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More Mortgage Terms
A credit mortgages
Mortgages that meet the credit underwriting guidelines of Fannie Mae, Freddie Mac, FHA, VA or major jumbo purchasers. Those who have credit scores or other qualification deficiencies would be rated as B, C or D credit.
AAA tenant
A prime tenant who has the highest credit rating.
Abandonment
The intentional relinquishment of claim or title to personal or real property.
Abatement (rental)
A reduction or cessation of rent payments for a specified period of time, usually granted by the landlord as an inducement to the tenant to enter into or to renew a lease.
Abatement (tax)
A reduction in real property tax granted by a taxing authority as the result of an appeal. In some areas, tax abatements may also be granted as an inducement for development or to attract or retain job-providing industries.
Above par
When a mortgage is sold for more than its face value because it has a higher interest rate. For example, a $100,000 mortgage may be sold for 101.00, or $101,000.
Absentee ownership
Ownership of property (usually income producing) by a non-occupant who employs others to manage and maintain the property.
Absorption
The level of properties rented or sold after which price concessions must be made for market demand to continue at current levels. Used to determine the feasibility of new residential or commercial construction.
Absorption rate
The rate at which vacant space is either leased or sold to users in the market place. Absorption rate is usually stated in square feet per year or in the case of multifamily housing, number of units per year.
Abstract of title
A written history of ownership of a piece of land, summarizing the material parts of any occurrence affecting title of said land.
Abstraction
Method for calculating depreciation by comparing the replacement cost of the improvements to the sales price less land value.
Accelerated cost recovery system (ACRS)
Part of the Economic Recovery Act of 1981, an accounting standard which allows for a shorter depreciation period for real property over traditional depreciation methods.
Accelerated depreciation
A method of calculating depreciation where a larger portion of depreciation is charged in early years than in later years.
Accelerated remittance cycle (ARC)
An option available to Freddie Mac's sellers and servicers which allows the lender to decrease the guarantee fee due Freddie Mac in exchange for shortening the monthly remittance delay by paying principal and interest payments early.
Acceleration clause
A common provision of a mortgage which allows the holder to demand the entire outstanding mortgage balance due and payable in the event of a breach of the mortgage contract.
Acceptance
An offeree's consent to enter into a contract and be bound by the terms of the offer.
Acceptance letter
A document signed by a construction loan borrower stating that all work is complete and of acceptable quality.
access rights A right to ingress and egress from one's property; may be implied or expressed.
Accident
An unplanned, unexpected, and undesigned event which occurs suddenly at a definite place. Also see OCCURRENCE.
Accident and health premium
A portion of the amount paid by a borrower for mortgage insurance that ensures the continuance of mortgage payments in the event of a mortgagor's disability or illness.
Accommodation party (endorser)
A person who lends his name to guarantee a loan for another by signing a promissory note, bill, or other negotiable instrument; the endorser becomes the guarantor of the loan and is therefore responsible for its repayment.
Accommodation paper
A promissory note or other negotiable instrument signed by a third party (accommodation party) guaranteeing the repayment of a loan.
Accounts payable
Money owed by a business to suppliers of goods or services. Accounts payable are considered current liabilities on the balance sheet.
Accounts receivable
Money owed to a business for goods or services provided to customers. Accounts receivable are classified as current assets on the balance sheet.
Accredited Residential Originator (ARO)
Professional designation awarded by the Mortgage Bankers Association of America, in recognition of excellence in residential mortgage loan origination.
Accredited Residential Underwriter (ARU)
A professional designation awarded by the Mortgage Bankers Association of America, in recognition of excellence in residential underwriting.
Accretion
A build up of land by natural forces, such as wind, waves, or the flow of water.
Accrual bonds
A bond on which the interest accrues, but is not paid to the investor during period of accrual. Instead, the amount accrued is added to the principal balance and is paid at maturity. Also called accretion bonds or Z-bonds.
Accrual basis of accounting
An accounting method under which income and expenses are charged to the periods for which they are applicable, rather than when payment is made or received. In contrast, cash accounting is the method calling for income and expenses to be based on payment being made or received.
Accrued interest Interest earned for the period of time elapsed since interest was last paid.
ACH (Automatic Clearing House)
A computer-based facility for interchange of electronic entries between financial institutions.
Acknowledgement
A formal declaration attached to or part of an instrument, made before a duly authorized officer (usually a notary public) by the person who has executed that instrument, the execution being a free act and deed.
Acord form
A form utilized by the insurance industry for use between an Agency and a Company for Organization, Research, and Development.
Acquisition and development loan (A and D loan)
A loan for the purchase and preparation of raw land for development. Usually a construction loan or land sale is the source of repayment.
Acquisition cost
In a HUD/FHA transaction, the price the borrower paid for the property plus any of the following costs
acquisition loan See LAND ACQUISITION LOAN.
Acquittance
A document evidencing payment in full of a debt obligation. One example would be a satisfaction of mortgage.
A and D loan See ACQUISITION AND DEVELOPMENT LOAN.
ADA compliance Compliance with the provisions of the Americans with Disabilities Act which establishes minimum requirements for facilities with public access to accommodate physically handicapped persons.
adaptive re-use The rehabilitation of old property for a new purpose.
Addendum
An agreement or list that is added to a contract, agreement, or other document such as a letter of intent. FHA and VA require that an addendum be added to or incorporated in a sales contract, if it is written prior to the appraisal.
Additional insured
An individual, business, or organization covered by a policy in addition to the named insured.
add-on interest The full amount of interest calculated on the original principal for the term of the loan. This interest is added to the original principal, thereby becoming a part of the face amount of the promissory note.
Adjustable rate mortgage (ARM)
A mortgage loan or deed of trust which allows the lender to adjust the interest rate in accordance with a specified index periodically and as agreed to at the inception of the loan. Also called "variable rate mortgages" (VRM).
adjusted basis The original cost of a property, plus the value of any capital expenditures for improvements to the property, minus any depreciation taken.
Adjusted gross income
A person's total income, as reported on the IRS 1040 tax return form, after allowable contributions, deductions and expenses (alimony).
Adjusted sales price
IRS term for the sales price of a home minus the costs of the sale. Used to calculate capital gains.
Adjustment interval
On an a adjustable rate mortgage (ARM), the interval of time between changes in the interest rate or monthly payment, typically one, three or five years, depending on the index.
Adjustment period
The length of time which dictates interest rate adjustments on an adjustable rate mortgage. A six-month ARM would have an adjustment every six months.
Adjustment period cap
The amount that the interest rate is allowed to increase or decrease at the time of adjustment of an adjustable rate mortgage. A one year adjustable would have an annual cap, since the adjustment period is every year.
Admitted insurer
An insurance company licensed to do business in a certain jurisdiction (i.e., State).
Ad valorem taxes
Real estate taxes on the assessed value of property.
advance In real estate, a partial disbursement of funds under a note. Most often used in connection with construction lending.
Advance commitment (conditional)
A written promise to make an investment at some time in the future if specified conditions are met.
Adverse possession
The right by which someone occupying a piece of land acquires title against the real owner, if the occupant's possession has been actual, continuous, hostile, visible, and distinct for a statutory period.
Affidavit
A sworn statement in writing, usually requiring notarization.
After-acquired property
The property a debtor acquires after the execution of a mortgage or other form of indebtedness that additionally secures the indebtedness. If the mortgage note contains a statement on after-acquired property it is said to have an "after-acquired" clause.
After-tax cash flow
The cash flow remaining after deduction of an allowance for taxes attributable to that income.
Agency
Federal or quasi-federal organization involved in mortgage lending, such as Freddie Mac or Ginnie Mae.
Agent
One who legally represents another, called a principal, from whom express or implied authority has been derived.
Aggregate analysis
An accounting method a servicer uses in conducting an escrow account analysis by computing the sufficiency of escrow account funds by analyzing the account as a whole.
Aggregate deductible
A provision whereby the policyholder agrees to self assume the payment of claims incurred up to a specific amount or limit, with the insurer paying all claims after such limit is attached.
Aggregate limit of liability
A provision which limits the maximum liability of an insurer for losses in a given time period (usually twelve months). Policy limits are usually expressed in maximums per accident (or occurrence), with an aggregate for all losses in any one year.
Agreed amount
An agreement whereby the coinsurance clause is waived if the insured agrees to carry a specific amount of insurance which represent at least 90% to 100% of total values at risk. Also known as "stated amount coinsurance."
Agreed amount endorsement
An insurance endorsement used with a policy containing a coinsurance clause. It binds the insurance company to an agreement that the amount of insurance carried under the policy is sufficient to meet the requirements of the coinsurance clause in the policy. Addition of the agreed amount endorsement eliminates the risk of the coinsurance penalty.
Agreement for deed
A contract for the sale of property in which transfer of title to the buyer is contingent on the fulfillment of certain conditions.
Agreement for sale
A written document in which the purchaser agrees to buy certain real estate or personal property and the seller agrees to sell under stated conditions. Also called a sales contract, binder, or earnest money contract.
AITD See ALL-INCLUSIVE TRUST DEED.
AHS See ANNUAL HOUSING SURVEY.
Air rights
The ownership of the right to use, control, or occupy the air space over a designated property, without the right to use the land surface.
Air space
The space above the surface of land that is owned by the landowner and that may be divided and sold or leased to others.
Alienation
The transfer of title to real property from one owner to another.
Alienation clause
A type of acceleration clause that demands payment of the entire balance upon sale or other transfer of title; also called a "due-on-sale" clause.
All-cash offer
A proposal to purchase property without any contingency to obtain a loan to finance any portion of the purchase price.
All-inclusive trust deed (AITD)
A refinancing technique involving the creation of a new deed of trust that includes the balance due on the existing note plus new funds advanced; also known as a wraparound mortgage.
Allocation method
A method of site valuation in which the appraiser deducts the estimated value of the building from the total sales price of an improved property to arrive at the estimated land value.
Allowance for vacancy and income loss
In accounting, an estimated amount reflecting probable vacancy, non-payment of rent by tenants, and any other income loss. These funds are set aside to cover either expected or unanticipated income losses.
ALTA See AMERICAN LAND TITLE ASSOCIATION.
Alternative documentation
Use of bank statements, W-2's, and pay stubs to document an applicant's income and assets instead of verification forms mailed by the lender.
Alternative mortgage instrument
A mortgage that differs from the typical mortgage instrument either in the amount of principal, the interest rate, the periodic or monthly payments, or terms for repayment.
AM best rating
An evaluation published by the A.M. Best Company of all life, property, and casualty insurers (U.S. domiciled and U.S. branches of foreign property insurer groups), which are active in the United States. These ratings are often used by agents, brokers, and commercial insurers to determine the suitability, service record, and financial stability of insurance companies.
Amenity
A feature that enhances property value. Examples are off-street reserved parking within a condominium community, tennis courts, a swimming pool, or the proximity of public transportation.
American Land Title Association (ALTA)
A national association of title insurance companies, abstractors, and attorneys specializing in real property laws. The association speaks for the title insurance and abstracting industry and establishes standard procedures and title policy forms.
