Glossary

A

A/P: (See Accounts Payable)

A/R: (See Accounts Receivable)

"A" credit customers: Consumers with impeccable credit, who can obtain a loan from traditional lenders.

Acceleration Clause: A provision in a mortgage that gives the lender the right to demand payment of the entire principal balance if a monthly payment is missed.

Acceptance: An offers consent to enter into a contract and be bound by the terms of the offer.

Accounting Manipulations: Creative accounting designed to fool the ones who need the information in order to make a decision. By cooking the books one may make a decision they would not otherwise and lose their investment.

Accounts Payable (Payables): The amount of money a company or individual owes for goods and services it has received; any outstanding debt that a company has.

Accounts Receivable (Receivables): A collection of a company's or individual's outstanding invoices (invoices which have not yet been paid by the company's customers).

Accounts Receivable Aging Report: A report showing how long invoices from each customer have been outstanding.

Acquisition: (See Mergers)

ACRS (Accelerated Cost Recovery System): Schedule of depreciation rates allowed for tax purposes.

Additional Principal Payment: A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan.

Adjustable-Rate Mortgage (ARM): A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified index.

Adjusted Basis: The original cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.

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

Adjustment Period: The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).

Administrator: A person appointed by a probate court to administer the estate of a person who died intestate.

ADR (American Depository Receipts): A security, created by a U.S. bank, that evidences ownership to a specified number of shares of a foreign security held in a depositary in the issuing company's country of domicile. The certificate, transfer, and settlement practices for ADRs are identical to those for U.S. securities.

Advance Rate: The percentage of the face amount of an income stream that a funding source will advance to a client.

Affordability Analysis: A detailed analysis of your ability to afford the purchase of a home taking into consideration your income, liabilities, and available funds, along with the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that you might expect to pay.

Agency Costs: Costs to the firm associated with the potential for conflict of interest between management and shareholders when these two groups are different.

Agency Theory: Theory concerning the relationship between a principal (shareholder) and an agent of the principal (company's managers) involving the costs of resolving conflicts between the principals and agents.

Amenity: A feature of real property that enhances its attractiveness and increases the occupant's or user's satisfaction although the feature is not essential to the property as use. Natural amenities include a pleasant or desirable location near water, scenic views of the surrounding area, etc. Human-made amenities include swimming pools, tennis courts, community buildings, and other recreational facilities.

AMEX: American Stock Exchange.

Amortization: The gradual, systematic payment of a debt, such as a mortgage or other loan, in installments of principal and interest for a definite time, so that at the end of that time, the debt will have been paid in full.

Amortized Loans: Loans that are paid off in equal periodic payments.

Amortization Schedule: A timetable for payment of a mortgage loan. An amortization schedule shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made.

Amortization Term: The amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360 months.

Amortize: To repay a mortgage with regular payments that cover both principal and interest.

Annual Mortgagor Statement: A report sent to the mortgagor each year. The report shows how much was paid in taxes and interest during the year, as well as the remaining mortgage loan balance at the end of the year.

Annual Percentage Rate (APR): The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance, and loan origination fee (points).

Annuity: An amount paid yearly or at other regular intervals, often on a guaranteed dollar basis. Basically an investment that generates a stream of equal cash flows.

Anti-takeover Tactics: Tricks such as the Poison Pill put in place either by workers, management or stockholders to make any transition of ownership too expensive or too much of a hassle to take place.

Application: A form used to apply for a mortgage loan and to record pertinent information concerning a prospective mortgagor and the proposed security.

Appraisal: A written analysis of the estimated value of a property prepared by a qualified appraiser. Contrast with home inspection.

Appraised Value: An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.

Appraiser: A person qualified by education, training, and experience to estimate the value of real property and personal property.

Appreciation: An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.

ARB: Arbitrage (See arbitrage)

Arbitrage: Simultaneous purchase of a security and sale of another to generate a risk-free profit. Also known as risk arbitrage.

Arbitrageur: A person involved in arbitrage.

Arrearage: An overdue payment, generally referring to omitted preferred stock dividends.

Articles of Incorporation: A document filed with a U.S. state by the founders of a corporation. After approving the articles, the state issues a Certificate of Incorporation; the two documents together become the Charter of Incorporation.

Ask (Asking Price): The highest price anyone wants to pay for the security at a given time.

Assessed Value: The valuation placed on property by a public tax assessor for purposes of taxation.

Assessment: The process of placing a value on property for the strict purpose of taxation. May also refer to a levy against property for a special purpose, such as a sewer assessment.

Assessment Rolls: The public record of taxable property.

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

Asset: Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).

Asset Allocation: The process of determining the optimal division of an investor's portfolio among different assets. Most frequently this refers to allocations between debt, equity, and cash.

Assignability: The ability to assign (or sell) an income stream to another individual or business.

Assignee: The person or business entity who is given, obtains, or buys the right to an asset.

Assignment: The transfer of ownership, rights, or interests in property by one person, the assignor, to another, the assignee.

