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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 a later date.
Financial Institutions Reform, Recovery and Enforcement Act (FIERRA)
The law enacted to restructure the thrift industry. The Act created regulatory entities to oversee thrifts and established risk-based capital guidelines for Qualified Thrift Lenders (QTLs). The Act created the Office of Thrift Supervision (OTS), the Federal Housing Finance Board (FHFB), and the Resolution Trust Corporation (RTC); the Act dissolved the Federal Home Loan Bank Board (FHLBB) and the Federal Savings and Loan Insurance Corporation (FSLIC).
Financial statement
A financial report including a balance sheet and an income statement.
Financial statement analysis
Evaluation of the existing and potential income stream of the real estate to determine prospective cash flow and debt service capacity.
Financing package
The financing vehicles used to fund a project, including mortgages, partnerships, joint venture capital interest, stock ownership, or any financial arrangement.
Financing statement
Under the Uniform Commercial Code (UCC), a prescribed document a lender files with the Recorder of Deeds or Secretary of State, giving the name and address of the debtor and the secured party (lender), along with a description of the personal property securing the loan.
Finder's fee
See REFERRAL.
Fire wall
A wall built to prevent the spread of fire in a building.
Firm commitment
(1) For multifamily housing, the HUD/FHA agreement to insure construction advances for multifamily housing projects, subject to compliance with the terms of the commitment. HUD/FHA issues a firm commitment for mortgage insurance after accepting complete, final development drawings, including complete specifications and firm costs. (2) The HUD/FHA agreement to insure a loan taken out by a borrower on a specific, previously approved single family property under specific terms. (3) For loans, a lender's agreement to make a loan to a specific borrower under specific terms and conditions within a given time. (4) In the secondary mortgage market, a buyer's agreement to purchase mortgage securities under specified terms.
FIRREA
See FINANCIAL INSTITUTIONS REFORM, RECOVERY AND ENFORCEMENT ACT.
First mortgage
A mortgage that gives the mortgagee a security right over all other mortgages of the mortgaged property.
Fixed assets
Assets that will not be turned into cash within a year, such as plant, machinery, or land.
Fixed disbursement schedule
In construction financing, where the lender and borrower agree to a schedule of set payments, as opposed to a voucher system of payment.
Fixed-rate mortgage (FRM)
A mortgage in which the interest rate and payments remain the same for the life of the loan.
Fixture
Personal property that becomes real property upon being attached to real estate.
Fixture allowance
A cash allowance made by a lessor to a lessee to offset the cost of installing fixtures at a retail location.
Flat rental
Rental payments under a lease that are fixed and unchanged throughout the term of the lease.
Flip-flop
A technique in partnership agreements for allocating disproportionately high profits and losses from a project to cash investors until a certain point in time, then switching (in a "flip-flop") to a different allocation more favorable to the developer. Example
Float
A loan application in which the lender has not committed to lend at a particular interest rate (the rate is not locked-in). In mortgage servicing, the period of time between the receipt of borrower's principal and interest payments and remittance of those funds to investors.
Floating rate CMO bonds (FRCMO)
CMO bonds with coupons that are adjusted periodically at a specified spread over LIBOR (London Inter Bank Offered Rate).
Floating rate bond
A type of bond in which the yield is allowed to rise and fall within a specified range with the fluctuations of the market. Floating rate bonds have been used in the housing bond market.
Floating rate of interest
A rate that is adjusted periodically to a premium over the equivalent yield of an index such as the prime rate or three-month Treasury bill rate.
Floating rate loan
A loan originated without a firm commitment to the borrower, thereby closing at the market rate.
Flood insurance
Insurance that reimburses the policyholder for damage to property caused by the peril of flood.
Flood plain
Those lands subject to flooding when a stream or river is at flood stage.
Floor area ratio (FAR)
The ratio of the total floor area of a building to the total area of the site.
Floor loan
The portion of a mortgage loan that the lender agrees to advance without regard to the fulfillment of project leasing requirements. For example, a floor loan equalling 80 percent of the full amount may be funded upon completion of construction without occupancy requirements, but substantial occupancy of the building may be required for funding the full amount of the loan.
Floor plan
Scale architectural drawings showing details of floor design and layout.
Floor-to-ceiling-loan
A loan in which there are two separate fundings, one funding at acceptable completion of construction, and a second funding upon compliance with occupancy or cash flow requirements as set forth in the loan.
Flow servicing
Transfer of servicing in a continuous transaction where all loan files and portfolio information are transferred over time.
FmHA
See FARMERS HOME ADMINISTRATION.
FNMA (Federal National Mortgage Association)
See FANNIE MAE.
Forbearance
The act of refraining from taking legal action despite the fact that the mortgage is in arrears. It is usually granted only when a mortgagor makes satisfactory arrangements to pay the amount owed at a future date.
Force majeure insurance
A specialized form of coverage for owners and contractors to protect against damage or delays caused by unpredictable events such as war, strikes, or those perils not normally insured under "all risk" policies.
Force placed coverage
Hazard coverage obtained by a lender to protect its security interest in a property where the borrower has failed to renew existing coverage. Premiums for this coverage are usually above market rates and most mortgage instruments allow for this premium to be charged to the borrower.
Foreclosure
A legal procedure in which a mortgaged property is sold in a legal process to pay the outstanding debt in case of default.
Forfeiture
The loss or surrender of money, property, a right, or privilege due to failure to perform.
Forward commitment
An agreement between a buyer and seller for delivery of a specific commodity at a given time in the future, at a strike price determined at present. Also called forward delivery contract.
Forward sale
A securities sale with settlement in the future.
Fourth-party originator
An entity or individual that is used by a third-party originator (TPO) to obtain an application for a home mortgage. The entity or individual may completely or partially take the application, process credit documents, underwrite or fund the mortgage and subsequently transfer, assign, or sell the mortgage to the TPO. The compensation of the fourth party generally is contingent on the closing of the mortgage.
FRCMO
See FLOATING RATE CMO BONDS.
Free and clear return
Net operating income divided by total capital investment. Also called "rate of return" or "overall rate."
Freddie Mac (Federal Home Loan Mortgage Corporation) Created by Congress in Title III of the Emergency Home
Finance Act of 1970 (12 USC 1451 et seq.).