American National Standards Institute (ANSI)
The organization which authorizes industry standards for information management and electronic interchange communication between companies (computer-to-computer). Headquartered in New York City.
Amortization
Repayment of a mortgage debt with periodic payments of both principal and interest, calculated to retire the obligation at the end of a fixed period of time.
Amortization schedule
A table showing the amounts of principal and interest due at regular intervals and the unpaid mortgage balance after each payment is made.
Amount realized
The amount of money, or fair market value of other property, received in a sale or exchange.
Amount to make the project operational (AMPO)
An allowance, ordinarily a percentage of the replacement cost, that can be included in the mortgage insured by HUD/FHA to provide a nonprofit sponsor with working capital during the initial period of operation of a project.
AMPO
See AMOUNT TO MAKE THE PROJECT OPERATIONAL.
Anchor tenant
A prime tenant in a shopping center, such as an established department store, which attracts the bulk of customers to the center.
Annual contributions contract (ACC)
A contract under which HUD makes payments to public housing agencies to cover debt service payments on public housing projects or to provide rent subsidies and administrative costs under the Section 8 Housing
Assistance Payments Program.
Annual housing survey (AHS)
A yearly HUD/ Census Bureau study of housing units and trends in the movement of owners and renters.
Annual mortgage statement
A report prepared by the lender or servicing agent for the mortgagor, stating the amount of taxes, insurance, and interest that was paid during the year, and the outstanding principal balance.
Annual percentage rate (APR)
A term defined in section 106 of the federal Truth in Lending Act (15 USC 1606), which expresses on an annualized basis the charges imposed on the borrower to obtain a loan (defined in the Act as "finance charges"), including interest, discount and other costs.
Annuity
Periodic fixed payments to be received for a specified period of time or for life, in consideration for prior lump sum or installment payments made to the other party in the annuity contract.
Annuity starting date
The first day of the first period for which an amount is due as payment under an annuity contract.
ANSI
See AMERICAN NATIONAL STANDARDS INSTITUTE.
AOT
See ASSIGNMENT OF TRADE.
Apartment
A complete and separate living unit in a building containing at least one other like unit.
Apartment hotel
An apartment complex which provides some hotel services, such as a restaurant or cleaning and linen services. Units are furnished and tenants may stay for extended periods.
Applicant
A prospective borrower who has completed an application. An application is series of steps, usually including the completion of documents, a lender requires of those seeking a loan.
Application fee
Fee charged by a lender at the time of loan application. This fee may include the cost of an appraisal, credit report, lock-in fee or other closing costs which are incurred during the process or the fee may be in addition to other charges.
Apportionment
A pro-rated division and distribution of prepaid or accrued taxes, prepaid insurance premiums, prepaid rents, and other income and expenses. When a property is sold, apportionment is used to distribute or collect funds due from the buyer and seller for income and expenses.
Appraisal
An opinion or estimate of value. Also refers to the process by which a value estimate is obtained. Appraisal Institute Professional society in Chicago that provides training in valuation of residential and income properties, market analysis, and standards of professional practice. Confers the MA and SRA designations.
Appraiser
One qualified by education, training, and experience to estimate the value of real and personal property.
Appreciation
An increase in value for any reason, except inflation.
Appurtenance
Anything belonging to or attached to land such as a barn, garage, or easement, that is part of the property and is therefore included in a sale or transfer.
APR
See ANNUAL PERCENTAGE RATE.
Arbitrage
The simultaneous buying and selling of any securities including mortgages, mortgage-backed securities, or futures contracts in different markets for the purpose of realizing a profit from differences in price.
ARC
SEE ACCELERATED REMITTANCE CYCLE.
Architect's inspection certificate
A document, usually issued by an independent architect, verifying that a certain portion of construction on a project has been completed in accordance with approved plans and specifications. This document is often required by construction lenders when advances of funds are to be made at specific stages of construction. Also known as an architect's progress certificate.
ARM
See ADJUSTABLE RATE MORTGAGE.
Arm's length transaction
A transaction between a willing buyer and a willing seller with no undue influence imposed on either party and where there is no relationship between the parties except that of the specific transaction.
ARO
See ACCREDITED RESIDENTIAL ORIGINATOR.
Arrears
The situation in which mortgage interest and real estate taxes are paid at or after the end of the period for which they are levied. Late payment is also described as being in arrears.
Artificial intelligence(AI)
Computer programs or systems that mimic human thought or decision making.
ARU
See ACCREDITED RESIDENTIAL UNDERWRITER.
Asbestos
An insulative, fire and heat resistant material commonly used in insulation and roofing.
Ask or asking price
The offering or sales price at which a security would be sold by a securities dealer to an investor.
Assemblage
The process of acquiring adjacent parcels of land to combine into a single site for development.
Assessed valuation
The value that a taxing authority places upon real property that becomes the base for computing local property taxes. May also refer to a levy against property for a special purpose, such as a sewer assessment.
Assessment
A value factor assigned to real property and used to determine real property taxes. The process of reaching the assessed valuation. Also, an add-on tax to raise money for a special purpose.
Assessment rolls
The public record of taxable property.
Assessor
A public official who appraises taxable property to reach its assessed valuation or base on which taxes are calculated.
Asset
A property or right owned, tangible or intangible, that has monetary value and is capable of providing future benefits to its owner.
Asset turnover ratio
The ratio of sales over total assets used as an indicator of how well the total investment in assets is being used to generate sales.
Assignee
The person to whom ownership, rights, or interest in property is transferred.
Assignment
The transfer of ownership, rights, or interests in property, as in a mortgage, lease, or deed of trust. Mortgages and other security instruments are regularly assigned from one investor to another and commitments by HUD/FHA to insure mortgages may be assigned by one originating lender to another before insurance.
Assignment of lease
A mortgage clause that passes control of leases on an income producing property to the lender. Often a condition to making a loan to ensure, in the case of mortgage default, that any continuing income from the property goes directly to the lender.
Assignment of mortgage
A document that evidences the transfer of a mortgage from one party to another.
Assignment of rents
A transfer to the mortgagee of the right to collect rents from tenants in the event of default by the property owner.
Assignment of trade (AOT)
Loan sale arrangement where the seller assigns the trade with the broker/dealer to the buyer. The buyer of the loans is then responsible for delivery of the mortgage backed securities to the broker/dealer.
Assignor
One who transfers to another ownership or interest in property.
Assumption
The act of taking over the previous borrower's obligation of a mortgage note. Assumptions may be advantageous if the terms of the mortgage are advantageous and they are not changed by the lender when the mortgage is assumed.
Assumption agreement
A written agreement by one party to pay an obligation originally incurred by another.
Assumption fee
The amount paid a lender for the paperwork and processing of records necessary to approve and document a new debtor.
Assumption of mortgage
A buyer's acceptance of primary liability for payment of an existing note secured by a mortgage or deed of trust. The seller remains secondarily liable, unless specifically released by the lender.
At-risk rules
Internal Revenue Service rules restricting leverage opportunities by limiting a taxpayer's deductible losses to the amount one has "at-risk." One is "at-risk" to the extent of cash contributed and amounts borrowed for which one is responsible for payment from personal assets.
At-the-money
In options trading, the point at which the strike price is equal to the market price of the underlying security.
Attachment
The act of taking property by judicial order into the custody of the court as security for payment of a judgment in an impending suit.
Attorney-in-fact
The agent who is granted authorization to perform specific acts on behalf of another.
Attornment
See LETTER OF ATTORNMENT.
Attornment agreement
A letter acknowledging a new owner as a landlord or a new organization as a loan servicer.
Audit
The official examination and verification of bookkeeping accounts to prove the accuracy of figures and the adequacy of accounting controls. An audit may be done by public accountants hired for this purpose or by a company's own employees. The latter is called an internal audit.
Automated clearing house (ACH)
Electronic drafting system that debits an authorized bank account and electronically transfers funds scheduled for remittance.
Automatic program
A VA program that enables eligible single-family lenders to conduct the processing and closing of VA single-family loan applications without VA's prior review.
Average life of a mortgage
A statistic used to estimate the yield on mortgages. Most mortgages written for long terms pay off earlier, either voluntarily or by foreclosure after default. For example, 30-year mortgages have traditionally been considered to have approximately a twelve year average life. Investors base impact of discounts or premiums on the yield of a mortgage on the average life, as opposed to the written term.
Average rate of return
The return on an investment as calculated by averaging the total cash flows over the years during which the cash flows are received by the investor.
Avulsion
An abrupt and extensive erosion of land by a force of water and its subsequent deposit onto the property of another owner.
Back-to-back escrow
An escrow set up to facilitate the simultaneous purchase of one property and the sale of another property by the same party.
Back-to-back settlement
Transactions involving selling one home and purchasing another on the same day, usually within hours of one another.
Back-up
The process of taking all data stored on the computer and copying it onto tapes, or another storage medium, so it can be shipped to another location for safekeeping.
Backup offer
A secondary offer to buy property although the first offer has been accepted, useful in case the first offer fails.
Balance sheet
A report of the financial position of a business at a specific point in time, showing its assets, liabilities, and owner's equity.
Balloon mortgage
A mortgage with periodic installments of principal and interest that do not fully amortize the loan. The balance of the mortgage is due in a lump sum at a specified date, usually at the end of the term.
Balloon payment
A scheduled payment on a mortgage that is larger than other, periodic payments, usually the unamortized final payment.
Band of investment
An approach to developing a capitalization rate by creating a weighted average rate reflecting the percentage of value represented by each debt and ownership position.
Bank holding company
A corporation that owns a controlling interest in one or more banks.
Bankruptcy
Court proceedings to relieve the debts of an individual or business unable to pay its creditors. An individual, firm, or corporation who, through a court proceeding, is relieved from the payment of all debts. Bankruptcy may be declared under one of several chapters of the federal bankruptcy code
Base mortgage amount
The mortgage amount before financed mortgage insurance or VA funding fee is added.
Base rent
The minimum fixed guaranteed rent in a commercial property lease.
Base stop
The maximum amount of building operating expenses which will be borne by the landlord prior to passing additional amounts through to the tenant. The base stop is expressed as an absolute dollar amount or dollar per square foot amount.
Base year
Similar to "base stop," except that rather than being specified as an absolute amount, the landlord's expenses are limited to the amount incurred in a specified calendar or fiscal year, usually (but not always) the calendar year in which the lease commences.
Basic rent
The rent charged in a subsidized housing project and computed on the basis of a maximum subsidy.
Basis
The cost of a property, including improvements, refinancing costs, closing costs, and similar costs, less depreciation. Basis is used for tax purposes to calculate any profit or loss realized on the sale of a property.
Basis point
One one-hundredth of one percent. Used primarily to describe changes in yield or price on debt instruments, including mortgages and mortgage-backed securities.
Basket provision
A stipulation within the regulatory acts governing the investments of insurance companies, savings and loan associations, and mutual savings banks, allowing for a small percentage of total assets to be placed in investments not otherwise permitted by the acts.