Assignor: The person giving or selling an asset, and subsequently, forfeiting rights to that asset.

Assumable Mortgage: A mortgage that can be taken over (assumed) by the buyer when a home is sold.

Assumption: The transfer of the sellers existing mortgage to the buyer. See assumable mortgage.

Assumption Clause: A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property.

Assumption Fee: The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.

Asymmetric Information: One group has more information about, say, on the well being of the company, than another. An example would be managers having more intimate knowledge about the company than a typical shareholder.

Attorney-In-Fact: One who holds a power of attorney from another to execute documents on behalf of the grantor of the power.

Average Maturity: The average time to maturity of securities held by a mutual fund. Changes in interest rates have greater impact on funds with longer average life.

Average Tax Rate: The rate calculated by dividing the total tax liability by the entity's taxable income.

B

"B" through "D" credit customers: These consumers have less than perfect to bad credit and usually cannot qualify for traditional financing. Also called sub-prime credit customers.

Bad Debt: For investors who would not invest in risky assets unless they get compensated an amount that it commensurate with the riskiness of the asset. Thus, risk is said to be bad.

Balance Sheet: A financial statement that shows assets, liabilities, and net worth as of a specific date.

Balanced Mutual Fund: This is a mutual fund that buys common stock, preferred stock and bonds.

Balloon Mortgage: A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term.

Balloon Payment: The final lump sum payment that is made at the maturity date of a balloon mortgage.

Bankers' Acceptance: A draft drawn on a specific bank by a seller of goods to obtain payment of goods that have been sold to a customer. The customer maintains an account with that specific bank.

Bankrupt: A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee.

Bankruptcy: A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee.

Basis Point: Used to measure changes in yields of bonds.

Bearer: The legal owner of a piece of property.

Bear Market: General decline in security prices.

Before-Tax Income: Income before taxes are deducted.

Beginning Net Asset Value: The market value of a fund share on a predetermined start date.

Beneficiary: The person designated to receive the income from a trust, estate, or a deed of trust.

Bequeath: To transfer personal property through a will.

Best Ask: The lowest quoted offer of all competing Market Makers to sell a particular stock at any given time.

Best Bid: The highest quoted bid of all competing Market Makers to buy a particular stock at any given time.

Best Effort Purchase: A method of selling newly issued securities whereby the underwriters are expected to sell as many securities as possible. They are not obligated to sell the entire subscription. (See firm commitment)

Beta: A relative (to a benchmark) measure of risk. Measures of an asset's non-diversifiable -- market-- risk. See also systematic risk.

Betterment: An improvement that increases property value as distinguished from repairs or replacements that simply maintain value.

Bid: The lowest price anyone wants to sell the security for at a given time. (See: Ask, and Bid-Ask Spread)

Bid-Ask Spread: The difference between the bid and the ask for a security at a given time.

Big Board: refers to the New York Stock Exchange (NYSE).

Bill: Debt that has less than 1-year maturity at time of issue.

Bill of Lading: A shipping document which gives instructions to the company transporting the goods.

Bill Of Sale: A written document that transfers title to personal property.

Binder: A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.

Biweekly Payment Mortgage: A mortgage that requires payments to reduce the debt every two weeks. The 26-27 biweekly payments over the year are each equal to one-half of the monthly payment that would be required if the loan were a standard 30-year fixed-rate mortgage resulting in a substantial savings in interest.

Blanket Insurance Policy: A single policy that covers more than one piece of property (or more than one person).

Blanket Mortgage: The mortgage that is secured by a cooperative project, as opposed to the share loans on individual units within the project.

Blue Chips: The stocks in the Dow Jones Industrial Average.

Bona Fide: In good faith, without fraud.

Bond: An interest-bearing certificate of debt with a maturity date. An obligation of a government or business corporation. A real estate bond is a written obligation usually secured by a mortgage or a deed of trust.

Bond Par Value: The face value that is to be returned to a bondholder at maturity.

Bond Covenants: A contractual provision in a bond indenture. Positive covenant requires certain actions while a negative covenant limits certain actions.

Book to Bill: This is the semiconductor book to bill ratio. It reports on the amount of semiconductor chips that are booked for delivery as compared with those that companies already have billed for.

Book Value: The depreciated value of a company's assets (original cost less accumulated depreciation) less the outstanding liabilities.

Borrower (Mortgagor): An individual who applies for and receives funds in the form of a loan and is obligated to repay the loan in full under the terms of the loan.

Breach: A violation of any legal obligation.

Bridge Loan: A form of second trust that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as swing loan

Broker: A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them. See mortgage broker.

Brokerage Commission: The amount of money your brokerage house would charge for a given transaction (buy/sell). This is how these firms make their living.

Brokers Calls: Individuals who buy stocks on margin borrow part of the funds to pay for the stocks they buy from their broker. The broker in turn may borrow the funds from a bank, agreeing to repay the bank immediately (on call) if the bank requests it. The rate paid on such loans is usually about 1% higher than the rate on short-term Treasury bills.