This stockholder-owned 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 and multifamily properties with mortgage purchase and securitization programs.
Free-market system auction
A periodic auction conducted by Fannie Mae, at which commitments to purchase mortgages are issued. Approved lenders specify a dollar amount and yield to Fannie Mae.
Free put
A put for which no consideration or fee is paid. Also see PUT OPTION.
Friable
A condition, most frequently utilized in the context of asbestos, where environmental contaminants (usually asbestos fibers) have the potential to become dislodged or disturbed and airborne, thus becoming a threat to one's health.
FRM
See FIXED-RATE MORTGAGE.
Frontage
The property line abutting the most important adjacent property, usually a street, lake, river, or ocean.
Front-end or front money
Funds required to start a project, generally advanced by the developer or equity owner as a capital contribution to the project. Also called "seed money."
Front foot
One foot in length of the frontage of real property.
Full credit option
Option money that will be fully credited to the purchase price when the option is exercised.
Fully amortized
A mortgage which has a zero balance at the end of the mortgage term.
Fully indexed accrual rate
The index plus the margin for an adjustable rate mortgage (FIAR).
Functional depreciation
In real estate, loss of value due to advancements in technology or design that make the features of the current facility obsolete. Also called functional obsolescence.
Fundable standby commitment
A standby commitment that can be serviced by the projected cash flow of a property.
Funding
Payment of loan money by a lender to a borrower so that he or she can purchase real estate. Also the payment of money by investors to lenders in return for mortgages sold to them by the lender.
Funding date
Date when the purchaser of the mortgage disburses payment to the seller or warehouse lender.
Funding through the gap
Financing obtained to fill the difference between the cost of construction and the amount of floor loan.
Fungible
Substitutable. Any unit that is as acceptable as another; usually used in connection with standardized FHA mortgage documents, appraisals, and property standards, which make mortgages more marketable because of their substitutability.
Future advance
Disbursement of funds subsequent to the execution of a mortgage. Obligatory future advances are found in construction loans, and normally take precedence over another encumbrance recorded prior to disbursing the next.
Futures
Contracts for the purchase or sale of commodities in the future, usually on or before a particular date. Futures contracts on fixed-income instruments, such as Treasury bills, are referred to as financial futures.
Futures options
See OPTIONS ON FUTURES.
GAAP
See GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
Gamma
The unit change in the delta for a unit change in the underlying security. See DELTA.
Gap financing
An interim loan given to finance the difference between the floor loan and the maximum permanent loan as committed. Also called bridge financing.
Garnishment
A notice to an employer or other asset holder that monies, wages, or property of a debtor must be applied to a specific debt or creditor.
GEM
See GROWING EQUITY MORTGAGE.
General contractor
A party that performs or supervises the construction or development of a property pursuant to the terms of a primary contract with the owner. The general contractor may use its own employees for this work or the services of other contractors (subcontractors).
General partner
The co-owmner of a real estate venture who is liable for all debts and other obligations of the venture as well as for the management and operation of the partnership. The general partner controls the business and can take actions that are binding on the other partners.
Generally accepted accounting principles (GAAP)
Accounting practices mandated by recognized rule-making authorities.
Gestation repo
A repurchase agreement covering the time (usually 20 days) between the date an issuer submits documents to the Government National Mortgage Association for final pool approval and the date the new security is actually issued.
GFE
See GOOD FAITH ESTIMATE.
Gifts
Money given to borrowers to assist in the purchase of a home, usually from relatives or a close friend.
GI loan
Old nickname for a VA guaranteed mortgage loan.
Ginnie Mae
Created in 1968 by an amendment to Title III of the National Housing Act (12 USC 1716 et seq.), this federal government corporation is a constituent part of the Department of Housing and Urban Development. Among other governmental functions, it guarantees securities backed by mortgages that are insured or guaranteed by other government agencies. Also called Government National Mortgage Association (GNMA).
GMC
See GUARANTEED MORTGAGE CERTIFICATE.
GNMA
See GINNIE MAE.
GNMA I
A mortgaged-backed securities program in which individual mortgage lending firms issue securities and pass principal and interest payments directly to the securities holders, whether or not the mortgagor makes the monthly payment. Ginne Mae mortgage-backed securities are backed by the "full faith and credit" of the U.S. government.
GNMA II
A mortgaged-backed securities program in which pools of loans from several lenders are combined into a single issue of securities. A central paying agent passes principal and interest payments directly to the securities holders. GNMA II pools are generally larger than those formed by individual lenders under GNMA I. Ginne Mae mortgage-backed securities are backed by the "full faith and credit" of the U.S. government.
GNMA futures market
A regulated central market in which standardized contracts for the future delivery of GNMA securities are traded.
GNMA repurchase agreement
A financial tool whereby Ginnie Mae guaranteed mortgage-backed securities are sold to a security dealer who simultaneously agrees to repurchase them at a later date at a fixed price. No recorded transfer takes place and the security dealer holds the Ginnie Mae certificate. Also called a "repo."
Going concern value
The value of property on the assumption that it will continue to be used in an existing business. Going concern value usually is greater than liquidation value.
Good delivery
A seller's strict compliance with rules and conditions regarding the delivery of securities to a buyer.
Good faith estimate (GFE)
A document which tells borrowers the approximate costs they will pay at or before settlement, based on common practice in the locality. Under requirements of the Real Estate Settlement Procedures Act (RESPA), the mortgage banker or mortgage broker, if any, must deliver or mail the GFE to the applicant within three business days after the application is received.
Government mortgages
Mortgages insured or guaranteed by the government (FHA, VA, RHS, or State Bond Agencies).
Government National Mortgage Association (GNMA)
See GINNIE MAE.
GPM
See GRADUATED PAYMENT MORTGAGE.
Government sponsored enterprise (GSE)
Private organizations with government charters and backing. Examples are Freddie Mac and Fannie Mae.
Grace period
A period of time (usually 15 days) after a mortgage payment is due in which the lender will not charge a late penalty or report the payment as late.
Graduated lease
A lease providing for a variable rental rate, specified by terms set forth in the lease or by reappraisal using a predetermined formula. Also called a "graded lease."
Graduated payment mortgage (GPM)
A type of flexible payment mortgage where the payments increase for a specified period of time and then level off. Usually results in negative amortization.