Bear market
A market characterized by falling prices. A bear market in the mortgage industry may be triggered by rising interest rates.
Bedroom community
A suburban residential area where most residents commute to neighboring metropolitan areas to work.
before-tax income Gross income minus all expenses, except income taxes.
Below market interest rate (BMIR)
Describes mortgage insurance programs where the interest rates on the mortgages are below that ordinarily charged for similar conventional financing; used to assist low- and moderate-income families to rent or buy dwelling units.
Beneficiary
A person who benefits from a life insurance policy, will, contract, or deed of trust. In the latter case, the lender is the beneficiary.
Beneficiary statement
The lender's statement under a deed of trust, detailing the remaining principal balance, monthly payment, and interest rate on the loan. Also called a "bene statement," "offset statement," or "estoppel certificate."
Bernard Rule
Method of appraising corner lots which takes into consideration the value of the lot portions facing each street. Also called the "Baltimore Rule."
Betterment
An improvement, replacement or maintenance which results in a higher asset valuation.
Bid
The price at which a seller will sell particular securities. In the securities and commodities trade, the highest price offered for a security or commodity at a given time. Also called a quotation or quote.
Bid-ask spread
The difference between the highest price offered for securities and the lowest price that will prompt a seller to sell.
Bill of sale
A document signed by a seller that certifies a transfer of ownership of personal property.
Binder
A preliminary agreement between a buyer and seller which includes the price and terms of the contract. In commercial real estate, a legal agreement issued by the insurer or it's agent to provide evidence of coverage until such time as a full policy(ies) is/are issued.
Biweekly mortgage
A mortgage with payments due every two weeks, totalling 26 payments a year.
Blanket
The coverage of more than one piece of property under one instrument, such as blanket insurance policy, blanket deed of trust, blanket assignment, or blanket survey.
Blanket mortgage
A mortgage that covers more than one parcel of real estate owned by the mortgagor.
Blind pool
A securities offering of interests in a property or group of properties that have yet to be acquired.
block A square or rectangular portion of a city or town enclosed by streets. Often used as part of a subdivision legal description.
Blue-sky laws
State laws covering the registration and sale of new securities.
BMIR
See BELOW MARKET INTEREST RATE.
Bodily injury liability insurance
Protection against loss arising out of the liability imposed upon the insured by law for damages due to bodily injury, sickness, or disease sustained by third parties. Also see PERSONAL INJURY.
Boiler and machinery insurance
Coverage for the loss to boilers and machinery caused by explosion or mechanical breakdown. The policy may cover damage to the boilers, machinery, other property, and business interruption.
BOMA
See BUILDING OWNERS AND MANAGERS ASSOCIATION.
Board of Governors of the Federal Reserve System
Governing body of the Federal Reserve System that regulates all national and state-chartered banks in the Federal Reserve System and sets and regulates monetary policy. Commonly known as "the Fed."
Bona fide
A Latin term meaning "in good faith," without fraud.
Bond
An obligation written under seal. For example, the obligation may be to make good if a third party defaults (performance bond), or betrays a trust (fidelity bond), or an obligation to pay interest and principal as specified. The latter type of bond is a debt instrument which may be secured by a mortgage or a pool of mortgages.
Bond loan
A state-sponsored method of assisting low income borrowers and first time home- owners in the purchase of a home at a reduced interest rate.
Bondable net lease
A long-term absolute net lease with a tenant who has a very high credit ceiling. The lease must be noncancellable and must call for a net rental equal to or above the amount of debt service.
Book cost
The actual cost of assets purchased or acquired.
Book-entry securities
Securities that are kept in computerized record form rather than paper certificate form.
Book-entry system
Electronic registration of ownership and interests in securities.
Book value
The capitalized cost of an asset, less depreciation taken for accounting purposes, based on the method used for the computing of depreciation over the useful life of the asset. The actual value of an asset after deducting depreciation and all liabilities is the "net book value."
Borrower
One who receives funds in the form of a loan with the obligation of repaying the loan in full with interest.
Borrower/guarantor full recourse
An agreement wherein the borrower/guarantor has personally agreed to fully repay all amounts owed under a mortgage loan, irrespective of whether the collateral is adequate to retire the debt. This agreement gives the holder of the note, or other negotiable instrument, the right to recover against the borrower/guarantor personally, including any and all assets of the borrower/guarantor.
Borrower/guarantor partial recourse
An agreement wherein the borrower/guarantor has personally agreed to repay a set dollar amount, all amounts exceeding a stated dollar amount, or a percentage of the outstanding balance of the mortgage loan. This agreement gives the holder of the note, or other negotiable instrument, the right to recover against the borrower/guarantor personally, including any and all assets of the borrower/guarantor, but only to the extent specified. For example, a borrower/guarantor may agree to pay the first $1 million of a $5 million loan or the top 25% of the loan.
Bottom ratio
See DEBT-TO-INCOME RATIO.
Bow-tie loan
A variable-rate loan that attempts to smooth the impact of rate increases on borrowers by deferring a portion of high interest rates until maturity. Usually, all interest above a certain rate is deferred to maturity.
Breach
Failure to perform under a contract or the violation of a legal obligation.
Breakeven point
The figure at which occupancy income is equal to all required expenses and debt service. Used to determine the amount of cash flow necessary to operate a residential or commercial property.
Breakpoint
In a retail lease, the point specified in absolute sales dollars or sales dollars per square foot, above which the tenant has agreed to pay percentage rent in addition to base rent. For example, in addition to base rent, a tenant may agree to pay 2% of annual gross sales above $2 million. In this case, $2 million is the breakpoint.
Bridge loan
A loan which enables a homebuyer to get financing to make a downpayment and pay closing costs on a new home before selling the present house. Also called "gap financing."
Broad form
A term used to describe coverage which extends beyond "standard" peril insurance policies, i.e., fire and extended coverage, named perils, etc.
Broad form property damage
An endorsement to a general liability policy which grants expanded coverage to property in the care, custody, or control of the insured, property which is not normally insured if damaged by the insured's negligence.
Broker
An individual employed on a fee or commission basis as agent to bring buyers and sellers together and assist in negotiating contracts between them. Also see MORTGAGE BROKER and THIRD-PARTY ORIGINATOR (TPO).
Brokered TPO Transaction
Mortgage for which a third party takes an application, and may process or underwrite the mortgage documents, then assigns the documents to another mortgage lender. After receiving the assigned mortgage documents, the mortgage lender underwrites, funds, and closes the mortgage in its own name.
BSPRA
See BUILDER'S AND SPONSOR'S PROFIT AND RISK ALLOWANCE.
Builder-seller sponsor
A project sponsor specifically organized to build or rehabilitate and sell a project immediately upon completion to a private, nonprofit organization, at the certified cost of the project. The nonprofit sponsor buys a total package.
Builder's and sponsor's profit and risk allowance (BSPRA) A credit against the required equity contribution in HUD/FHA insurance programs granted the developer for its services in sponsoring and building the project.
Builder's risk insurance
Fire and extended coverage insurance for a building under construction. Coverage increases automatically as the building progresses and terminates at completion.
Building code
Regulations based on safety and health standards that govern design, construction, and materials used in construction.
Building efficiency
A ratio of net rentable area to gross building area.
Building Owners and Managers Association (BOMA)
The trade association of owners and managers of commercial real estate, who benefit from exchange of information and management techniques.
Building permit
Written authorization from a local government for the construction of a new building, or for extensive repairs or improvements on an existing structure.
Building residual
A method of real estate appraisal used to determine the value of a building when the land value is known.
Built-ins
Permanent, immovable appliances or similar features.
Business interruption insurance
Compensation to a business owner or operator for income lost when the business is closed due to fire or any other insured hazard.
Bulk servicing sale
Transfer of servicing in a one-time transaction where all loan files and portfolio information are transferred on a specific date or within a short, specified time frame.
Bullet loan
Interim financing for leased-up properties often used to repay the construction loan; typically an interest-only loan for two to ten years that cannot be prepaid.
Bull market
A market characterized by rising prices. In the mortgage industry, a bull market may be prompted by falling interest rates.
Business day
Days on which a bank or market is open for business or trading; usually excludes Saturdays, Sundays, and legal public holidays.
Business interruption insurance
Compensation to a business owner or operator for income lost when the business is closed due to fire or any other insured hazard.
But-for test
Proof that federal assistance is required to keep a development project from failing.
Buy-down mortgage
A mortgage with a below market interest rate made by a lender in return for an interest rate subsidy in the form of additional discount points paid by the builder, seller or buyer.
Buy-sell agreement
An agreement between an interim and permanent lender for the sale and assignment of a mortgage to the permanent lender upon the completion of a building. Often the mortgagor is a party to this agreement on the theory that the mortgagor should have a contractual right to insist that the permanent lender buy the mortgage.
Buy-up
Freddie Mac's up-front payment to a loan seller in exchange for a higher guarantee fee.
Buyer's market
Economic conditions in which the supply of housing exceeds demand. Sellers may be forced to make substantial price concessions.
Ca-call
A "call-on-call" compound option.
CAFMV
See COMMISSIONER'S ADJUSTED FAIR MARKET
Call option
A contract granting the right, but not the obligation, to purchase a security at a specified strike price on a particular date.
Call provision/option
A provision of a note that allows the lender the right to demand or "call in" the balance of the mortgage obligation. The call can be exercised due to a breach of specified terms or conditions, or at the discretion of the lender (such as when the note rate is lower than the current market rate). In bonds, the issuer's right to redeem the bond before maturity.
CAM expenses
See COMMON AREA MAINTENANCE.
Cancellation clause
In a lease or other contract, a provision detailing conditions under which each party may terminate the agreement.
Capital
The net worth of a business represented by the amount that its assets exceed liabilities. Money invested to create income.
Capital asset
An asset of a permanent or fixed nature to be used in a business or trade and not sold.
Capital expenditure
The cost of a capital asset or a property improvement made to add value to or extend the useful life of an existing capital asset.
Capital gain or loss
The gain or loss incurred from the sale or disposition of a capital asset.
Capital improvement
Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.
Capital improvement reserves
Reserves that may be required by loan documents to fund the future payment of capital improvement for the property.
Capital market
The financial market for buying and selling long-term investments (those with maturities of greater than one year), such as mortgages, Treasury bonds, and certificates of deposit.
Capitalization
The conversion of a future net income stream into present value by using a specific desired rate of earnings as a discount rate.
Capitalization analysis
The analysis based on the conversion of a future net income stream into present value by using a specific desired rate of earnings as a discount rate.
Capitalization rate
The rate of return on net operating income considered acceptable for an investor and used to determine the capitalized value. This rate should provide a return on, as well as a return of, capital. Also known as "cap rate."
Capitalized value
The estimated market value of business assets in terms of the present value of anticipated earnings.
Capped rate
A rate commitment by a lender which locks in a maximum rate but allows the borrower to relock if market rates decrease. Also referred to as cap and float.