Bubbles: (See Efficient Market Hypothesis - EMH)

Budget: A detailed plan of income and expenses expected over a certain period of time. A budget can provide guidelines for managing future investments and expenses.

Budget Category: A category of income or expense data that you can use in a budget. You can also define your own budget categories and add them to some or all of the budgets you create. Rent is an example of an expense category. Salary is a typical income category.

Building Code: Local regulations that control design, construction, and materials used in construction. Building codes are based on safety and health standards.

Bull Market: A market with the general prices advancing.

Bullish: One who believes the general market will rise. (See Bear)

Buyback: When a firm repurchases its own stock from the public.

Buydown Account: An account in which funds are held so that they can be applied as part of the monthly mortgage payment as each payment comes due during the period that an interest rate buydown plan is in effect.

Buydown Mortgage: A temporary buydown is a mortgage on which an initial lump sum payment is made by any party to reduce a borrower's monthly payments during the first few years of a mortgage. A permanent buydown reduces the interest rate over the entire life of a mortgage.

C

Call Option: A provision of a note which allows the lender to require repayment of the loan in full before the end of the loan term. The option may be exercised due to breach of the terms of the loan or at the discretion of the lender.

Caps (interest): Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage can change in an adjustment interval and/or over the life of the loan. For example, if your per-period cap is 1% and your current rate is 7%, then your newly adjusted rate must fall between 6% and 8% regardless of actual changes in the index.

Caps (payment): Consumer safeguards which limit the amount monthly payments on an adjustable-rate mortgage may change. Since they do not limit the amount of interest the lender is earning, these consumer safeguards may cause negative amortization.

Cash flow: The flow of cash through a business or household. In business terms, cash flow involves the flow of cash into a company in the form of revenues, and out of the company in the form of expenses.

Cash flow broker: Professional whose primary purpose is to unite income stream sellers with funding sources. They may operate as referral sources or as the primary liaison for cash flow transactions.

Cash flow industry: The buying, selling, and brokering of privately held debt in the secondary marketplace; the marketplace where businesses and individuals get help managing their cash flow needs.

Cash flow instrument: Future payment or series of payments. Also called a debt instrument or income stream.

Cash flow specialist: A cash flow professional who brokers cash flow transactions or buys cash flow instruments.

Cash flow transaction: Occurs whenever a funding source pays cash to an individual or business in exchange for an income stream.

Cash Out: Any cash received when you get a new loan that is larger than the remaining balance of your current mortgage, based upon the equity you have already built up in the house. The cash out amount is calculated by subtracting the sum of the old loan and fees from the new mortgage loan. For example, if your existing loan is $100,000, you might refinance it with a loan of $120,000. After you pay off your current loan ($100,000) and any loan-origination costs for the new loan (for example point fees of $2,000), you would be left with $18,000 cash out. Cash-out loans may not be available for all types of property.

Cashier's Check (or Bank Check): A check whose payment is guaranteed because it was paid for in advance and is drawn on the bank's account instead of the customer's.

Ceiling: The maximum allowable interest rate of an adjustable rate mortgage.

Certificate of Eligibility: Document issued by the Veterans Administration to qualified veterans which verifies a veteran's eligibility for a VA guaranteed loan. Obtainable through local VA office by submitting form DD-214 (Separation Paper) and VA form 1880 (request for Certificate of Eligibility).

Certificate of Title: Written opinion of the status of title to a property, given by an attorney or title company. This certificate does not offer the protection given by title insurance.

Certificate of Veteran Status: FHA form filled out by the VA to establish a borrower's eligibility for an FHA Vet loan. Obtainable through local VA office by submitting form DD 214 (Separation Paper) with form 26-8261a (request for certificate of veteran status).

Chain of Title: The chronological order of conveyance of a property from the original owner to the present owner.

Chattel mortgage: A mortgage on personal property, given to secure a debt. Typically used in the sale of a business. Also called a security agreement.

Closing (or Settlement): The settlement or closing is the conclusion of your real estate transaction. It includes the delivery of your security instrument, signing of your legal documents and the disbursement of the funds necessary to the sale of your home or loan transaction (refinance).

Closing Costs: Costs for services that must be performed before your loan can be initiated. Examples include title fees, recording fees, appraisal fee, credit report fee, pest inspection, attorney's fees, taxes, and surveying fees.

COFI: Cost of Funds Index. An index of the weighted-average interest rate paid by savings institutions for sources of funds, usually by members of the 11th Federal Home Loan Bank District.

Collateral: Something of value (land, a home, a car, etc.) that is pledged as security to ensure the payment of a debt. Collateral is promised to a lender until a loan is repaid. If the borrower defaults, the lender has the right, by law, to seize the collateral.

Collateral-based income streams: Cash flow instruments that are secured by collateral.

Collectibility: Refers to the funding source's ability to collect future income stream payments once they are purchased.

Commission: Fee paid to a broker for executing or referring a cash flow transaction.