Grantee
The person to whom an interest in real property is conveyed.
Grantor
The person conveying an interest in real property.
Green card
Immigration status which permits the holder to work in the United States, obtain a social security number and become an apprentice to attain citizenship.
Grievance day
A day set by taxing authorities and their agents for hearing protests on assessed valuations of real property.
Gross area
The total floor area of a building measured from the outside of the exterior walls.
Gross income
Total income produced by a property before any expenses are deducted.
Gross leasable area
The total floor area designated for tenant occupancy, and on which tenants pay rent. Usually used in describing property used for retail sale establishments.
Gross lease
A lease in which the lessor is responsible for all costs of maintaining the property. Opposite of net lease, where the tenant pays these costs.
Gross monthly income
A person's income before deductions for taxes, medical insurance, etc. After deductions, the income is referred to as take home pay or net income.
Gross rate
Interest rate on a mortgage including servicing fees.
Gross rent multiplier
A figure derived from the relationship between gross rental income and sales price. Used to compare rental properties.
Ground lease
A lease of land only, usually on a long-term basis.
Ground rent
Rent paid for land in accordance with the terms of a ground lease.
Groundwater
Water in the subsoil.
Growing equity mortgage (GEM)
A graduated payment mortgage in which increases in a borrower's mortgage payments are used to accelerate reduction of principal on the mortgage. Due to increased payments, the borrower acquires equity more rapidly and retires the debt earlier.
GSE
See GOVERNMENT SPONSORED ENTERPRISE.
Guarantee
An individual's or entity's promise to pay in the event of an operational shortfall.
Guarantee bonds
Debt obligations used in the housing bond market whose principal and interest payments are backed by a letter of credit from a bank or other source of funds.
Guaranteed coupon
A term in a contract for the purchase or sale of mortgage-backed securities that states the securities to be delivered will bear an agreed-upon interest rate.
Guaranteed loan
A loan guaranteed by a government agency or any other interested party.
Guaranteed mortgage certificate (GMC)
A bond-like instrument issued by Freddie Mac that represents ownership in a large pool of residential mortgages. Principal is returned annually and interest is paid semi-annually.
Guarantor
A party who is secondarily liable for another's debt or performance (in contrast to a surety who is primarily liable with the principal debtor).
Guaranty
A promise by one party to pay a debt or perform an obligation contracted for or by another in the event that the obligor fails to pay or perform as contracted. For VA loans, the amount of money VA will reimburse a lender upon default of a VA mortgage. Also referred to as the amount of entitlement or eligibility.
Guaranty fee
Price for guaranteeing to an investor the timely payment of principal and interest from all the mortgages underlying a mortgage backed security.
haircut The difference between the market value of a mortgage and the amount of money a lender will advance against it.
HAP
See HOUSING ASSISTANCE PLAN.
Hard costs
Land acquisition and construction costs.
Hard dollars
Money given in exchange for an equity position in a transaction for real property.
Hazard insurance
Insurance coverage which provides compensation to the insured in case of property loss or damage.
Hazard waste risk
A financial or health risk that is created due to any substance such as asbestos, urea formaldehyde foam insulation, transformers containing polychlorinated biphenyls (PCBs) in excess of 50 parts per million, lead paint, or any substance deemed hazardous, toxic, or required to be disclosed, reported, treated, removed, disposed of, or cleaned up by any applicable hazardous material law.
HDC
See HOUSING DEVELOPMENT CORPORATION.
Head lease
The basic lease agreement between a tenant and landlord. Also called an "original lease," "underlying lease," or "main lease."
Hedge ratio
Ratio of the value of futures contracts purchased or sold to the value of the cash commodity being hedged.
Hedging
A marketing strategy that reduces or transfers risk of loss from changes in market interest rate.
Height zoning
Zoning that restricts the maximum height of buildings in a specified area.
HFA
See HOUSING FINANCE AGENCY.
Hidden defect
Any encumbrance in a title that is not apparent in public records. Examples of hidden defects are unknown heirs, secret marriages, forged instruments, mental incompetency, or infancy of a grantor.
Highest and best use
The use of land which will bring the greatest return.
Highest and best use study
A comparative analysis of two or more alternative projects already judged economically feasible, to identify the most profitable use.
Historical cost
The original cost of a constructed property.
HMDA
See HOME MORTGAGE DISCLOSURE ACT.
HOA
See HOME OR CONDOMINIUM OWNERS ASSOCIATION.
HOA fees
See HOMEOWNERS' ASSOCIATION FEES.
Holdback
A portion of a loan commitment not funded until some additional requirement, such as rental or construction completion, is attained. In construction or interim lending, a percentage of the contractor's draw held back to provide additional protection for the interim lender, often an amount equal to the contractor's profit given over when the interim loan is closed.
Holdover tenant
A tenant who remains in possession of leased property after the expiration of the lease term.
Home equity line of credit loan
An open-end loan, usually recorded as a second mortgage, that permits borrowers to obtain cash advances based on an approved line of credit.
Home improvement loan
Mortgage to finance an addition to or rehabilitation of a residence.
Home loan
A mortgage loan secured by a residence for one, two, three or four families. Also known as a single family mortgage, even though the property may be designed for more than one family.
Home Mortgage Disclosure Act (HMDA)
Federal legislation which requires certain types of lenders to compile and disclose data on where their mortgage and home improvement loans are being made.
Home or condominium owners association (HOA)
A nonprofit corporation or association that manages the common areas and services of a planned unit development or condominium project. In a condominium project, it has no ownership interest in the common areas; in a planned unit development, it holds title to common areas.
Homeowners' association fees (HOA fees)
A fee typically paid monthly by a homeowner to a homeowners association in order for the association to take care of areas owned in common by all homeowners within a planned unit development.
Homeowners' insurance
Insurance carried by the homeowner to protect the dwelling against fire and other hazards.
Homeowner's policy
A multiple peril insurance policy available to owners of private dwellings which covers the dwelling and its contents, as well as personal liability.
Homeowners Warranty (HOW) Program
An insurance program through which participating builders provide homebuyers with a warranty on the workmanship and materials of a home, and warrant against major structural defects.