Caps (interest)
Consumer safeguards on an adjustable-rate mortgage which limit the amount the interest rate may change per year and over the life of the loan.
Caps (payment)
Consumer safeguards on an adjustable-rate mortgage which limit the amount monthly payments may change.
Ca-put
A "call-on-put" compound option.
Carryback financing
An agreement in which the seller takes back a note for part of the purchase price secured by a junior mortgage, wrap-around mortgage, or contract for deed.
Carrying charges
The charges or costs incurred for holding property when it is idle, non- productive, or in interim use, including the opportunity cost of nonproductive use of the property.
Cash basis of accounting
An accounting method under which income is reported when actually received and expenses are deducted when paid.
Cash equivalent value
A method of calculating the appraised value of a property that considers sales and financing concessions when evaluating comparable properties. There is no standard in the appraisal industry for measuring cash equivalent value, but investors and mortgage insurers sometimes insist that cash equivalency be incorporated in appraised values.
Cash flow (after taxes)
Cash received less cash paid out, including income taxes paid.
Cash flow (before taxes)
Cash received less cash paid out, before any consideration for income taxes.
Cash market
A market where mortgages and/or mortgage-backed securities are bought and sold for immediate delivery and cash payment. Also called spot market.
Cash-on-cash return
The rate of return on an investment as measured by cash returned to the investor, based on the investor's cash investment and without regard to income tax savings or the use of borrowed funds.
Cash out refinancing
When the principal amount of a new mortgage involved in refinancing is greater than the principal amount outstanding of the existing mortgage being refinanced, and all or a portion of the equity is converted to cash.
Cash reserve
Reserves normally kept by the owner of the property to fund any operating shortfall or capital improvements that are required for the property.
Cash settlement
The process by which a dollar adjustment rather than a physical instrument is used to satisfy the delivery requirement of a given contract at expiration.
Casualty or theft loss
Losses on property arising from fire, storm, theft, or similar sudden and unexpected occurrences.
Caveat emptor
Latin for "let the buyer beware." This term signifies that the seller offers goods "as is," with no warranty.
CBA
See CONTROLLED BUSINESS ARRANGEMENT.
CBOE
See CHICAGO BOARD OPTIONS EXCHANGE.
CBOT
See CHICAGO BOARD OF TRADE.
CD
See CERTIFICATE OF DEPOSIT.
CDBG
See COMMUNITY DEVELOPMENT BLOCK GRANT.
CDR
See COLLATERALIZED DEPOSITORY RECEIPT.
Central business district (CBD)
The area geographically located within the central business district of a municipality.
Census tract
Six digit number designated by HUD to identify a neighborhood. Census tract numbers are entered on compliance reports to monitor a lender's mortgage activity.
CERCLA
Comprehensive Environmental Response, Compensation and Liability Act. See SUPERFUND.
Certificate of eligibility (COE)
A document issued by the Veterans Administration which verifies a veteran's eligibility for a VA mortgage guarantee.
Certificate of claim
A contingent promise to reimburse an insured mortgagee for certain costs incurred during foreclosure of an insured mortgage, provided the proceeds from the sale of the property are sufficient to cover the lender's claim.
Certificate of completion
A document issued by an architect or engineer stating that construction is completed in accordance with the terms, conditions, approved plans, and specifications.
Certificate of deposit (CD)
Certificates issued by financial institutions with a stated return or interest rate, and with a set maturity. The bank pays the holder in due course at maturity.
Certificates of insurance
A form which evidences policy coverage, limits, etc., which is generally used as proof of insurance. These forms have no legal status and cannot be used in lieu of actual insurance policies.
Certificate of occupancy
Written authorization given by a local municipality that allows a newly completed or substantially renovated structure to be inhabited.
Certificate of reasonable value (CRV)
A document issued by the Veterans Administration which establishes a maximum value and loan amount for a VA guaranteed mortgage.
Certificate of sale
An affidavit issued the buyer of real property at a judicial or tax sale which guarantees the deed of the parcel purchased, pending court confirmation.
Certificate of title
A confirmation written by a title attorney or company stating that the title to a parcel of real property is legally vested in the present owner.
Certificate of veteran status
FHA form filled out by the Department of Veteran Affairs in order to establish a borrower's eligibility for an FHA Vet Mortgage.
Certified Mortgage Banker (CMB)
A professional designation awarded by the Mortgage Bankers Association of America (MBA) to those in the industry who have demonstrated superior knowledge and skills in the field of real estate finance. Candidates must be employed by MBA member firms and meet various educational, experience, and examination requirements.
Certified Property Manager (CPM)
A professional designation conferred by the Institute of Real Estate Management to recognize experienced members of the property management industry.
Chain of title
A chronology of documents which have transferred title to a parcel of real property from the original owner to the present owner.
Change order
A document evidencing a change in the original plan of construction by a building owner or general contractor.
Chapter 7
Bankruptcy filing which gives a trustee the power to distribute a debtor's assets to creditors. Also called a "liquidation."
Chapter 11
A reorganization by a business allowing the debtor to maintain operating control of the business while restructuring debts and working out a repayment schedule acceptable to the creditors. Also called "debtor in possession."
Chapter 13
A debt repayment plan where an individual debtor files a budget with the court and agrees to make partial payment to creditors over a three-to-five year period. Also called "wageearner plan."
Chart of accounts
For accounting purposes, a numerical designation assigned to each asset, liability, and capital account of a business.
Chattel
See PERSONAL PROPERTY.
Chattel mortgage
An agreement between a secured party and a debtor creating a security interest in personal property.
Cheapest coupon
In the cash or futures market, the specific rate security that can be purchased for the lowest total price and in sufficient quantity to meet the delivery requirements of a particular contract.
Chicago Board of Trade (CBOT)
The exchange where futures and options contracts are traded. Residential mortgage bankers may use futures and options to hedge their inventories of mortgages.
Chicago Board Options Exchange(CBOE)
The largest and most active organized options marketplace.
CHIML
See COMMUNITY HOME IMPROVEMENT MORTGAGE LOAN.
CHUMS
See COMPUTERIZED HOME UNDERWRITING MANAGEMENT SYSTEM.
Claims made
Policies written on a "claims made" basis only cover claims presented during the particular year the policy is in force, for incidents which occurred during the same policy year, or for any previous year noted in the "claims made" policy (retroactive date). This form of coverage contrasts with an "occurrence" policy which responds to incidents regardless of when the claim is reported.
Claims Without Conveyance of Title (CWCOT)
HUD program with authorized the payment of claims for insurance benefits without conveying title to the foreclosed property to HUD. Use of the CWCOT program is limited to cases involving deficiency judgments or other situations where HUD either requests or requires a mortgagee to obtain a property appraisal or to use CWCOT.
CLAS CHUMS Lender Access System.
Clear title
Unencumbered title to real property, free of liens or defects. Also, "free and clear."
Clearing account
A bank account used by a mortgage servicer for temporary, short-term deposit of mortgage payments collected for transmittal to investors or for deposit in escrow accounts.
Clearing house
A third-party participant in settling security trades by acting as a buyer to each seller and a seller to each buyer, ensuring performance.
Closed-end mortgage
A mortgage under which the mortgagor is prohibited from borrowing additional funds under the same mortgage.
Closed (exclusive) listing
The right of one agent to be the only one, other than the owner, who may sell the property during a period of time.
Closed period
The interval of time under a mortgage during which the loan cannot be prepaid.
Closing
In real estate, the delivery of a deed, the signing of note, and the disbursement of funds necessary to consummate a sale or loan transaction.
Closing costs
The costs which incurred in order to purchase real estate. These may include points, taxes, settlement agent fees and more.
Closing statement
A financial disclosure giving an account of all funds received and expected at closing, including escrow deposits for taxes, hazard insurance, and mortgage insurance. All FHA, VA, and most conventionally financed loans use a uniform settlement statement called the "HUD-1."
Cloud on title
Any outstanding claim or encumbrance which, if valid, would affect or impair title. It can be removed by a quit-claim deed, release, or court action. Also called a title defect.
Cluster zoning
A zoning procedure where there is a prescribed amount of residential or unit density for an entire area. The developer is permitted to concentrate or disperse the density within the area in accordance with flexible site-planning criteria. This differs from a traditional zoning plan that dictates density on a lot-by-lot basis, prescribing the same maximum density for all single structure lots within the zoning district.
CMB
See CERTIFIED MORTGAGE BANKER.
CMO
See COLLATERALIZED MORTGAGE OBLIGATION.
Cco-borrower
Second or additional person equally responsible for payments on a mortgage. A co-borrower does not have to take title to the property, but usually has to sign the mortgage note.
COE
See CERTIFICATE OF ELIGIBILITY.
COFI
See COST OF FUNDS INDEX.
Coinsurance
A type of insurance where the insured agrees to carry a specified proportion of the policy amount to the actual value of the property insured at the time of the loss. Thus, a portion of the property value is self insured. In federal multi-family housing programs, a clause which forces an insured to share in a loss if he/she is underinsured at the time of the loss. For a reduced premium, the insured is obligated to carry an amount of insurance to a specified minimal level, usually prescribed to be a fixed percentage of the value of the insured property. Failure of the insured to insure to that level results in a penalty in payout equal to the amount deficient.
Coinsured lender
Under a HUD program, an eligible multi-family lender who is permitted to conduct the processing of multi-family projects from initial application through loan closing.
Collateral
Property pledged as security for a debt, for example, mortgaged real estate.
Collateral valuation process
The process by which a property's price is determined.
Collateralized depository receipt (CDR)
The instrument that is actually delivered in fulfillment of the Chicago Board of Trade GNMA-CDR. Similar to warehouse receipts used for agricultural commodities.
Collateralized Mortgage Obligation (CMO)
Mortgage backed security where payments on the underlying collateral are partitioned to provide for different maturity classes, called tranches. Investors choose to buy one or more tranches, with each tranche representing a different maturity. Investors receive payments of interest or principal prioritized according to tranche.
Collection
The servicing procedure followed to bring a delinquent mortgage current and to file the required notices to begin foreclosure when necessary.
Collection report
The form used by a mortgage servicer in reporting collection from mortgagors, including payments in full, repayment of advances, tax and insurance funds for foreclosed mortgages, and any other items not remitted as regular installment payments.
Color of title
An act that indicates good title, but in fact contains some defect.
Combined loan-to-value
The principal balance of all mortgages on the property (including second and third trusts) divided by the value of the property.
Commencement of term
In retail leasing, where a lease becomes effective when signed but rent payments do not begin until occupancy or opening of business.
Commercial paper
Short-term, negotiable, unsecured notes of highly reputable business firms.
Commercial real estate
Office buildings, shopping centers, apartment buildings and other property which is utilized for the production of income rather than as residences. If residential real estate has more than four units it is considered commercial real estate.
Commercially reasonable
Fair, proper, just, or suitable under generally accepted business (commercial) standards or circumstances.
commingling Combining funds (such as escrows) into one account that should be accounted for and deposited into separate accounts.
Commission
An agent's compensation for negotiating a real estate or loan transaction, often expressed as a percentage of the selling price.