Commitment: A promise to lend and a statement by the lender of the terms and conditions under which a loan is made.

Condominium: A form of property ownership in which the homeowner holds title to an individual dwelling unit and a proportionate interest in common areas and facilities of a multi-unit project.

Conforming Loan: A mortgage loan which meets all requirements to be eligible for purchase by federal agencies such as FNMA and FHLMC. The maximum conforming loan amount is currently $227,150 for a one unit property.

Consumer-based income streams: Cash flows in which the party that owes payments is a consumer, a private individual.

Contingency: A condition which must be satisfied before a contract is legally binding.

Contingency-based income streams: Cash flows in which the recipient is not necessarily legally entitled to receive payments, or in which the amount of the payment is uncertain or contingent upon outside factors.

Contract of Sale: The agreement between the buyer and seller on the purchase price, terms, and conditions of a sale.

Conventional Loan: Loans that are not made under any government housing program; they are not subject to the restrictions of government housing programs, such as loan size limits.

Conversion: The process of converting a qualified prospect into an active client.

Convertible ARMs: A type of ARM (adjustable rate mortgage) loan with the option to convert to a fixed-rate loan during a given time period.

Conveyance: The document used to effect a transfer, such as a deed, or mortgage.

Corporation: A legal entity, chartered by a U.S. state or the federal government, and separate and distinct from the persons who own it. It is regarded by the courts as an artificial person; it may own property, incur debts, sue or be sued.

Credit Report: A report detailing the credit history of a prospective borrower that's used to help determine borrower creditworthiness.

Creditor: One who is owed payments on a debt by a debtor.

D

Debt instrument: Future payment or series of payments, or a debt that one party owes to another party. Also known as income streams or cash flow instruments.

Debtor: One who owes something and makes payments to a creditor.

Deed: Legal document by which title to real property is transferred from one owner to another. The deed contains a description of the property, and is signed, witnessed, and delivered to the buyer at closing.

Deed of Trust: A legal document that conveys title to real property to a third party. The third party holds title until the owner of the property has repaid the debt in full.

Default: Failure to meet legal obligations in a contract, including failure to make payments on a loan.

Delinquency: Failure to make payments as agreed in the loan agreement.

Discount Points (or Points): Points are an up-front fee paid to the lender at the time that you get your loan. Each point equals one percent of your total loan amount. Points and interest rates are inherently connected: in general, the more points you pay, the lower the interest rate you get. However, the more points you pay, the more cash you need up front since points are paid in cash at closing.

Down Payment: The amount of your home's purchase price you need to supply up-front in cash to get your loan. For conventional loans, you should strive for a down payment that's at least 20% of your home's value, since lenders generally do not require private mortgage insurance with a down payment of at least 20% of your home's purchase price. (Note, however, that FHA and VA loans have different policies regarding insurance.)

Due diligence: Exhaustive research on a transaction, income stream, client, and/or payor. Due diligence may involve credit checks, appraisals, UCC searches, lien searches, or on-site visits with clients.

Due-on-Sale Clause: Provision in a mortgage or deed of trust allowing the lender to demand immediate payment of the loan balance upon sale of the property.

E

Earnest Money: Deposit made by a buyer towards the down payment in evidence of good faith when the purchase agreement is signed.

ECOA: Equal Credit Opportunity Act. A federal law requiring creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

Effective Rate: The effective rate is a consumer-oriented rate that takes into account the projected amount of time you tell us you will actually have the loan, as well as the specific costs, fees, and potential rate changes associated with it. The fees and costs are distributed over the time you plan to be in the house, allowing you to do an apples-to-apples comparison of a variety of loan types. The effective rate is not the APR. It is similar in that it factors in interest, mortgage insurance, and other fees (including points); however, the APR assumes that you keep your loan for the entire term, while the effective rate takes into account how long you tell us you plan to be in your house.

Equal Credit Opportunity Act (ECOA): Federal law requiring creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

Equity: The difference between the current market value of a property and the total debt obligations against the property. On a new mortgage loan, the down payment represents the equity in the property.

Escrow: A transaction in which a third party acts as the agent for seller and buyer, or for borrower and lender, in handling legal documents and disbursement of funds.

Escrow Account: An account held by the lender to which the borrower pays monthly installments, collected as part of the monthly mortgage payment, for annual expenses such as taxes and insurance. The lender disburses escrow account funds on behalf of the borrower when they become due. Also known as Impound Account.

Escrow Agent: A person with fiduciary responsibility to the buyer and seller, or the borrower and lender, to ensure that the terms of the purchase/sale or loan are carried out.

F

Face value: The current principal balance on an income stream.

Factor: A funding source that specializes in funding accounts receivable.

Factoring: The purchase of a business' accounts receivable at a discount.

Fannie Mae: A common nickname for the Federal National Mortgage Association. This agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.

Federal Home Loan Mortgage Corporation (FHLMC, or Freddie Mac): This agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.