Homestead estate
In some states, a statutory exemption which prohibits the attachment or sale of owner-occupied properties to pay the claims of creditors.
Homestyle Seconds
One of Fannie Mae's major tools for neighborhood and community revitalization, the HomeStyle Second Mortgage is designed for homebuyers or homeowners at all income levels who wish to repair, remodel, enlarge or substantially renovate a home. Introduced in 1993, this program was designed to help lenders capture the growing U.S. market for home remodeling.
Housing assistance plan (HAP)
Part of the Community Development Block Grant Application that describes local housing conditions and sets quantitative goals for providing housing to low- and moderate-income residents.
Housing code
Standards to ensure that housing maintenance and improvements are adequate for occupancy.
Housing Development Corporation (HDC)
Private multifamily housing corporation established to serve a specific geographic area (neighborhood, city, state, or region). Provides technical assistance, lends seed money, and directly sponsors housing developments. Generally includes community residents, local business representatives, and governmental officials on its board of directors.
Housing expense ratio
The relationship of a borrower's monthly payment obligation on housing (PITI and other applicable housing expenses) divided by gross monthly income, expressed as a percentage. Also called the "top ratio."
Housing Finance Agency (HFA)
A state or local agency responsible for the financing of housing and the administration of subsidized housing programs.
Housing starts
The number of residential units actually under construction, as distinguished from the number of construction permits issued. The number of housing starts is a key economic indicator and is used in analyzing real estate and mortgage trends.
HOW Program
See HOMEOWNERS WARRANTY (HOW) PROGRAM.
HUD
See DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT.
HUD-1 Uniform Settlement Statement
Standard form used to disclose costs at closing. All charges imposed in the transaction, including mortgage broker fees, must be disclosed separately.
HUD Assignment
A program defined by HUD wherein the lender assigns the note and mortgage to HUD in return for the reimbursement of the lender's total indebtedness.
HVAC
The heating, ventilating, and air-conditioning system.
Hybrid investment
An investment that is a mix of debt and equity.
Hypothecate
To pledge property as security for a debt without giving up possession of title.
Identity of interest
A financial or corporate relationship between a project sponsor and contractor that is necessary to receive a Builder's and Sponsor's Profit and Risk Allowance (BSPRA).
Imaging
Conversion of a paper document such as a mortgage application into an electronic duplicate than can be stored electronically and viewed on a computer terminal.
Immediate purchase contract
An over-the-counter offer by a seller to a purchaser of a mortgage.
Impact fees
Up front fees charged developers and homebuyers to pay for public improvements and services.
Impound
See ESCROW.
Improved land
Land having utilities, roads, or other improvements.
Improvements
Additions to raw land that normally increase its value, such as buildings, streets, and sewers.
Imputed interest
Interest included in the principal amount of contracted debt, if stated interest is less than the amount required by tax law.
Incentive zoning
An agreement between public officials and private developers in which developers are offered an incentive to build a desired public improvement.
Income and expense statement
The actual or estimated schedule of income and expense items reflecting net gain or loss during a specified period.
Income approach to value
The appraisal technique used to estimate real property value by capitalizing net income.
Income/expense ratio
A qualifying ratio used in underwriting a residential mortgage loan which computes the percentage of monthly
income required to meet the monthly housing expense.
Income limits
Income restrictions established for low- to moderate-income persons to qualify for admission into subsidized housing programs. The limits are established by law and are based on family size and geographic location.
Income participation
A loan arrangement wherein the lender shares in property income as well as interest earned on the loan.
Income property
Real estate developed or improved to produce income.
Income property loan
A loan secured by commercial real estate.
Incurable depreciation
A loss in the value of improvements that is not economically feasible to correct.
Indemnify
To protect against damage, loss, or injury or to make compensation to for damage, loss, or injury.
Indemnity
Security against or compensation for damage, loss, or injury. Also a legal exemption from liability for damages.
Index
A published interest rate, such as the prime rate, LIBOR, T-Bill rate, or the 11th District COFI. Lenders use indexes to establish interest rates charged on mortgages or to compare investment returns. On ARMs, a predetermined margin is added to the index to compute the interest rate adjustment.
Index lease
A lease based on the movement of a specified index, for example, the Consumer Price Index.
Industrial park
A development designed for specific business types which provides required appurtenances including public utilities, streets, railroad sidings, auto parking, and water and sewage facilities.
Industrial revenue bond (IRB)
A form of financing whereby a municipality or development corporation issues bonds to finance revenue-producing projects. Project revenue is used to pay debt service on the bonds.
In file credit report
Unverified credit report which may contain unchecked, duplicated, or overlapping data. Used for "quick look" at a prospective borrower's credit history.
Inflation guard
An endorsement to an insurance policy that increases coverage to offset the effects of inflation.
Infrastructure
Basic public improvements such as roads, sewers, water, drainage, and other utilities which are necessary to prepare raw land for buildings and future development.
Ingress
To go in. It is used with the Egress (to go out) to describe the right of access to land.
Initial closing
The date on which a construction lender funds a construction loan.
Innocent landowner defense
A term utilized by an owner of property, including a mortgagee who has taken title to property by judicial proceeding or by deed in lieu of foreclosure, in the context of avoiding liability for environmental contamination where the owner has taken certain precautions to ascertain the environmental condition of property prior to acquiring the property.
Insolvency
A condition in which a debtor is unable to pay his or her creditors.
Inspection certificate
A document verifying that a property is as described. The inspection is usually performed by a designated agent and may be accepted in place of a survey.
Installment
The periodic payment that a borrower agrees to pay a mortgage lender.
Installment debt
Borrowed money that is repaid in several successive payments, usually at regular intervals, for a specific amount and for a specified term.
Installment sale
A sale in which a seller receives payment in regular intervals, allowing the tax on the profit from the sale to be paid over time.
Institutional lender
A financial institution that lends to the public. Examples are mutual savings banks, life insurance companies, commercial banks, pension and trust funds, and savings and loan associations.
Insurable interest
The interest of an owner, lessee, mortgagee, or trustee which is insured against financial loss in the case of specified events.
Insurable value
The net value of property being insured, after land and other exclusions have been deducted.
Insurance vacancy clause
A provision in a hazard insurance policy protecting the insured upon the occurrence of property loss or damage even if the insured property is vacant (for an extended period of time).