Commissioner's Adjusted Fair Market Value (CAFMV)
HUD's estimate of the fair market value of a property in foreclosure. Mortgagees must bid the CAFMV at the foreclosure sale to reserve the option to retain or convey the property to HUD.
Commitment
An agreement, often in writing, between a lender and a borrower, to loan money at a future date, subject to specified conditions. In secondary marketing, an agreement, in writing, between a lender and an investor to buy and sell mortgages under specific terms.
Commitment (builder)
An agreement by a lender to provide long-term financing to a builder, secured by an existing proposed building. The commitment usually provides for the substitution of a to-be-approved owner/occupant at a higher loan amount than committed to the builder.
Commitment fee
Any fee paid by a potential borrower to a potential lender for the lender's promise to loan money at a specified date in the future. The lender may or may not expect to fund the commitment. In secondary marketing, a fee paid by the loan seller to the investor in return for the investor's promise to purchase a loan or package of loans at a future date.
Common area
An area owned by the owners or tenants of a complex or subdivision, for the common use of residents.
Common area maintenance expenses (CAM Expenses)
Expenses associated with the mainte nance of the common areas.
Community apartment project
Multiple ownership of an apartment in which each owner is a tenant-in-common.
Community association
A group composed of property owners that serves to protect and maintain a neighborhood or commonly owned properties.
Community Development Block Grant (CDBG)
Under Title 1 of the Housing and Community Development Act of 1974, eight former categorical grant and loan programs were replaced by a system of unified block grants under which communities of over 50,000 people are entitled to receive funding, while other communities may apply for discretionary funding. Its purpose is to encourage more broadly conceived community development projects and expand housing opportunities for low- and moderate-income persons.
Community Home Improvement Mortgage Loan (CHIML)
One of Fannie Mae's primary tools for neighborhood and community revitalization, the CHIML is designed for the low- to moderate-income homebuyer or homeowner who wishes to purchase or refinance a home that needs modest, rather than substantial, repairs.
Community property
In some states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.
Community Reinvestment Act (CRA)
Federal legislation which requires every financial institution to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods.
Community shopping center
A shopping center with a gross leasable area of 100,000 to 300,000 square feet and classified between the smaller neighborhood center and the larger regional center.
Co-mortgagor
A second borrower who signs a mortgage loan with a mortgagor. The co-mortgagor's income, assets and debts are combined with the mortgagor's for underwriting and ratio analysis purposes. The co-mortgagor's name must appear on the FHA Certificate of Commitment and the mortgage or deed of trust. For full guarantee under the VA's program, the co-mortgagor must be either a spouse or another eligible veteran.
Comparables
Properties used for comparative purposes in the appraisal process that have similar characteristics to the subject property. Also called "comps."
Compensating balance
A non-interest paying bank deposit maintained by the borrower that induces the bank to make credit available to the borrower on more favorable terms than would otherwise be available.
Compensating factor
A positive characteristic of a mortgage applicant which may offset a negative factor.
Completion bond
A bond furnished by a contractor to guarantee completion of construction.
Compliance inspection report
A report given a lender by a designated compliance inspector indicating whether construction or repairs conform to conditions established by prior inspection.
Component depreciation
A method of depreciation involving the separation of the cost of various elements of a building (such as roofing, plumbing, and mechanical components) to take advantage of the shorter useful lives of such elements, and thereby, increase the depreciation deductions in the early years of a project.
Component financing
A method to achieve maximum financing by splitting a real estate parcel into separate fee and leasehold interests, and financing each component separately. Also called "split financing."
Compound interest
Interest computed on both the original principal and accrued interest.
Compound options
Options on options. The buyer is required to pay a fee for the right to buy an additional option at a later date, at a given strike price.
Comprehensive Environmental Response, Compensation and Liability Act
See SUPERFUND.
Comprehensive general liability insurance
A policy which covers a variety of general liability exposures, including premises, property, and operations, products liability, owner's and contractor's protective, contractual liability, elevator liability, and employer's liability.
Comps
See COMPARABLES.
Comptroller of the Currency Chief
Regulator of national banks, appointed by the President for a five year term.
Computerized Home Underwriting Management System (CHUMS) HUD's automated system that tracks the application for mortgage insurance from the initial appraiser request through to loan closing and MIC issuance.
Computerized loan origination(CLO)
An electronic system that furnishes subscribers with the latest data on available loan programs at a variety of lending institutions. Some CLOs offer mortgage information services and can prequalify buyers, process loan applications, underwrite loans, and even make a commitment of funds.
Concessions
A discount or other inducement given by a landlord or seller to a prospective tenant or buyer to induce them to sign a lease or purchase property.
Condemnation
The taking of private property for public use under the right of eminent domain with just compensation paid the owner and others with an interest in the condemned property.
Conditional commitment
An agreement to lend money to a borrower that has yet to be identified, but is still subject to the approval of the lender. During HUD/FHA mortgage insurance processing, it indicates the satisfactory completion of technical processing involving the estimated cost of the project, the "as-is" value of the site, a detailed estimate of operating expenses and taxes, supportable costs, the financial and credit capacity of sponsors, financial requirements, and mortgage amounts.
Conditional commitment requirements
A form reproduced locally by HUD/FHA offices and varying in content depending on local conditions. It lists the most common conditions imposed on conditional commitments, giving each a number. Only the number of the condition is entered on the commitment itself, and the list is attached. Also see VC sheet.
Conditional prepayment rate (CPR)
A monthly prediction of the number of current outstanding mortgages in a pool that will prepay.
Conditional right to refinance
A provision of a balloon mortgage which, at the time of the scheduled balloon payment, allows the borrower to covert to a fixed rate for a fixed period which will fully amortize the mortgage.
Conditional sales contract
A contract for the sale of a property in which transfer of title to the buyer is contingent on fulfillment of certain conditions.
Conditions and restrictions
Limitations on the use of land and resulting penalties for failure to comply. Commonly used by land subdividers on newly plotted areas.
Condominium
A form of property ownership whereby the purchaser receives title to a unit in a multiunit structure and a proportionate interest in common areas.
Condominium association fee
A fee paid by the homeowner to the association which governs a condominium complex for his/her part of the maintenance and management of the project.
Condominium conversion
The process of changing rental units into a condominium form of ownership.
Condominium declarations
The basic condominium documents that must be registered by the originating property owner prior to the conveyance of the first unit sold. The declaration thoroughly describes the entire condominium entity, including each unit and all common areas, and specifies essential elements of ownership that permanently govern its operation. Also known as a "master deed."
Conduit
An entity which issues mortgage-backed securities backed by mortgages which were originated by other lenders.
Confirmation of sale
Court approval of the sale of property by an administrator, executor, guardian, conservator, or commissioner in a foreclosure sale.
Conforming mortgage loan
A mortgage loan which meets all requirements (size, type, and age) to be eligible for purchase or securitization by federal agencies.
Consideration
Something of value offered and accepted in exchange for a promise, without which a contract is unenforceable.
Constant
Percentage of the original loan paid in equal annual payments that provides principal reduction and interest payments over the life of the loan. For example, a $1 million loan with a 10.8% constant requires a $108,000 annual payment.
Constant payment
Periodic payment of a fixed amount that includes interest and principal. As the loan amount reduces, the portion of the payment applied to the principal increases. Standard home mortgages are constant payment loans.
Construction contract
An agreement between a general contractor and an owner/developer stating the specific duties the general contractor will perform according to blueprints and specifications at a stipulated price and terms of payment.
Construction costs
All costs incurred in the completion of a construction project, including land, labor, overhead, and builder's profit.
Construction loan
A short-term, interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as work progresses.
Construction loan agreement
A written agreement between a lender and a builder and/or borrower which details the specific terms and conditions of a construction loan, including the schedule of payments.
Construction loan draw
A partial disbursement of the construction loan based on the schedule of payments in the loan agreement. Also called "takedown."
Constructive notice
Notice attempted indirectly by newspaper or public record, or similar device, whether received or not, which satisfies the legal requirements for notification.
Consumer credit reporting agency
An organization that collects information about a consumer's credit history. Information is collected from national repositories and public records.
Consummate
To bring to completion.
Contingency reserve
A reserve account in which funds are held until certain specified conditions are satisfied.
Contingent interest
An equity-sharing provision appended to a loan in which the lender receives a percentage of annual gross or net project income exceeding a certain base amount, in addition to fixed interest.
Contract
An agreement between two or more parties which creates an obligation to do or not to do a particular thing.
Contract of sale
A contract between a purchaser and seller of real property to convey title after certain conditions have been met and payments have been made.
Contract rent
Actual rent as specified in a rental or lease agreement, as opposed to actual market or economic rent.
Contractor
A person or company who agrees to do work and/or furnish materials for a contracted price. Subcontractors are often hired by the contractor to perform specialized or technical labor.
Contribution
A cash or other concession by the seller of a property in order to induce a purchaser to buy that property.
Controlled business arrangement (CBA)
Business relationship in which a provider of settlement services receives a referral from an affiliated company in another settlement service business. Real estate brokerage and mortgage lenders that are commonly owned, controlled, or franchised and refer settlement service business to each other are typical examples of such CBAs.
Conventional financing
Mortgage financing which is not insured or guaranteed by a government agency.
Convergence
Movement of the price of a futures contract toward the price of the underlying cash commodity. As the contract nears expiration, the futures price and the cash price converge.
Conversion feature
A feature of a mortgage which allows the conversion to another interest rate, mortgage term, or type of mortgage instrument.
Convertible mortgage
A type of adjustable-rate mortgage that may be converted to a fixed-rate mortgage at specified intervals during a pre- determined time period. In income property lending, a mortgage in which lender-provided funds convert to equity ownership after a predetermined period of time.
Convertible standby commitment
A Fannie Mae mortgage purchase that may be converted to the same yield offered in the most recent Free Market Auction.
Convey
The act of transferring title to real property from one party to another.
Conveyance
The document, such as a deed, lease, or mortgage, used to effect a transfer.
Ccooling-off period
A period of time, provided by law or by contract, during which a party to a contract can legally back out of a contract.
Co-op
See COOPERATIVE.
Cooperation agreement
Arrangement between a local public housing agency (PHA) and local government under which the government gives tax-exempt status to the PHA and its property, and agrees to provide such municipal services as police and fire protection, trash removal, etc. In exchange, the PHA agrees to make payments in lieu of taxes (PILOT), usually 10 percent of rents collected, excluding utilities and maintenance.
Cooperative
In real estate, a form of multiple ownership in which a corporation or business trust entity holds title to a property, (usually an apartment complex) and grants occupancy rights to shareholder tenants through proprietary leases. Also called a "co-op."
Core capital
One of the components of risk-based capital guidelines which includes common stockholders equity, retained earnings, noncumulative preferred stock, and minority interests in equity accounts of consolidated subsidiaries.
Corporate resolutions
The affirmative and formal action by the board of directors of a corporation approving a transaction, activity, or decision.
