.

RESPA - See Real Estate Settlement Procedures Act.

Rate-and-Term Refinance - The borrower replaces a mortgage loan on the subject property with another mortgage loan for the purposes of getting a better interest rate and loan term.

Real Property - Land and anything permanently affixed to the land, such as fences, buildings and those things attached to the buildings, such as light fixtures or plumbing. May refer to rights in real property as well as the property itself.

Recasting - An adjustment to the current mortgage -- a loan modification -- that does not involve the issuance of a new mortgage guaranty insurance certificate. With a recast loan, a modification may be made in the type of instrument involved. In whatever form a recast loan takes, the major benefit to the borrower is the potential for substantially reduced mortgage payments.

Redemption Period - The time period in a foreclosure in which a borrower in default cannot be divested of legal title or evicted and can exercise the right to redeem the property by paying the debt in full.

Refinance - 1) To change a loan from one financial institution to another, or to rewrite the terms of a loan contract within the existing lending institution. 2) The payment of a debt from the proceeds of a new loan, using the same property as security.

Reinstatement - Occurs when a borrower cures a mortgage default. A mortgage is reinstated if it is brought up to date by paying all charges that had become overdue.

S
Secondary Market - An informal market where existing mortgages are bought and sold. It is the traditional aftermarket for mortgage loans that brings together lenders that sell mortgages with lenders, investors and agencies that buy mortgages. Also called "secondary mortgage market," it should not be confused with a second mortgage.

Servicing - All the management and operational procedures that the mortgage company handles for the life of the mortgage, up through foreclosure if necessary, including: collecting the mortgage payments, ensuring that the taxes and insurance charges are paid promptly, and sending an annual report on the mortgage and the escrow accounts. (See Escrow Account.)

Servicing Released - A loan sale in which the original lender relinquishes loan servicing responsibilities to the institution or investor purchasing the loan.

Servicing Retained - A loan sale in which the original lender's servicing department continues to service the loan after the sale to a secondary institution or investor.

Sold Loan - A mortgage loan that has been sold to another institution or investor. Sold loans may continue to be serviced by the seller.

Standard Mortgage - A type of mortgage loan that carries a fixed interest rate and has fixed monthly payments over the life of the loan. Traditionally, the most common type of conventional mortgage loan.

Subordinate Lien - A lien by which an encumbrance is made subject to or junior to the original lien.

Survey - A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions and the location and dimensions of any improvements.

T
Tax Lien - A lien on a property by local, state or federal government for the amount of due and unpaid taxes.

Term - The time period granted for repayment of a loan. Also known as "loan term."

Third Party - A general term that includes anyone not a party to a contract, agreement, instrument, etc.

Title Insurance Policy - A contract by which the insurer, usually a title insurance company, indicates who has legal title and agrees to pay the insured a specific amount of any loss caused by clouds, claims or defects of title to real estate, where the insured has an interest as owner, mortgagee or otherwise. Owner's Title Policy: Usually issued to the landowner himself. The owner's title insurance policy is bought and paid for only once and then continues in force without any further payment. Owner's Title Insurance policies are not assignable. (b) Mortgagee's Title Policy: Issued to the mortgagee and terminates when the mortgage debt is paid. In the event of foreclosure, or if the mortgagee acquires title from the mortgagor in lieu of foreclosure, the policy continues in force, giving continued protection against any defects of title which existed at, or prior to, the date of the policy.

Total Principal Balance - The sum of the outstanding principal balances of the loans in the package.

Truth-in-Lending Act - Federal legislation that provides borrowers with specific information on the cost of obtaining credit.

V
Variable-Rate Mortgage - A long-term mortgage loan in which the interest rate may vary or float periodically throughout the term of the loan. The fluctuations are generally based on an interest rate index and are restricted under the terms of the mortgage. Also called "adjustable-rate mortgage."

W
Work Equity - Work to be completed by a borrower on a home under construction that may be applied as part of a down payment.

Wrap-Around Mortgage - When the borrower already owns a property or assumes an existing loan, and borrows more money, the lender combines the amount still owed on the home's existing loan with the new amount to form one wrap-around mortgage.