Insured
The term preferred over other terms such as "policyholder" or "policyowner," to describe the party protected under an insurance contract to whom the insurer reimburses losses, pays benefits, or provides services.
Insured closing letter
A document issued by a title insurance company which protects a mortgagee against embezzlement or failure to follow specific closing instructions.
Insured loan
A loan insured by FmHa, FHA, or a private mortgage insurance company.
Intangible property
Generally, property that has no intrinsic or marketable value in and of itself, but is merely the evidence of value, such as promissory notes, stock certificates, or certificates of deposits (as distinguished from land, furniture, and equipment).
Interest
Consideration in the form of money paid for the use of money, usually expressed as an annual percentage. Also, a right, share, or title in property.
Interest carry ratio
A ratio used in the analysis of floating rate loans that indicates the maximum interest rate the income property's cash flow would carry. Calculated by dividing the net income before debt service by the loan amount.
Interest rate
Percentage paid for the use of money, usually expressed as an annual percentage.
Interest rate cap
A limit on interest rate increases and/or decreases during each interest rate adjustment (adjustment period cap) or over the term (life cap) of the mortgage.
Interest rate collar
Risk management tool which mitigates risk by restricting the range to which a variable rate instrument may rise or fall.
Interest rate floor
On a floating rate instrument, the lowest the interest rate may go.
Interest rate option
Right but not the obligation to pay or receive a specific interest rate on a predetermined principal for a set interval.
Interest rate swap
Transaction in which two parties agree to pay each other's debt payments or to receive payments from each other's securities over time. Cash is exchanged in designated amounts at prescribed intervals and results in more favorable borrowing terms for both parties.
Interest reduction programs
Programs that subsidize the market interest rate on mortgage loans, thus lowering the consumer's housing cost.
Interest reserve
A holdback of loan proceeds by a lender to be utilized to pay interest as it accrues on a loan.
Interim financing
Financing used from the beginning of a project to the closing of a permanent loan. Usually a construction or development loan.
Internal rate of return (IRR)
A method of determining investment yield over time, assuming a set of income, expense, and property value conditions.
Intestate
To die leaving no valid will.
In-the-money
The market condition in which the strike price is lower than the market price; the option then has intrinsic value. For example, a call option is in-the-money if the strike price is below the current market price; a put option is in-the-money if the strike price is above the current market price.
Intrinsic value
The value of an option if it were to be immediately exercised. If the option's strike price is in-the-money, then it has positive intrinsic value. If the strike price is out-of-the-money, then the option's intrinsic value is zero.
Inventory
In the secondary market, refers to loans closed but not yet sold to an investor.
Inventory financing
see WAREHOUSING
Investment banker
A firm that engages in the origination, underwriting, issuance, and/or distribution of securities, including mortgage-backed securities.
Investment credit
A direct credit against income tax based on the purchase price of tangible personal property to be used in a trade or business.
Investor
Any person or institution that invests in mortgages or mortgage-backed securities.
Investor purchase
The purchase of a home for the purpose of generating income by renting the property to tenants.
Investor sponsor
In cooperative housing programs, a private, profit-making organization that undertakes the development of housing projects for sale at a profit to non-profit cooperative corporations.
Investor's interest
An investor's undivided interest in a pool of mortgages. The income from the underlying mortgages is used to pay an investment return to the investor on a monthly basis, in an amount equal to his pro rata share of the security.
Involuntary conversion
The disposition of property by condemnation, casualty, or theft.
Involuntary lien
A lien imposed against property without the consent of the owner. Examples include property tax liens, special assessments, federal income tax liens, judgment liens, mechanic's liens, and liens for materials.
IRB
See INDUSTRIAL REVENUE BOND.
IRR
See INTERNAL RATE OF RETURN.
Irrigation district
Quasi-political districts created under special state laws to provide for water services to property owners. These districts have the power to tax, borrow, and condemn.
IRS 4506/Request for Copy of Tax
Form IRS Form required by lenders on self-employed loan applications (and FHA when alternative documentation is utilized). This form allows the lender to pull tax returns on the borrower directly from the IRS, usually accomplished as a quality control check on a certain number of cases.
Issue date
The date a mortgage-backed security is issued to investors.
Issuer
One who packages mortgages for sale as securities.
Joint and several note
Two or more persons or entities, each of whom is liable for the full amount of the debt.
Joint stock company
In some states, a form of general partnership with some of the features of a corporation. Stockholders are legally liable for the debts of the company.
Joint tenancy
Form of co-ownership giving each tenant equal interest and equal rights in the property, including the right of survivorship.
Joint venture
An association formed for a specific purpose and duration between two or more parties to own and/or develop real estate. A joint venture may take a variety of legal forms including partnership, tenancy in common, or corporation.
Jointly-owned property
Property held in the name of more than one person.
Judgment
Final determination by a court of the rights and claims of the parties to an action.
Judgment lien
Lien upon the property of a debtor resulting from a decree of the court.
Judicial foreclosure
Type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court.
Jumbo mortgage
A mortgage which is larger than the legislated purchase limits of Fannie Mae and Freddie Mac.
Jumbo pools
Pools of mortgage backed securities originated by several different lenders.
Junior lenders (mortgage)
A mortgage that is subordinate to the claims of a prior lien or mortgage.
Just compensation
Amount of loss for which a property owner is compensated when property is taken by the government. The amount is usually fair market value at the time of the taking.
Key-in-the-lock
A package lease that includes land, building, and equipment under an umbrella lease.
Key lot
A lot of which ownership is essential in acquiring a piece of land for development, either because of its strategic location or the timing of the acquisition.
Kickback
A payment to a third party in return for the referral of a client, customer, or business.
Kicker
Term describing any benefit to a lender above ordinary fixed-interest payments. It may be an equity position in a property or a percentage participation in the income stream.
Kick-out clause
Clause in the lease that permits a tenant to cancel a lease upon certain occurrences or if the landlord fails to comply with stated conditions.
Knockdowns
Complete but unassembled construc tion components that are transported to the building site ready for reassembly and installation.
Labor and material release
Written evidence from a contractor or supplier of material, surrendering the right to place a lien.
Land acquisition loan
A loan made for the purpose of purchasing land only, not improvements on or to the land. Also called an "acquisition loan."