Federal Housing Administration (FHA): A federal agency within the Department of Housing and Urban Development (HUD), which insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.

Federal National Mortgage Association (FNMA, or Fannie Mae): This agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.

Fee Simple: Absolute ownership of real property.

FHA: Federal Housing Administration. A federal agency within the Department of Housing and Urban Development (HUD), which insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.

FHA Loans: Fixed- or adjustable-rate loans insured by the U.S. Department of Housing and Urban Development. FHA loans are designed to make housing more affordable, particularly for first-time homebuyers. FHA loans typically permit borrowers to buy a home with a lower down payment than conventional loans. With FHA insurance, eligible buyers can purchase a home with a down payment as little as 3% of the appraised value or the purchase price whichever is lower. FHA borrowers typically are required to participate in a face-to-face meeting with their lender or a government approved mortgage counselor prior to closing on a new mortgage loan. The current FHA loan limit is $169,050, however, FHA loan amount limits may vary by county.

FHLMC: Federal Home Loan Mortgage Corporation. This agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.

Fictitious name: A legal statement filed when a person uses a name other than his or her own to operate a business.

First Mortgage: A mortgage which is in first lien position, taking priority over all other liens. In the case of a foreclosure, the first mortgage will be repaid before any other mortgages.

Fixed Rate: An interest rate which is fixed for the term of the loan.

Fixed-Rate Loans: Fixed-rate loans have interest rates that do not change over the life of the loan. As a result, monthly payments for principal and interest are also fixed for the life of the loan. Fixed-rate loans typically have 15-year or 30-year terms. With a fixed-rate loan, you will have predictable monthly mortgage payments for as long as you have the loan.

Flood Insurance: Insurance that compensates for physical damage to a property by flood. Typically not covered under standard hazard insurance.

FNMA: Federal National Mortgage Association. This agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.

Forbearance: The act by the lender of refraining from taking legal action on a mortgage loan that is delinquent.

Foreclosure: A legal proceeding in court to seize property given as security for a debt that is in default.

Freddie Mac: A common nickname for the Federal Home Loan Mortgage Corporation. This agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.

Funding source: An individual investor or an investment company that buys income streams.

G

Good Faith Estimate: Written estimate of the settlement costs the borrower will likely have to pay at closing. Under the Real Estate Settlement Procedures Act (RESPA), the lender is required to provide this disclosure to the borrower within three days of receiving a loan application.

Government-based income streams: Cash flows paid by a government entity, either directly or through an insurance company.

Grace Period: Period of time during which a loan payment may be made after its due date without incurring a late penalty. The grace period is specified as part of the terms of the loan in the Note.

Gross Income: Total income before taxes or expenses are deducted.

H

Hazard Insurance: Protects the insured against loss due to fire or other natural disaster in exchange for a premium paid to the insurer.

Housing and Urban Development (HUD): A U.S. government agency established to implement federal housing and community development programs; oversees the Federal Housing Administration.

HUD: Housing and Urban Development. A U.S. government agency established to implement federal housing and community development programs; oversees the Federal Housing Administration.

HUD-1 Uniform Settlement Statement: A standard form which itemizes the closing costs associated with purchasing a home or refinancing a loan.

Hypothecation: Borrowing funds from a lender, investing those funds in a debt instrument, and giving the lender a security interest in the debt instrument as the collateral for the loan

I

Income stream: A future payment or series of payments, or a debt that one party owes to another party. Also known as a debt instrument or cash flow instrument.

Impound Account: An account held by the lender to which the borrower pays monthly installments, collected as part of the monthly mortgage payment, for annual expenses such as taxes and insurance. The lender disburses impound account funds on behalf of the borrower when they become due. (Also known as Escrow Account.)

Index: A published rate used by lenders that serves as the basis for determining interest rate changes on ARM loans.

Initial Rate: The rate charged during the first interval of an ARM loan.

Institutional lenders: Savings and loan associations, local and regional banks, mortgage companies, finance companies, and commercial lenders.

Insurance-based income streams: Cash flows stemming from insurance companies and paid to individuals or businesses.

Intangible personal property: Something that has value but is not a tangible asset, for example, a trademark, copyright, patent, or trade secret.

Interest: Charge paid for borrowing money, calculated as a percentage of the remaining balance of the amount borrowed.

Interest Rate: The annual rate of interest on the loan, expressed as a percentage of 100.

Interest Rate Cap: Consumer safeguards which limit the amount the interest rate on an ARM loan can change in an adjustment interval and/or over the life of the loan. For example, if your per-period cap is 1% and your current rate is 7%, then your newly adjusted rate must fall between 6% and 8% regardless of actual changes in the index.

Investment-to-value ratio: A measure of how secure a creditor's position is and how likely the creditor is to recoup all of his or her money in the event of a foreclosure.

J

Joint Liability: Liability shared among two or more people, each of whom is liable for the full debt.

Joint Tenancy: A form of ownership of property giving each person equal interest in the property including rights of survivorship.