Corporation
A business entity owned by a group of owners, called stockholders. A corporation is considered an artificial person under law.
Correlation
The final step in the appraisal process where the appraiser considers three estimates of value derived from cost, income, and market data approaches. The correlation process weighs the influence of each method in relation to the specific property type and final estimate of value.
Correspondent
A specialized type of mortgage banker whose function is limited to the origination of mortgage loans which are sold to other mortgage bankers or investment bankers under a specific commitment.
Co-signer
One who agrees to assume a debt obligation if the principal borrower defaults on mortgage payments. A co-signer assumes only personal liability and has no ownership interest in the property; his or her income and obligations are used in the underwriting process to reinforce the credit of the principal borrower.
Cost approach to value
A valuation approach in which the value of a property is determined by computing the replacement value of improvements, depreciation, and the value of the land.
Cost certification
An itemization of all construction costs and other building and material costs for verification. Generally required in HUD/FHA multifamily insurance programs.
Cost-of-carry
The difference between the yield on an instrument and the cost of funds to finance it.
Cost of funds index (COFI)
Index used to determine interest rate changes for adjustable rate mortgages. It is based on the cost of funds of the 11th District of the Federal Home Loan Bank.
Cost overrun
The amount of money required or expended over and above budgeted cost, including such items as labor, interest, materials, and land.
Cost-plus contract
A construction contract in which the contract price is equal to the cost of construction plus a profit allowance to the builder, as opposed to a fixed price contract.
Cost-plus-fee agreement
An agreement under which the contractor (in an owner-contractor agreement) or the architect (in an owner- architect agreement) is reimbursed for direct and indirect costs and, in addition, is paid a fee for services. The fee is usually a stated sum or percentage of costs.
Coupon rate
Annual interest rate on a debt. The coupon rate on a mortgage is the contract rate stated in the mortgage note. The coupon rate on a mortgage security is the rate stated on the face of the security, not the rate of the mortgages in the pool backing the security.
Covenant
A legally enforceable promise or restriction in a mortgage. For example, the borrower may covenant to keep the property in good repair and adequately insured against fire and other casualties. A breach of covenant in a mortgage usually creates a default as defined by the mortgage, and can be the basis for foreclosure.
Coverage
The percentage of mortgage pipeline that has investor commitments or is hedged.
CPM
See CERTIFIED PROPERTY MANAGER.
CRA
See COMMUNITY REINVESTMENT ACT.
Cramdown
Court ordered reduction of a loan balance.
Credit
Financial status-ability of borrowers to meet the terms of their obligations.
Credit life
Declining term life insurance taken out by a borrower as an added source of funds for the repayment of a loan.
Credit rating
A rating given to a person or company that establishes creditworthiness based upon present financial condition, experience, and past credit history.
Credit report
A report run by an independent credit agency which verifies certain information concerning an applicant's credit standing.
Critical path method
A technique used in construction which employs diagramming the interconnected tasks and activities involved in a project.
Cross-defaulting clause
A clause in some mortgage agreements that states a default by the borrower on one mortgage loan also triggers a default on the other loan stated in the clause.
Cross hedge
A hedge of an asset or liability with an instrument of different characteristics.
CRV
See CERTIFICATE OF REASONABLE VALUE.
Cubage (cubit feet)
An appraisal method using the cost approach. The front or width of the building is multiplied by the depth of the building and by the height, figured from the basement floor to the outer surfaces of the walls and roof. The total cubic measurement is then multiplied by a cost per factor to obtain the appraisal figure.
Curable depreciation
See DEFERRED MAINTENANCE.
Current asset ratio
The ratio of current assets to current liabilities.
Current assets
Assets that can be turned into cash within a year, such as accounts receivable or marketable securities.
Current market position
The amount of money a firm would gain or lose if it were to meet loan guarantees and mandatory commitments at current market prices.
Current ratio
The ratio of current assets to current liabilities.
Current yield
The ratio of interest to the actual face value of the investment instrument.
Custodial accounts
Bank accounts for the deposit of funds belonging to others.
Custodian
Usually a commercial bank which holds for safekeeping mortgages and related documents backing a mortgage-backed security. Custodians may be required to examine and certify documents.
Custody
Responsibility for a property, as when the mortgagee turns a foreclosed property over to VA. A specialized VA term, custody may, but does not necessarily, include the legal right to physical possession of the property.
Cut-off date
The date up to which loan collections are included in remittances to investors.
CWCOT
See CLAIMS WITHOUT CONVEYANCE OF TITLE.
Cycle (economic)
A period of time such as when the economy is growing or when it is in a recession.
Daily price limits
The maximum number of points a contract is allowed to rise above or fall below the previous day's settlement price, at which point all trading stops for the day.
Date-down title insurance endorsement
An instrument, provided by the title company, indicating that no liens have been placed on the property since its original issuance of the title insurance policy, or since any prior date-down endorsement.
DCF
See DISCOUNTED CASH-FLOW ANALYSIS.
DE
See DIRECT ENDORSEMENT.
Dealer
An investment banker or firm in the business of buying and selling mortgage-backed securities not as an agent, but as a principal. Unlike brokers, dealers hold inventories of securities.
Debenture
An interest-bearing bond issued against the general credit of a corporation or government organization, with no specific pledge of assets.
Debris removal
A property policy extension of coverage which grants coverage for the expense of removing debris caused by damage to property by an insured peril. Property should be defined as both insured and uninsured.
Debt capital
Money loaned at an agreed interest rate for a fixed term of years; distinguished from equity capital which is money invested by owners (shareholders) for use in business operations.
Debt coverage ratio
A ratio of effective annual net income to annual principal and interest payments. Also called debt service coverage.
Debt/equity ratio
The proportion of capital borrowed to the amount of capital invested out-of-pocket or obtained through the sale of common stock. Also called "leverage ratio."
Debt service
A borrower's periodic mortgage payments comprised of principal and/or interest on the unpaid mortgage balance.
Debt service constant
A factor that, when multiplied by the original loan amount, yields the annual debt service payment (principal plus interest) required to amortize a loan.
Debt service coverage ratio
A ratio of effective annual net operating income to annual principal and/or interest payments. Also called "debt service coverage."
Debt-to-income ratio
Relationship of a borrower's monthly payment obligation on long-term debts divided by gross monthly income, expressed as a percentage. Also called the "bottom ratio."
Declining balance depreciation
A method of depreciation by which each year's depreciation is a percentage of the reduced basis of the asset. In general, the declining balance rate may be 200, 150, or 125 percent of straight-line depreciation.
Decree of foreclosure and sale
In a judicial foreclosure, the court decree of judgment that establishes the amount of the mortgage debt and orders the property sold to satisfy the debt.
Dedication
The granting of land by the owner for some public use and its acceptance for such use by authorized public officials.
Deed
The document by which title to real property is transferred or conveyed from one party to another.
Deed-in-lieu
A deed given by a borrower/mortgagor to a lender/mortgagee to satisfy a debt and avoid foreclosure.
Deed of reconveyance
The transfer of a legal title from the trustee to the trustor (the borrower) after the trust deed is paid in full.
Deed of trust
A type of security instrument in which the borrower conveys title to real property to a third party (trustee) to be held in trust as security for the lender, with the provision that the trustee shall reconvey the title upon the payment of the debt, and, conversely, will sell the land and pay the debt in the event of a default by the borrower. Also see MORTGAGE.
Deed restriction
A condition placed in a deed limiting or restricting the use of the real property.
Default
The non-payment of a mortgage or other loan in accordance with the terms as specified in the note.
Default interest rate
The interest rate stipulated by certain mortgage documents which is triggered by a breach or nonperformance of the terms of a note, the covenants of a mortgage, or the terms of other loan documents.
Default letter
A letter sent to the borrower indicating that a breach or nonperformance of the terms of a note, the covenants of a mortgage, or the terms of other loan documents has occurred. This letter also advises the borrower of the rights of the lender under the note/mortgage and requires that the default be cured.
Default ratio
The occupancy level at which the effective gross income from an income-producing property is insufficient to pay operating expenses and debt service, thus creating the risk of default. The ratio is calculated by dividing the effective gross income into operating expenses plus debt service.
Defeasance
A provision in a mortgage which allows the debtor to reclaim property that has been foreclosed, if certain conditions are met.
Defect of record
An encumbrance on a title that is made a part of the public record. Some recorded defects are judgments, mortgages, other liens, or easements.
Deferred maintenance
Postponed, infrequent, or inadequate maintenance practices on a building or property, often resulting in physical depreciation and loss of value. Deferred maintenance can be an indicator of inadequate cash flow or lack of pride in the property. Also called "curable depreciation."
Deficiency
The difference between the balance outstanding on a loan and proceeds from the sale of the loan collateral.
Deficiency judgment
A court order to pay the balance owed on a loan if the proceeds from the sale of the security are insufficient to pay off the loan.
Delay
In mortgage securities, the time elapsed from receipt of mortgage payments from borrowers to remittance of pass-through cash flows to investors.
Delegated underwriting
The delegation of underwriting authority from an investor or agency to the lender.
Delinquency
Failure of a borrower to make timely payments specified under a loan agreement.
Delinquency ratio
The ratio of number of past due loans to total number of loans serviced.
Delivery
In mortgage banking, the physical transfer of loan documents to an investor or agent in conformance with the commitment.
Delivery date
The contracted date when the actual payment of funds and delivery of mortgage-backed securities occurs.
Delivery month
The calendar month during which a given contract expires and delivery can be made; also called expiration month.
Delta
The unit change in the price of an option (the premium) for a unit change in the price of the underlying security.
Demand deposit
Demand deposits go into a demand deposit account, which is similar to a checking account. The demand deposit funds are liquid and may be withdrawn at anytime without prior notice.
Demand letter
Correspondence sent to the borrower indicating that unless the loan is made current within a certain time frame, the lender can, by virtue of a default, declare the entire principal balance outstanding as well as all interest due under the note to be due and payable.
Demand note/mortgage
A note or mortgage that the lender can call due at any time and without prior notice.
Demographics
See DEMOGRAPHY.
Demography
The study of the characteristics of human populations such as size, growth, density, distribution, and vital statistics.
Demolition clause
Coverage extended to cover the cost of demolishing property damaged by an insured peril. Policies may be extended to cover the cost of demolishing undamaged property made necessary by a bylaw, court order, etc.
Density
The ratio between total land area and the number of residential or commercial structures placed upon it. Local ordinances usually regulate density.
Department of Housing and Urban Development HUD
A governmental entity responsible for the implementation and administration of housing and urban development programs. HUD was established by the Housing and Urban Development Act of 1965 to supersede the Housing and Home Finance Agency.
Department of Veterans Affairs (VA)
A cabinet-level agency of the federal government. The Servicemen's Readjustment Act of 1944 authorized the agency to administer a variety of benefit programs designed to facilitate the adjustment of returning veterans to civilian life. Among the benefit programs is the VA Home Loan Guaranty program, which encourages mortgage lenders to offer long-term, low down payment financing to eligible veterans by partially guaranteeing the lender against loss upon foreclosure.