Land bank
Land purchased and held for future development.
Land contract
An agreement to transfer title to a property once conditions of the contract have been fulfilled.
Land development loan
A loan for the acquisition of land to be held in anticipation of zoning, until plans are drawn and construction financing can be obtained.
Land sale-leaseback
A transaction whereby an entity purchases land, leases it back to the developer, and extends a leasehold mortgage loan secured by the improvements on that land.
Land-use zones
Areas where local government zoning ordinances dictate permitted land use.
Landlord
Owner or lessor of real property.
Landmark
In land surveys, any conspicuous object that helps establish land boundaries.
LAPP
See LENDER APPRAISAL PROCESSING PROGRAM.
Late charge
An additional charge that a borrower is required to pay as a penalty for failure to pay a regular installment when due.
Lease
A written document containing the conditions under which the possession and use of real and/or personal property are given by the owner to another for a stated period and consideration.
Lease analysis
The formal review of a lease which is usually memorialized in writing on a form which provides details of the business terms and legal issues.
Lease audit
An official examination and verification of the status of leases (or a lease) to prove or ascertain the lease terms and their adequacy.
Lease concessions
A grant/concession given by a landlord to a tenant to induce the tenant to execute a lease. An example-a period of free or reduced rent or improving the leased premised at the landlord's expense.
Lease expiration
The date a lease is scheduled to terminate.
Lease expiration schedule
A schedule of leases that lists the dates upon which the leases expire.
Lease guaranty
An instrument by which an individual or entity guaranties payment and/or performance of the tenant's obligations under the tenant's lease.
Lease-purchase
A method of acquiring ownership of real estate through gradual payments under which a lease is substituted for a mortgage obligation. Also referred to as a lease with option to purchase.
Lease modification
An instrument modifying the original lease and its terms and conditions.
Lease summary abstract
A brief lease analysis (on a legal basis) which can be recorded.
Leaseback
See SALE-LEASEBACK.
Leasehold
An estate or interest in real property
Leasehold mortgage
A loan to a lessee secured by a leasehold interest in a property.
Lease-purchase
A method of purchasing property through gradual payments above the required rent.
Legal description
A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.
Legal lists
A term describing investments that life insurance companies, mutual savings banks, or other regulated investors may make under a state charter or court order.
Lender
Person or entity that invests in or originates mortgage loans, such as a mortgage banker, credit union, commercial bank, or savings and loan. In single-family property usage, the lender is generally whosever name the loan is closed in. (In a table funding transaction, the whole-saler mortgage company is usually considered to be the "lender.") In commercial property usage, the lender is the life insurance company, bank or pension fund that provides the funds and in whose name the loan is closed.
Lender appraisal processing program (LAAP)
Program eliminates the VA's involvement in loan processing and allows the lender to oversee the appraisal and underwriting process. Lender must be preapproved by the VA to participate in this program.
Lender liability
An area of legal findings which would hold the lender financially responsible for damages and costs based upon the lender's activities (especially in the management of real estate securing any of the lender's mortgage loans as this relates to environmental clean-up liability).
Lender paid mortgage insurance
Mortgage insurance program which allows the lender to collect a higher interest rate from the borrower and forward the excess interest to the mortgage insurance company to pay for the mortgage insurance.
Lender subsidized buydown
A buydown which has a higher note rate than market. The higher rate funds the initial costs, or subsidy, of the temporary buydown.
Leniency clause
A provision in a promissory note that allows for loan payments to be adjusted temporarily if the borrower, through no fault of his or her own, is experiencing extreme financial problems.
Lessee
One holding rights of possession and use of property under the terms of a lease. Also see TENANT.
Lessor
One who leases property to a lessee. Also called a "landlord."
Letter of attornment
See ATTORNMENT AGREEMENT.
Letter of credit
A letter authorizing a person or company to draw on a bank, or stating that the bank will honor their credit up to the stated amount.
Letter of intent
A formal letter stating that a buyer or developer is interested in a property. The letter creates no legal obligation.
Leverage
The use of borrowed money to increase the return on investment. For leverage to be positive, the rate of return on the investment must be higher than the cost of the money borrowed.
Leveraged buy-out
The acquisition of a company, financed primarily with borrowed money, using the acquired company's assets to collateralize the loan.
Leverage ratio
See DEBT/EQUITY RATIO.
LIBOR
See London Interbank Offered Rate.
LIBOR Index
London Interbank Offered Rates, which is the average rate of interest that major London banks are willing to pay each other for U.S. dollar deposits for various terms.
License
Generally, permission by a lawful authority to do an act which, without such permission, would be illegal. In real property, a privilege to enter for a specified purpose (e.g., to collect rents), but does not confer on or vest in the licensee any title or estate in the property.
Lien
A legal hold or claim of a creditor on the property of another as security for a debt. Liens may be against real or personal property.
Lien theory
A principle in which the holder of a mortgage (a lender) has only a lien or security interest against mortgaged property, rather than a true title interest.
Lien waiver
A waiver of mechanic's lien rights; a document signed by a supplier or subcontractor stating that the firm has been compensated for its work, thereby giving up its right to file a claim against the property.
Life estate
A freehold estate, terminated upon the death of the beneficiary, giving a beneficiary all property rights except the right to sell.
Like-kind property
A tax term applying to the exchange of business or investment properties. Taxes on an exchange may be postponed for like-kind properties.
LIMEAN
See LONDON INTERBANK MEDIAN AVERAGE RATE.
Limited documentation
Another term for a no income verification mortgage.
limited partnership A form of business ownership that consists of one or more general partners who are fully liable, and one or more limited partners who are liable only for the amount of their investment.
Line of credit
An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specific borrower.
Liquidation value
The value of an asset upon its sale or disposition.
Liquidity
The ability to readily convert assets or investments to cash.
Lis pendens
A notice recorded in the official records of a county to indicate that there is a pending suit affecting land within the jurisdiction.
Listing
A written authorization for an agent to sell or lease real estate.
Littoral rights
Rights concerning the use or enjoy ment of properties abutting a river or lake rather than a river or stream (riparian rights).
Loan administration
A mortgage banking function which includes the receipt of payments, customer service, escrow administration, investor accounting, collections, and foreclosures. Also called "servicing."