Joint Venture: A business entity established for a specific task, operation, or goal.

Jumbo Loan: A mortgage larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, currently over $227,150.

Junior Mortgage: A mortgage subordinate to the claim of a prior lien or mortgage. In the case of a foreclosure a senior mortgage or lien will be paid first.

K

L

Late Charge: Penalty paid by a borrower when a payment is made after the due date.

Lead: A piece of information of possible use in the search for a prospective client.

Lender: The bank, mortgage company, or mortgage broker offering the loan.

Leverage: The ratio of debt to total assets.

LIBOR (London Interbank Offered Rate): The interest rate charged among banks in the foreign market for short-term loans to one another. A common index for ARM (adjustable-rate mortgage) loans.

Lien: A legal claim by one person on the property of another for security for payment of a debt.

Limited liability company: A form of business structure designed to combine the best of corporate and partnership attributes into one entity.

Loan Application: An initial statement of personal and financial information required to apply for a loan.

Loan Application Fee: Fee charged by a lender to cover the initial costs of processing a loan application. The fee may include the cost of obtaining a property appraisal, a credit report, and a lock-in fee or other closing costs incurred during the process or the fee may be in addition to these charges.

Loan Origination Fee: Fee charged by a lender to cover administrative costs of processing a loan.

Loan-to-Value Ratio (LTV): The percentage of the loan amount to the appraised value (or the sales price, whichever is less) of the property.

Lock or Lock-In: A lender's guarantee of an interest rate for a set period of time. The time period is usually that between loan application approval and loan closing. The lock-in protects you against rate increases during that time.

M

Margin: A specified percentage that is added to your chosen financial index to determine your new interest rate at the time of adjustment for ARM (adjustable-rate mortgage) loans.

Marginal credit customers: Consumers who may have had some slow pay problems, but generally pay their bills.

Market value: The price at which a ready, willing, and informed person would buy something; the price property would command in the current market.

Marketing: The process of identifying and communicating with qualified prospects.

Mortgage: A written instrument that creates a lien by pledging real property as security for a debt.

Mortgage Banker: An individual or company that originates and/or services mortgage loans.

Mortgage Broker: An individual or company that arranges financing for borrowers.

Mortgage Insurance: Insurance to protect the lender in case you default on your loan. With conventional loans, mortgage insurance is not required if you make a down payment of at least 20% of the home's purchase price. (Note, however, that FHA and VA loans have different insurance guidelines.)

Mortgage Loan: A loan for which real estate serves as collateral to provide for repayment in case of default.

Mortgage Note: Legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time. The agreement is secured by a mortgage or deed of trust or other security instrument.

Mortgagee: The lender in a mortgage loan transaction.

Mortgagor: The borrower in a mortgage loan transaction.

N

Negative Amortization: A loan payment schedule in which the outstanding principal balance of a loan goes up rather than down because the payments do not cover the full amount of interest due. The monthly shortfall in payment is added to the unpaid principal balance of the loan.

Non-Assumption Clause: A statement in a mortgage contract forbidding the assumption of the mortgage by another borrower without the prior approval of the lender.

Note: Legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time. The agreement is secured by a mortgage or deed of trust or other security instrument.

Notice of Default: Written notice to a borrower that a default has occurred and that legal action may be taken.

Notice of Pre-lien: A document notifying the owner of real property that materials or services are being furnished to his real property, putting him on notice that the one sending it will look to have a lien against the real property if those materials or services are not paid for.

O

Obligee:A person to whom a legal obligation or duty is owed; for example, the payee of a note.

Obligor:A person who has placed himself under a legal obligation; for example, the maker of a note.

Offset Statement:See Beneficiary Statement.

Open-End Clause:A clause that permits the outstanding balance of the loan to be increased by the borrower under the provisions outlined in the agreement.

Open End Deed of Trust or Mortgage:A trust deed or mortgage that secures not only that original debt but also future advances made after the date of the trust deed or mortgage.

Option:A Contract that gives one party (the optionee) the right to enter some type of contract upon specified terms with another party (the optionor). Usually, the right to buy the optionor's property or note for a particular price.

Origination Fee: Fee charged by a lender to cover administrative costs of processing a loan.

Owner financing: A type of financing in which the seller of a tangible item accepts a promissory note as a portion of the purchase price. Also called seller financing.

P

Partnership: A common form of joint ownership of a business.

Payee: Person or business that has the right to receive a payment or series of payments and is interested in selling that income stream for cash. (Also called the seller or client.)

Payment Cap: Consumer safeguards which limit the amount monthly payments on an adjustable-rate mortgage may change. Since they do not limit the amount of interest the lender is earning, they may cause negative amortization.

Payor: The person, company, or government responsible for making payments on an income stream.

Partial: Any part of a payment stream that is less than the full amount due.

Per Diem Interest: Interest calculated per day. (Depending on the day of the month on which closing takes place, you will have to pay interest from the date of closing to the end of the month. Your first mortgage payment will probably be due the first day of the following month.)