Deposit
A sum of money given to (1) bind a sale of real estate, or (2) assure payment or an advance of funds in the processing of a loan. Also called earnest money.
Deposit receipt
A form used to acknowledge the acceptance of the earnest money that binds an offer to purchase real property.
Depreciable asset
Tangible personal property or real property used in business or held for the production of income with a determinable useful life of more than one year.
Depreciable basis
The capital amount on which depreciation deductions are calculated.
Depreciation
A decline in value of a building or other real estate improvement, resulting from age, physical wear, and economic or functional obsolescence. This figure is deducted annually from net income.
Depreciation allowance
The accounting charge made to allow for the fact that an asset may become economically obsolete before complete physical deterioration. The purpose is to write off the original cost by distributing it over the estimated useful life of the asset. It appears in the profit and loss statement and the balance sheet.
Derivatives
Investments whose returns derive from the change in value of other securities or indexes, such as bonds, interest rates or stocks.
Developer
A person or entity who prepares raw land for building sites or rehabilitates existing buildings.
Development loan
A short-term loan advanced before a construction loan, used by developers to acquire land and install basic utilities such as roads, sewers, and water supply systems.
Development process
The process through which development projects are conceived, initiated, analyzed, financed, designed, built, and managed.
Development rights
The rights a landholder sells to improve a property or enhance the use of said property.
Differential
In a mortgage-backed security, the difference between the MBS security rate and the coupon rates of the underlying mortgages. The issuer retains the differential to pay for servicing costs and the guarantee.
Direct costs
Labor and materials costs of construction, excluding overhead.
Direct endorsement (DE)
A HUD program that enables an eligible single-family lender to conduct the processing and closing of FHA single-family loan applications without HUD's prior review.
Directors and officers liability insurance (D & O liability insurance)
Insurance that protects both a corporation and its key employees. The standard D & O policy usually includes corporate reimbursement, which covers expenses insured by the directors and officers for legal costs and judgments indemnified by the corporation, and personal coverage, which protects individual officers and directors against claims not indemnified.
Direct payment
Method of payment wherein a check or other form of consideration is delivered directly to the investor's or servicer's place of business.
Disappearing deductible
A deductible that disappears as the loss gets larger, i.e., a $500 deductible will not apply to losses over $10,000.
Disbursements
Actual payment of monies. Used to describe construction loan draws.
Disclosure
Information relevant to specific transactions that is required by law.
Discount
In loan originations, a discount refers to an amount withheld from loan proceeds by a lender. In secondary market sales, a discount is the amount by which the sale price of a note is less than its face value. In both instances, the purpose of a discount is to adjust the yield upward, either in lieu of interest or in addition to interest. The rate or amount of discount depends on money market conditions, the credit of the borrower, and the rate or terms of the note.
Discount point
Amount payable to the lending institution by the borrower or seller to increase the lender's effective yield. One point is equal to one percent of the loan.
Discount rate
The rate of return used to convert expected future cash flows into present dollar value equivalent.
Discounted cash-flow analysis (DCF)
Method of applying an appropriate discount to cash to be received in the future to arrive at the present value of those future earnings.
Disintermediation
The flow of funds out of banks and savings institutions into short term investments on which interest rates are higher.
Dispossess
To obtain physical possession of property by due process of law.
Distressed property
Term that denotes property in trouble due to one of several reasons, such as
Divest
To release an interest one has in property.
Dividend
A stockholder's share of profits of a corporation. An insurance dividend is not a true dividend but a return of premium. Dividends from a savings and loan association, credit union passbook account, or certificate are interest, and are not considered dividends.
Documentary stamp
A mark "stamped" onto a deed certifying the amount of transfer tax paid.
Document custodian
Financial institution that contracts with a lender to maintain custody of certain mortgage documents in the lender's or investor's behalf.
Dollar roll
Repurchase agreement in which a security is sold with an agreement that a substantially similar security will be repurchased at a later date at a given price.
Dominant estate
When an owner of property is given certain rights to use another's property.
Dower
The rights a widow has to her husband's real property at his death.
Down payment
A portion of the sales price paid a seller by a buyer to close a sales transaction, with the understanding that the balance will be paid at settlement. Also, the difference between the sale price of real estate and the mortgage amount.
Draw
Disbursement of a portion of the loan proceeds, usually at a predetermined point in the construction or rehabilitation schedule, to pay for work already completed. The balance of the proceeds is retained until the next scheduled draw or until completion of the construction or rehabilitation work to protect the lender against the contractor's failure to complete the work as scheduled.
Dry funding
Any advance of new funds to a mortgage banker for funding or purchasing mortgage loans where the collateral package is in the possession of the collateral agent and is free of lien or bailment.
Due date
Date which the borrower must pay the interest and/or the principal and interest due on his or her mortgage, as stated in the note, as well as any escrow payment.
Due-diligence review
An examination by a purchaser of a servicing portfolio. Generally the reviewer will look at credit quality and underwriting of the loan collateral underlying the servicing rights; correctness and completeness of the loan documents; the seller's servicing practices and methodologies; and the accuracy of the portfolio offering document. As used here, a re-underwriting of the loan in line with borrower's request to determine the feasibility of the request by lender.
Due-on-encumbrance
A provision appearing in a mortgage providing for the acceleration of a loan upon the placement of additional mortgage liens on collateral already pledged/mortgaged to a lender.
Due-on-sale
A clause in a mortgage stating that if the mortgagor sells, transfers, or in any way encumbers the property, then the mortgagee has the right to implement an acceleration clause making the balance of the obligation due.
Duplex
A single structure designed with two separate housing units.
Duration
An estimate of the volatility or sensitivity of the market price of a bond to changes in interest rates; it measures the weighted average time until cash flow repayment.
Duress
Compulsion, pressure, or coercion under protest.
Dwelling unit
Living quarters occupied, or intended for occupancy, by a household.
Early occupancy
Situation in which a buyer is permitted to take possession of real property before closing.
Earnest money
A deposit made to bind the conditions of a sale of real estate.
Easement
A right to the limited use or enjoyment of land held by another, including, for example, an interest in land to enable sewer or other utility lines to be laid, or to allow access to a property.
ECOA
See EQUAL CREDIT OPPORTUNITY ACT.
Economic depreciation
The loss of the value of real estate due to changes outside the particular property affected, e.g., a decline in the neighborhood or change in zoning.
Economic development
A general term indicating projects designed to strengthen an area's economy and employment base.
Economic life
The estimated period of time during which a property can be used by its owner to produce income.
Economic or commercial real estate weakness
An area exhibiting poor occupancies, low rents, plant or military base closings, or low sales and appraised values.
Economic rent
The rent that a property would bring if offered in the open market. Same as market rent; often differs from the contract rent.
Economic value
The condition of the property based on its earning potential.
EDI
See ELECTRONIC DATA INTERCHANGE.
Effective age
For purposes of appraisal, the physical age given to a building based on its present condition, which may differ from its actual age.
Effective gross income
Stabilized income after vacancy and bad debt allowances that a property is expected to generate.
Effective gross income (personal)
Normal annual income, principally salary, that is regular, significant, and stable.
Effective gross income (property)
The stabilized income (after vacancy and bad debt allowances) that a property is expected to generate.
Effective interest rate
The actual rate of return to the investor, considering commitment fees, loan points, or other fees. Also called yield.
Effective rent
The rental income generated by a lease computed over the life of the lease and expressed as an annual dollar amount or annual dollar amount per square foot. This figure is typically computed as the aggregate rent to be paid under the lease net of any abated rent and allowances, divided by the term of the lease. However, there has been a trend toward computing effective rent more realistically by using a time-value-of-money calculation. In this latter approach, sometimes called the "equivalent level rent calculation," a market discount rate is applied to all cash flows from the lease to obtain a present value which is then reduced by the cost of any concessions or inducements paid to put the lease in place. The resultant net value is then converted to the equivalent level payment stream which would produce an equivalent net present value at that discount rate.
Effective yield
The annual return expressed as the face interest rate divided by the amount invested, used when a mortgage or other debt instrument is bought at a discount or premium.
Egress
To go out. This term is used with the word ingress (to go in) to describe the right of access to land.
EIS
See ENVIRONMENTAL IMPACT STATEMENT.
Electronic data interchange (EDI)
Intercompany electronic exchange (between computers) of business documents in standard formats using the American National Standards Institute (ANSI) Accredited Standards Committee's (ASC) data standards.
Ellwood technique
An advanced method of developing a capitalization rate based on the proportion of an investment represented by debt and equity.
Eminent domain
The right of government bodies, public utilities, and public service corporations to take private property for public use (e.g., schools and roads) upon payment of its fair market value.
Employee Retirement Income Security Act (ERISA)
Adopted in 1974, the Act affects many aspects of pension and profit-sharing plans, and regulates the investments such plans can make and the conduct of their fiduciaries.
Encroachment
An improvement that illegally violates another's property or right to use that property.
Encumbrance
Anything that affects or limits the fee simple title to property, such as mortgages, leases, easements, or restrictions.
End loan
The final mortgage loan to the ultimate purchaser of a property, as opposed to a construction loan or other form of interim financing.
Endorsement
A signature on a negotiable instrument by which title to property mentioned therein is assigned and transferred. Also, a notation added to an instrument after execution to change or clarify its contents. In insurance, coverage may be restricted or enlarged by endorsing a policy. In FHA loans, a notation placed on the note by the FHA indicating that the loan is insured under the National Housing Act.
Engineer's report
A report rendered by an engineer stating the physical condition of property that has been inspected, with a summation or recommendation thereof.
Enterprise zone
A depressed neighborhood, usually in an urban area, in which businesses are given tax incentives and are not subject to some government regulations. These advantages are designed to attract new businesses into the zone.
Environmental impact statement (EIS)
A document required by many federal, state, and local environmental land use laws, containing an analysis of the impact that a proposed change may have on the environment of a specific geographic region. It examines a wide variety of physical, social, and economic conditions that would be affected by the proposed development. The analysis covers effects that cannot be avoided, alternatives to the proposed change, short-term versus long-term uses and long-term productivity, irreversible commitments of resources, and the benefits to be derived from the proposed change.
Environmental impairment insurance
A special form of insurance designed to protect an insured against claims for liability and clean up costs related to pollution. Coverage may be granted for gradual and sudden and accidental pollution, and is always written on a claims made form.
Environmental Protection Agency (EPA)
The agency responsible for enforcing environmental liability.
Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other 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. Also called "Regulation B."
Equitable mortgage
An instrument that, because of a technical defect, is not actually a mortgage, but because the intention of the parties is to create a mortgage, the instrument will be enforced by a court of equity.
Equity
The net value of an asset. In the case of real estate, it would be the difference between the present value of the property and the mortgage amount on that property.
Equity capital
Money invested by shareholders who are owners and who receive a share of profits.
Equity of redemption
The common law right to redeem property following default on a mortgage by paying the unpaid debt plus interest and costs prior to the foreclosure sale. In some states, the mortgagor has a statutory right to redeem property after a foreclosure sale.
