|
Mortgage - Frequently asked questions
[Mortgage Glossary] [The Home Loan Process] [Mortgage Tools]
GLOSSARY:
The mortgage industry is full of terms
that are foreign to many people. The following glossary of terms should
help you translate the mortgage language into English and help you make
sense of the mortgage process.
Adjustable-rate mortgage (ARM):
A mortgage with an interest rate and
payment that change periodically over the life of the loan based on
changes in a specified index.
Callable debt:
A debt security whose issuer has the right to redeem the
security at a specified price on or after a specified date, but prior to
its stated final maturity.
Charge-off:
The portion of principal and interest due on a loan that is
written off when deemed to be uncollectible.
Common stock:
A security that represents ownership in a company but gives
no legal claim to a definite dividend or to a return of
capital.
Conventional mortgage:
A mortgage loan that is not
insured or guaranteed by the federal
government.
Credit enhancement:
A method to reduce credit risk by requiring collateral,
letters of credit, mortgage insurance, corporate guarantees, or other
agreements to provide an entity with some assurance that it will be
recompensed to some degree in the event of a financial
loss.
Credit loss
ratio:
The ratio of
credit-related losses to the dollar amount of MBS outstanding and total
mortgages owned by the corporation.
Credit-related expenses:
The sum of foreclosed property
expenses plus the provision for losses.
Credit-related losses:
The sum of foreclosed property
expenses plus charge-offs.
Credit scoring:
A process that uses recorded information about individuals
and their loan requests to assess - in a quantifiable, objective, and
consistent manner - their future performance regarding debt
repayment.
Debt
security:
A security in which the
issuing company generally agrees to repay the principal (typically, the
original amount borrowed) and make interest payments according to an
agreed schedule.
Default:
The failure of a borrower to comply with the terms of a
note or the provisions of a mortgage.
Delinquency:
A mortgage loan on which a payment has not been made by the
due date.
Derivative:
A financial instrument which derives its value from an
underlying security or notional amount.
Duration:
The weighted-average life of the present value of all
future cash flows, both principal and interest, of a security. It is used
as a measure of the sensitivity of the value of a security to changes in
interest rates.
Earnings per
share (EPS):
The net earnings of
a corporation divided by the average number of shares of its common stock
outstanding during a period. A common method of expressing a corporation's
profitability.
Fixed-rate mortgage:
A mortgage loan in which the
interest rate does not change during the entire term of the
loan.
Forbearance:
The lender's postponement of legal action when a borrower
is delinquent. It is usually granted when a borrower makes satisfactory
arrangements to bring the overdue mortgage payments up to
date.
Foreclosure:
The legal process by which property that is mortgaged as
security for a loan may be sold to pay a defaulting borrower's
loan.
Global Debt
Facility:
A debt issuance
facility through which U.S. dollar and foreign currency debt securities
may be offered to investors worldwide with the feature of clearing and
settlement through a variety of clearing
systems.
Guaranty
fee:
Compensation paid by a
lender to Fannie Mae for the guarantee of timely payments of principal and
interest to MBS security holders.
Interest rate
swap:
A transaction between two
parties in which each agrees to exchange payments tied to different
interest rates or indices for a specified period of time, generally based
on a notional principal amount.
Intermediate-term mortgage:
A mortgage loan with a
contractual maturity at time of purchase equal to or less than 20
years.
Lender
option commitments:
An agreement
giving a lender the option to deliver loans or securities by a certain
date at agreed-upon terms.
Loan servicing:
The tasks a lender performs to protect a mortgage
investment, including collecting monthly payments from borrowers and
dealing with delinquencies.
Loan-to-value (LTV) ratio:
The relationship between the
dollar amount of a borrower's mortgage loan and the value of the
property.
Loss
mitigation:
Activities designed
to reduce either the likelihood of the corporation suffering financial
losses on a loan or the final dollar value of those losses in the event of
a borrower default.
Mandatory delivery commitment:
An agreement that a lender will
deliver loans or securities by a certain date at agreed-upon
terms.
Medium-term notes:
Unsecured general obligations of Fannie Mae with maturities
of one day or more and with principal and interest payable in U.S.
dollars.
Modification:
Any change to the original terms of a
mortgage.
Mortgage:
A legal document that pledges property to a lender as
security for the repayment of the loan. The term also is used to refer to
the loan itself.
Mortgage-Backed Security (MBS):
A Fannie Mae security that
represents an undivided interest in a group of mortgages. Principal and
interest payments from the individual mortgage loans are grouped and paid
out to the MBS holders.
Multifamily housing:
A building with more than four
residential rental units.
Nonperforming asset:
An asset such as a mortgage that
is not currently accruing interest or on which interest is not being
paid.
Notional
principal amount:
The
hypothetical amount on which interest rate swap payments are based. The
notional principal amount in an interest rate swap generally is not paid
or received by either party.
Preferred stock:
Stock that takes priority over common stock with regard to
dividends and liquidation rights. Preferred stockholders typically have no
voting rights.
Preforeclosure sale:
A procedure in which the borrower
is allowed to sell his or her property for an amount less than what is
owed on it to avoid a foreclosure. This sale fully satisfies the
borrower's debt.
Real Estate
Mortgage Investment Conduit (REMIC):
A security that represents a beneficial interest in a trust
having multiple classes of securities. The securities of each class
entitle investors to cash flows structured differently from the payments
on the underlying mortgages.
Repayment plan:
An agreement between a lender and a borrower who is
delinquent on his or her mortgage payments, in which the borrower agrees
to make additional payments to pay down past due amounts while still
making regularly scheduled payments.
Return on average common equity:
Net income available to common
stockholders, as a percentage of average common stockholders'
equity.
Reverse
mortgage:
A financial tool which
provides seniors with funds from the equity in their homes. Generally, no
payments are made on a reverse mortgage until the borrower moves or the
property is sold. The final repayment obligation is designed to not exceed
the proceeds from the sale of the home.
Risk-based capital:
The amount of capital necessary to absorb losses throughout
a hypothetical ten-year period marked by severely adverse
circumstances.
Secondary mortgage market:
The market in which residential
mortgages or mortgage securities are bought and
sold.
Security:
A financial instrument showing
ownership of equity (such as common stock), indebtedness (such as a debt
security), a group of mortgages (such as MBS), or potential ownership
(such as an option).
Serious delinquency:
A single-family mortgage that is
90 days or more past due, or a multifamily mortgage that is two months or
more past due.
Stockholders' equity:
The sum of proceeds from the
issuance of stock and retained earnings less amounts paid to repurchase
common shares.
Stripped MBS (SMBS):
Securities created by "stripping"
or separating the principal and interest payments from the underlying pool
of mortgages into two classes of securities, with each receiving a
different proportion of the principal and interest
payments.
Transfer agent:
A bank or trust company charged with keeping a record of a
company's stockholders and canceling and issuing certificates as shares
are bought and sold.
Underwriting:
The process of evaluating a loan application to determine
the risk involved for the lender. It involves an analysis of the
borrower's ability and willingness to repay the debt and the value of the
property.
 "Creating
Legacies."
|