Loan constant ratio
The annual interest and amortization as a percentage of the principle loan amount. Calculated by dividing the debt service by the loan amount.
Loan fee
A fee charged a borrower by a lender for negotiating a loan; sometimes used in reference to an additional fee over and above the origination fee.
Loan guaranty certificate
A VA document that states the portion of a loan that is guaranteed.
Loan production cycle
The period from loan application through funding of a mortgage loan.
Loan submission
A package of pertinent papers and documents regarding a specific property or properties, delivered to a prospective lender to obtain financing.
Loan-to-value ratio (LTV)
The ratio of the amount of the loan to the appraised value or sales price of real property (expressed as a percentage).
Loan transfer
The assumption of existing financing by a new owner when a property is sold.
Local housing authority
A government agency that monitors and implements programs to satisfy community housing development needs.
Lockbox
A postal address, maintained by the firm's bank, that is used solely for the purpose of collecting checks. A major goal of a lockbox is to reduce collection float, since the receipts are immediately credited to the firm's bank account.
Lock-in
The process by which a lender commits to lend at a particular rate as long as the mortgage transaction closes within a specified time period. The document which specifies the terms of the lock-in is called a rate commitment or lock-in agreement.
Lock-in fee
A fee charged by some lenders at the time of lock-in.
Lock-in period
The number of days during which a lender guarantees a borrower a specific interest rate and terms on a mortgage.
London Interbank Median Average Rate (LIMEAN)
The median average the bid rate and the offered rate (LIBOR).
London Interbank Offered Rate (LIBOR)
The rate at which banks in the foreign market lend dollars to one another. LIBOR varies by deposit maturity. A common interest rate index; one of the most valid barometers of the international cost of money.
Long position
A marketing position in which a mortgage banker has mortgages in inventory or pipeline that are in excess of commitments.
Long-term financing
A mortgage or deed of trust with a term of 10 years or more.
Long-term lease
A lease with a term of 10 years or more.
Loss coverage
Mortgage reserves maintained by mortgage insurers sufficient to cover catastrophic losses.
Loss draft
Insurance payments in settlement of a claim for damage to mortgaged property. Drafts are generally made out to both the mortgagee and mortgagor.
Loss of rents coverage
See RENTAL INCOME INSURANCE.
Loss payable clause
An insurance policy provision for payment of a claim to someone other than the insured, who holds an insurable interest in the insured property.
Loss payee
The party named in a loss payable clause to whom insurance proceeds are to be paid in the event of damage to property in which the loss payee has an insurable interest. Loss payees include automobile lienholders and property mortgagees.
Lot
A measured parcel of land having fixed boundaries as shown on the recorded plat.
Low doc (low documentation program)
Quick qualifying program for residential mortgages that eliminates many verification documents and speeds up the approval process. These programs typically require a substantial down payment.
LTV
See LOAN-TO-VALUE RATIO.
Maggie Mae
The first private secondary market for the sale of conventional mortgages insured by the Mortgage Guaranty Insurance Corporation (MGIC).
MAI
See MEMBER APPRAISAL INSTITUTE.
Major tenants
In commercial property, firms which are key lessees/tenants because of their high credit standing, the amount of space they occupy, and/or the percentage of gross rent they pay.
Mandatory commitment
An agreement between buyer and seller for the purchase and sale of specified mortgage product in which both parties are obligated to perform.
Manufactured home
Factory-built or pre-fabricated housing, including mobile homes.
Margin
(1) In futures trading, an amount set by each exchange that buyers and sellers must deposit as a guarantee of performance. (2) In stock transactions, the down payment required when borrowing from a broker to finance stock purchases. In this case, margin requirements are set by the Federal Reserve Board and are expressed as a percentage of the purchase price or market value. (3) In an adjustable rate mortgage, the spread between the index and the mortgage interest rate.
Margin call
A call by a clearing organization of an exchange for the deposit of additional funds or collateral to offset trading losses on an outstanding position that is subject to margin.
Mark to market
The process whereby the book value or collateral value of the security is adjusted to reflect current market value.
Mark to market report
A report that values the inventory against the sales price of the loans or against current market prices for unsold loans.
Market
Current supply and demand characteristics of a commodity in a given geographic/economic setting.
Market approach to value
In an appraisal, a market value estimate of the property based on actual prices paid in similar market transactions.
Market rent
The price a tenant pays a landlord for the use and occupancy of real property based on current rent for comparable property.
Market study
The projection of demand for a specific type of property or project, obtained by analyzing data on sales volume, rents, vacancies, turnover, consumer preferences, and real estate prices in the surrounding area for similar properties.
Market value
The highest price that a buyer and the lowest price that a seller would accept, neither one being compelled to buy or sell. Also called "fair market value."
Marketable title
A title that may not be completely clear, but has only minor objections that a well-informed and prudent buyer of real estate would accept.
Marketing
The sale of mortgage loans in the pipeline or in inventory to investors in the secondary market through investor commitments.
Master deed
The basic condominium document that must be registered by the originating property owner prior to conveyance of the first unit sold. The master deed thoroughly describes the entire condominium entity, including each unit and all common areas, and specific essential elements of ownership that permanently govern its operation. Also called the "condominium declaration."
Master lease
A lease under which the leasehold is further subleased by the tenant to one or more subtenants.
Master limited partnership
A form of ownership in which ownership interests are publicly traded on securities exchanges, and are therefore liquid.
Master mortgage
A standard form mortgage recorded in the public record to help reduce recording fees, as mortgage documents there- after refer to the record and the master mortgage.
Master servicer
Contractually responsible servicer of a mortgage or pool of mortgages that is included in a subservicing arrangement.
Material bond
A document evidencing that materials needed to complete construction work will be provided by the supplier who posts the bond to the contractor as beneficiary.
Maturity
The date on which an agreement expires; termination of a promissory note.
Maximum loan amount
Highest loan dollar amount allowed under federal or conventional guidelines. In commercial real estate, the highest loan dollar amount that a property can support based on projected income.
MBS
See MORTGAGE-BACKED SECURITY.
MBSCC (MBS Clearing Corporation)
The book entry depository for Ginnie Mae mortgage-backed securities.