Personal guaranty: A contractual agreement between a funding source and a seller, whereby the seller assumes personal responsibility and liability for the obligations of the income stream.

PITI: Abbreviation for Principal, Interest, Taxes and Insurance, the components of a monthly mortgage payment.

Points (or Discount Points): Points are an up-front fee paid to the lender at the time that you get your loan. Each point equals one percent of your total loan amount. Points and interest rates are inherently connected: in general, the more points you pay, the lower the interest rate you get. However, the more points you pay, the more cash you need up front since points are paid in cash at closing.

Portfolio: A group or package of income streams of the same type.

Power of Attorney: Legal document authorizing one person to act on behalf of another.

Prepaid Expenses: Taxes, insurance and assessments paid in advance of their due dates. These expenses are included at closing.

Prepaid Interest: Interest that is paid in advance of when it is due. Typically charged to a borrower at closing to cover interest on the loan between the closing date and the first payment date.

Prepayment: Full or partial repayment of the principal before the contractual due date.

Prepayment Penalty: Fee charged by a lender for a loan paid off in advance of the contractual due date.

Pre-qualification: The process of determining how much money a prospective homebuyer will be eligible to borrow prior to application for a loan. Information submitted during pre-qualification is subject to verification at application.

Principal: The amount of debt, not counting interest, left on a loan.

Privately held: Owed to a private individual or business rather than to a bank or other financial institution.

Private Mortgage Insurance (PMI): Insurance to protect the lender in case you default on your loan. With conventional loans, mortgage insurance is not required if you make a down payment of at least 20% of the home's purchase price. (Note, however, that FHA and VA loans have different insurance guidelines.)

Profit and loss statement: A financial statement that shows a historical record of a business' income and expenses.

Promissory note: A written promise to pay a specified amount to a specified party over a certain period of time.

Purchase Agreement: Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.

Q

Quitclaim Deed: A deed that conveys simply the grantor's rights or interest in real estate; generally considered inadequate except when interests are being passed from one spouse to the other.

R

Real Estate Settlement Procedures Act (RESPA): A federal law that requires lenders to provide mortgage loan borrowers with information of known or estimated settlement costs.

Real Property: Land and any improvements permanently affixed to it, such as buildings.

Reconveyance: The transfer of property back to the owner when a mortgage loan is fully repaid.

Recording: The act of entering documents concerning title to a property into the public records.

Recording Fee: Money paid to an agent for entering the sale of a property into the public records.

Refinancing: The process of paying off one loan with the proceeds from a new loan secured by the same property.

Replevin: A legal proceeding in court to seize property (other than real estate) given as security for a debt that is in default.

Reserve: An amount a funding source holds in its account to cover potential payment defaults. After a certain time period has passed, the funding source rebates the reserve to the client less any fees or charges for delinquency. Also called a bad debt reserve.

RESPA: Real Estate Settlement Procedures Act. A federal law that requires lenders to provide mortgage loan borrowers with information of known or estimated settlement costs.

Right to Rescission: Under the provisions of the Truth-in-Lending Act, the borrower's right, on certain kinds of loans, to cancel the loan within three days of signing a mortgage.

S

Sales Agreement: Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.

Satisfaction: The discharge of an obligation by paying a party what is due (i.e., the satisfaction of an IRS lien or the satisfaction of a mortgage).

Seasoning: The length of time payments have been made on a note or other debt instrument.

Second Mortgage: An additional mortgage placed on a property that has rights that are subordinate to the first mortgage.

Secondary market: The marketplace where individuals and businesses can sell privately held income streams to funding sources for cash.

Securitization: The bundling and resale of debt instruments to investors; permitted only for parties licensed and regulated by the SEC.

Security interest: An interest in property, other than real estate, which is given as security for a debt or other obligation. A security interest is created by execution of a security agreement and one or more financing statements under the Uniform Commercial Code.

Seller: The person or company that is holding a debt instrument and wants to sell it.

Servicing: The collection of payments of interest and principal, and trust fund items such as fire insurance, taxes, etc., on a note by the borrower in accordance with the terms of the note. Servicing by the lender also consists of operational procedures covering accounting, bookkeeping, insurance, tax records, loan payment follow-up, delinquent loan follow-up and loan analysis.

Settlement (or Closing): The settlement or closing is the conclusion of your real estate transaction. It includes the delivery of your security instrument, signing of your legal documents and the disbursement of the funds necessary to the sale of your home or loan transaction (refinance).

Settlement Costs: Also known as closing costs, these costs are for services that must be performed before your loan can be initiated. Examples include title fees, recording fees, appraisal fee, credit report fee, pest inspection, attorney's fees, taxes, and surveying fees.

Settlement Cost (HUD guide): Booklet that provides an overview of the lending process, given to consumers after completing loan application.

Sole proprietorship: A business owned and operated by an individual.

Subordination: The act of a creditor acknowledging in writing that a debt due him or her by a debtor shall be inferior to the debt due another creditor by the same debtor.