Equity participation
The right of a lender to a share in the gross profits, net profits, or net proceeds in the event of sale or refinance of a property on which the lender has made a loan. Also known as an "equity kicker."
Equivalent level rent calculation
See EFFECTIVE RENT.
ERISA
See EMPLOYEE RETIREMENT INCOME SECURITY ACT.
Errors and omissions insurance(E & O insurance) Liability insurance coverage for errors, mistakes, and negligence in the usual activities of a mortgage banker. Fraudulent behavior is not included.
Escalation clause
A clause providing upward adjustments of rent payments to cover specified contingencies. Also, a provision in a lease to provide for increases in property tax and operating expenses.
Escape clause
A clause that allows a tenant to cancel a lease in situations that would not necessarily justify lease cancellation.
Escheat
Property taken into state ownership in the absence of the original owner, or upon the owners death in that state, without heirs.
Escrow
An item of value, money, or documents, deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate. In some parts of the country, escrows of taxes and insurance premiums are called impounds or reserves.
Escrow account
The segregated trust account in which escrow funds are held.
Escrow agent
The person or organization having a fiduciary responsibility to both the buyer and seller (or lender and borrower) to see that the terms of the purchase/sale (or loan) are carried out. Also called escrow company or escrow depository.
Escrow analysis
The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due.
Escrow company
An organization established to act as an escrow agent.
Escrow contract
A three-party agreement between the buyer, seller, and the escrow agent, specifying the rights and duties of each.
Escrow overage or shortage
The difference, determined by escrow analysis, between escrow funds on deposit and escrow funds required to make a payment when it becomes due.
Escrow payment
That portion of a mortgagor's monthly payments held by a lender or servicer to pay taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also called "impounds" or "reserves" in some states.
Escrow transfer agreement
An instrument transferring escrow funds (and obligations under an existing escrow agreement) held by the lender to a third party upon transfer of property.
Estate
The ownership interest an individual has in real property. The sum total of all the real and personal property owned by an individual at the time of death.
Estoppel certificate
A written statement setting forth certain facts which cannot later be repudiated (frequently given by a lender or a tenant relative to a loan or lease, respectively).
et uxor Legal term meaning "and wife;" sometimes abbreviated "et ux."
Eurodollar
Dollar denominated deposits in a bank or bank branch outside the United States.
Eviction
The lawful expulsion of an occupant from real property.
Evidence of title
Proof of ownership of property.
Examination of title
The review of the chain of title as revealed by an abstract of title or public record.
Exception
In legal descriptions, that portion of land to be deleted or excluded. The term is also used to describe an objection to title or encumbrance on title.
Excess coverage
A coverage designed to be in excess over one or more primary policies, which will not pay out until the primary limits of liability are exhausted.
Excess (positive) cash flow
An amount of income derived from the operation of a property or business after deducting or paying all expenses.
Excess servicing
Cash flows from servicing portfolios which are greater than the costs incurred to service the loans contained therein.
Exclusive listing
A written contract giving one licensed real estate agent the exclusive right to sell a property for a specified time, but reserving the owner's right to sell the property alone without the payment of a commission.
Exclusive right to sell
A written contract giving one real estate agent the right to sell a piece of real property and entitling that agent to a commission upon sale, regardless of who finds a buyer.
Exculpatory clause
A clause in a contract holding a specified party harmless in the event of default. For example, the provision in a note that the debtor will not be held personally liable in the event of default.
Execute
Recordation of the appropriate signatures on a document such as a mortgage note, to render it "in effect."
Execution
A judicial order directing an appropriate officer of the court to enforce a judgment against the property or person of the judgment debtor, in an attempt to satisfy the judgment.
Executor
A person named in a will to administer an estate. The court will appoint an administrator if no executor is named. Executrix is the feminine form.
Exempt property
Real estate not subject to property taxes. Religious, educational, and charitable organizations generally hold exempt property.
Exercise price
Strike price. The price at which an option seller has agreed to buy or sell securities. Also, the price at which the underlying security or commodity will be delivered in the event an option is exercised.
Existing construction
In HUD/FHA transactions, a house that was not approved by HUD/FHA or VA before the beginning of construction, but which has been completed more than one year.
Exit price
The price at which property might be sold at some future date. Generally, the price used to calculate internal rate of return.
Expense stop
See BASE STOP.
Expert systems
Automated system that uses artificial intelligence (AI) to make decisions based on parameters built into the system, rather than analysis of data.
Exposure
The total amount a lender has tied up in a loan. Usually the outstanding principal balance of the loan plus accrued interest, and any capitalized costs including legal fees and expenses, appraisal and environmental fees, and all other costs associated with securing the lender's interest in the property.
Extended coverage
A common extension of insurance coverage beyond the normal fire and lightning perils. Damage caused by windstorm, hail, explosion, riot, vehicles, smoke, aircraft, and other falling objects are the additional perils insured by this coverage. In secondary marketing, a market position characterized by uncovered or unhedged mortgage pipeline and/or inventory risk that may result in a financial loss, due to fluctuations and other market factors.
Extended coverage endorsement
An endorsement that may be attached to insurance policies, which extends the breadth of coverage.
Extended locks
Mortgage rate commitments which are for longer than the typical 60 day lock-in term.
Extension
Continuation past original maturity date; continuation of a commitment.
Face value
Par value or the actual selling price of a security; the amount the issuer contracts to repay.
Fair market rent
An amount determined by HUD to be the cost of modest, non-luxury rental units in a specific market area.
Fair market value
The price at which property is transferred between a willing buyer and a willing seller, each of whom has a reasonable knowledge of all pertinent facts and neither being under any compulsion to buy or sell.
Fallout
The percentage of loans in the pipeline expected not to close.
Fannie Mae (FNMA)
The nation's largest mortgage investor created in 1968 by an amendment to Title III of the National Housing Act (12 USC 1716 et seq.) this stockholder-owner corporation, a portion of whose board of directors is appointed by the President of the United States, supports the secondary market in mortgages on residential property with mortgage purchase and securitization programs.
Fannie Mae DUS Lender
A lender designated by Fannie Mae who originates, underwrites, closes, and services Fannie Mae approved multifamily mortgage loans.
FAR
See FLOOR AREA RATIO.
Farmers Home Administration (FmHA)
A former government agency within the Department of Agriculture that operated under the Consolidated Farm and Rural Development Act of 1921 and Title V of the Housing Act of 1949. This agency provided financing to farmers and other qualified borrowers who were unable to obtain loans elsewhere. See RURAL HOUSING SERVICE.
FASB
See FINANCIAL ACCOUNTING STANDARDS BOARD.
Fast-track construction
The commencement of construction before design drawings are complete.
FDIC
See FEDERAL DEPOSIT INSURANCE CORPORATION.
Feasibility study
A detailed investigation and analysis conducted to determine the financial, economic, technical, or other advisability of a proposed project.
Fed
See BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM.
Federal Bank Wire
A payment system operated by the Federal Reserve for the transfer of Federal Funds balances between financial institutions maintaining accounts at U.S. Federal Reserve Banks.
Federal Bond Subsidy Act
Federal legislation empowering state and local governments to issue tax free bonds to fund mortgages for lower and middle income borrowers.
Federal Deposit Insurance Corporation (FDIC)
Originally established by the Banking Act of 1933 to protect depositors from loss. As a result of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), the FDIC administers the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF).
Federal Emergency Management Agency (FEMA)
Federal agency which, among other things, directs the activities of the Federal Insurance Administration and establishes flood insurance rates and terms of coverage, issues policies, processes claims, and identifies and maps flood-prone areas.
Federal Home Loan Mortgage Corporation (FHLMC)
See FREDDIE MAC.
Federal Housing Administration (FHA)
A federal agency within the Department of Housing and Urban Development (HUD) that provides mortgage insurance for residential mortgages and sets standards for construction and underwriting. The FHA does not lend money, nor does it plan or construct housing.
Federal Housing Finance Board (FHFB)
Independent five member federal agency regulating the credit activities of the 11 Federal Home Loan Banks.
Federal National Mortgage Association (FNMA)
See FANNIE MAE.
Fee appraiser
Appraiser who is an independent contractor and is paid a fee on a case-by-case basis by lenders or others for performing a property appraisal.
Fee simple
The greatest possible interest a person can have in real estate, including the right to dispose of the property or pass it on to one's heirs.
FEMA
See FEDERAL EMERGENCY MANAGEMENT AGENCY.
FHA
See FEDERAL HOUSING ADMINISTRATION.
FHA case number
The number used to identify a HUD/FHA mortgage in HUD's records. It is a thirteen digit number, in three sections (XXX-XXXXXXX-XXX). The first three digits identify the HUD/FHA office in whose jurisdiction the property is located and the office responsible for processing the application (which may be different in some cases). The next six digits are assigned serially by the HUD/FHA office, in the order applications are received. The seventh digit is a check digit, derived mathematically from the serial number. The final three digits identify the program under which the mortgage is insured. In some cases this is the same as the section of the National Housing Act, but there are many variations.
FHA loan
A loan made through an approved lender and insured by the Federal Housing Administration. While there are limits to the size of FHA loans, they are intended to finance moderately priced homes.
FHA prepayment experience
Statistic which shows the percentage of loans in a pool outstanding at the origination anniversary.
FHA value
The value established by the FHA as the basis for determining the maximum mortgage amount that may be insured on a specific property. The FHA value is the sum of the appraised value of the property plus HUD/FHA's estimate of closing costs.
FHLMC (Federal Home Loan Mortgage Corporta- tion)
See FREDDIE MAC.fidelity (bond)
Fiduciary
One who acts in a capacity of trust and confidence for another.
Field appraiser
Appraiser who researches and analyzes primary and secondary data and prepares appraisal reports.
Final closing The date upon which the permanent mortgage ender funds the mortgage loan.
Final endorsement
The date upon which HUD/ FHA accepts the credit instrument evidencing the permanent mortgage loan for mortgage insurance.
Final inspection
Home inspection made by a lender, VA, FHA or the appraiser after a new home or repairs have been completed.
Final rule
Attempts to state the circumstance under which lenders would not be deemed "participating in the management" of "influencing" the control, handling or disposal of hazardous materials at a borrower's property, and , therefore, would not be liable for their remediation.
Finance charge
A term defined in section 105 of the federal Truth in Lending Act (PL 90-321; 15 USC 1605), which generally includes all charges payable as an incident to the extension of a loan.
Financial Accounting Standards Board (FASB)
A private entity created by the accounting profession to develop and promulgate financial accounting standards and practices. Its membership is composed of top-level accounting professionals from business, government, and education professions. It derives its authority from official recognition by the Securities and Exchange Commission (SEC) and the American Institute of Certified Public Accountants (AICPA), and from the general support of corporate and investment communities. While the Securities and Exchange Commission (SEC) has the authority to regulate accounting standards, it nearly always defers to the FASB.
Financial futures
Contracts for the purchase or sale of financial instruments at | |