Survey: A measurement of land, prepared by a licensed surveyor, showing a property's boundaries, elevations, improvements, and relationship to surrounding tracts.

Sweat Equity: Value added to a property in the form of labor or services of the owner rather than cash.

T

Tail: The payment stream and/or balloon payment of an income stream subsequent to another party's right and interest in the income stream. Usually the back half of the payment stream when another party has purchased the front half.

Tangible personal property: Personal property other than real estate, such as cars, boats, or other assets.

Tax Impound: Money paid to and held by a lender for annual tax payments.

Tax Lien: Claim against a property for unpaid taxes.

Tax Sale: Public sale of property by a government authority as a result of non-payment of taxes.

Term: The period of time between the beginning loan date on the legal documents and the date the entire balance of the loan is due.

Time value of money: Concept that addresses the way the value of money changes over a period of time.

Title: Document which gives evidence of ownership of a property. Also indicates the rights of ownership and possession of the property.

Title commitment: A commitment on the part of the insurer, once a title search has been conducted, to provide the proposed insured with a title insurance policy upon closing.

Title Company: A company that insures title to property.

Title insurance: Title insurance can benefit either the payor or the payee. Should the beneficiary suffer any damages due to clouded or false title to real estate, title insurance recompenses the damaged party to the extent of the damages.

Title policy: An insurance policy that insures a party against loss due to a defective title.

Title Search: Examination of municipal records to ensure that the seller is the legal owner of a property and that there are no liens or other claims against the property.

Transfer Tax: Tax paid when title passes from one owner to another.

Trial balance printout: A spreadsheet that lists all loans in a portfolio and their payment schedule. Usually required for a portfolio transaction.

Truth-in-Lending Act: Federal law requiring written disclosure of the terms of a mortgage (including the APR and other charges) by a lender to a borrower after application. Also requires the right to rescission period.

U

Underwriting: In mortgage lending, the process of determining the risks involved in a particular loan and establishing suitable terms and conditions for the loan.

Undivided Interest:Ownership of real estate by joint tenants or tenants in common under the same title.

Uniform Commercial Code (UCC):Standardized set of guidelines protected by law that set down how business transactions must be conducted.

Unseasoned:A lease or note that has had few, if any, payments made.

Unsecured:Without security.

Usury:The charging of more interest than is allowed by law.

V

VA Loans: Fixed-rate loans guaranteed by the U.S. Department of Veterans Affairs. They are designed to make housing affordable for eligible U.S. veterans. VA loans are available to veterans, reservists, active-duty personnel, and surviving spouses of veterans with 100% entitlement. Eligible veterans may be able to purchase a home with no down payment, no cash reserve, no application fee, and lower closing costs than other financing options. The maximum VA loan amount is currently $203,000.

Valid:Having force, or binding force; legally sufficient and authorized by law.

Valuation:Estimated worth or price. The act of valuing by appraisal.

Variable Rate Mortgage: See Adjustable Rate Mortgage.

Variable Rate: Interest rate that changes periodically in relation to an index.

Vendee:A buyer.

Vendee's Lien:A lien against real property under a land contract to secure a deposit paid by a purchaser.

Vendor:A seller.

Verification of Deposit (VOD): Document signed by the borrower's bank or other financial institution verifying the borrower's account balance and history.

Verification of Employment (VOE): Document signed by the borrower's employer verifying the borrower's position and salary.

Viatical Settlement:Enables a terminally ill or elderly person to obtain a lump sum payment from the sale of the person’s life insurance policy to a funding source.

Void:(1) Having no legal effect; null. (2) To have an instrument or transaction declared void.

Voidable:That which is capable of being adjudged void, but is not void unless action is taken to make it so.

Voluntary Lien:A lien intentionally put on real property by the owner.

W

Waiver: The renunciation, abandonment or surrender of some claim, right or privilege.

Walk-through: A final inspection of a home to check for problems that may need to be corrected before closing.

Warranty Deed: A conveyance of real property in which the grantor guarantees the title to the grantee.

Without Recourse: Words used in endorsing a note to denote that the future holder is not to look to the endorser in case of non-payment.

Wrap-Around Contract of Sale, Mortgage or Trust Deed: A land contract, mortgage or trust deed that works like this: The debtor owns or buys property with a first deed of trust on it. A seller or second lender takes a second deed of trust or second mortgage or a land contract for an amount that includes not only the amount owed to this second party but also the amount of the first trust deed. The owner makes one monthly payment to this second party out of it the second party makes the payment on the first trust deed and keeps the rest as his payment. Also called all-inclusive contract of sale, mortgage or trust deed.

X

Y

Yield: Interest earned by the lender on the money loaned. Also called return.

Yield Rate: Yield expressed as a percentage of the total investment. Also called rate of return.

Z

Zero Coupon Bond: A bond that has no coupon payments. It pays only a single cash flow at maturity.

Zoning Ordinances (or Zoning Regulations): Local law establishing building codes and usage regulations for properties in a specified area.