MBS rate
The interest rate (pass-through rate) that investors receive on a mortgage-backed security. This rate is usually lower than the interest rates on the mortgages that comprise the pool due to servicing and guarantee fees.
Mechanic's lien
A claim created by law to secure priority of payment for work performed and materials provided by a vendor. Land may be liened, as well as buildings, equipment, or other property.
Member Appraisal Institute (MAI)
The highest professional designation awarded by the American Institute of Real Estate Appraisers.
menu pricing The method of service fee calculation where each function the servicer performs for the lender has a corresponding fee.
Menu pricing fee
Generally expressed in basis points ("bp") and calculated using the loan balance.
Merchantable title
A title that a court of equity considers so clear that it will force acceptance of it by a purchaser. Also referred to as a "marketable title."
Metes and bounds
A description of a parcel of land in a deed in which the boundaries are defined by directions and distances.
Metropolitan Statistical Area (MSA)
A geographic area designated by the U.S. Census Bureau for purposes of collecting and disseminating demographic information.
MI
See MORTGAGE INSURANCE.
MIC
See MORTGAGE INSURANCE CERTIFICATE.
MICA
See MORTGAGE INSURANCE COMPANIES OF AMERICA.
Midgets
Ginnie Mae pass-through securities that are similar in structure to the original 30-year Ginnie Mae security, but have only a 15-year term.
Military indulgence
The protection enacted and provided by the Soldier's and Sailor's Civil Relief Act to a mortgagor who is about to enter or is in the military and whose ability to keep a loan current has been materially affected by military service.
Minimum lot zoning
A type of zoning that specifies the smallest lot size permitted per building.
Minimum property standards
Regulations or guidelines used as underwriting criteria that set forth acceptable property standards and specifications.
Miniperm
A commercial real estate mortgage, usually made in conjunction with a construction loan and usually three to five years in duration.
MIP
See MORTGAGE INSURANCE PREMIUM.
MLS
See MULTIPLE LISTING SERVICE.
MMIF
See MUTUAL MORTGAGE INSURANCE FUND.
Mobile home
A factory-assembled residence consisting of one or more modules, in which a chassis and wheels are an integral part of the structure, and can be readied for occupancy without removing the chassis and/or wheels.
Modified pass-through
Type of mortgage backed security (MBS) that requires the issuer to pay, on a timely basis, all principal and interest due to investors, regardless of whether the payments have been received from borrowers.
Modular house
A factory-assembled residence built in units or sections, transported to a permanent site and erected on a foundation. Excludes mobile homes.
Monetary default
A breach or nonperformance of the terms of the note due to the nonpayment of debt service or escrow payments.
Money market
The financial market for buying and selling short-term investment instruments (those maturing within a year), such as Treasury bills, notes, and commercial paper.
Monthly payment
The monthly payment of principal and interest collected by mortgage lenders. May also include escrow items for taxes or insurance and thereby called the housing payment.
Monument of survey
Visible marks or indications placed on objects to indicate the lines and boundaries of a survey.
Moratorium
Legal authorization to delay the enforcement of liability for debt, or to suspend an activity.
Mortgage
A pledge of property, usually real property, as security for a debt. By extension, the document evidencing the pledge. In many states this document is a deed of trust. The document may contain the terms of repayment of the debt. By further extension, "mortgage" may be used to describe both the mortgage proper and the separate promissory note evidencing the debt and providing the terms of the debt's repayment.
Mortgage-backed security (MBS)
An investment instrument backed by mortgage loans as security. Ownership is evidenced by an undivided interest in a pool of mortgages or trust deeds. Income from the underlying mortgages is used to pay interest and principal on the securities.
Mortgage banker
An individual, firm or corporation that originates, sells and/or services loans secured by mortgages on real property.
Mortgage bond
Bonds secured by mortgages.
Mortgage broker
A firm or individual who, for a commission, matches borrowers and lenders. A mortgage broker takes applications and sometimes processes loans, but generally does not use its own funds for closing.
Mortgage commitment
An agreement between lender and borrower detailing the terms of a mortgage loan such as interest rate, loan type, term, and amount.
Mortgage constant
A rate that expresses the relationship between annual debt service and mortgage principal. Used for converting debt service into mortgage loan value.
Mortgage discount
The percentage difference between the principal amount of a mortgage and the selling price.
Mortgage equity analysis
The difference between the fair market value of a property and the amount of outstanding mortgage indebtedness.
Mortgage insurance (MI)
Insurance which protects mortgage lenders against loss in the event of default by the borrower. This allows lenders to make loans with lower down payments. The federal government offers MI through HUD/FHA; private entities offer MI for conventional loans.
Mortgage Insurance Companies of America (MICA)
A national trade association for mortgage insurers located in Washington, D.C.
Mortgage life insurance
Term life insurance paid by the borrower in which the amount of coverage decreases as the mortgage balance declines. In the event the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds.
Mortgage insurance certificate (MIC)
Certificate issued by HUD/FHA as evidence that a mortgage has been insured, and that a contract of mortgage insurance exists between HUD/FHA and the lender incorporating the HUD/FHA regulations identified in the certificate.
Mortgage insurance premium (MIP)
The amount paid by a mortgagor for mortgage insurance either to FHA or a private mortgage insurance company.
Mortgage note
A written promise to pay a sum of money at a stated interest rate during a specified term. A mortgage note is secured by a mortgage.
Mortgage out
To borrow the entire cost of a real estate project.
Mortgage pool
A group of mortgage loans with similar characteristics that are combined to form mortgage-backed securities.
Mortgage portfolio
The aggregate of mortgage loans held by an investor or serviced by a mortgage banker.
Mortgage revenue bond
Bonds issued by a public entity to fund mortgages or property development. The bonds are retired with proceeds from mortgages funded by the bonds.
Mortgage servicing rights
The contractual obligations undertaken by one party to provide servicing for mortgage loans owned by another party, typically for a fee.
Mortgage windfall
Mortgage financing proceeds in excess of the cost of completing a project.
Mortgagee
The lender in a mortgage transaction.
Mortgagee clause
A clause that may be attached to an insurance policy stipulating that the lender will receive a portion of insurance proceeds sufficient to satisfy the unpaid amount of a loan in the event of a loss.
Mortgagee in possession
A mortgagee who, due to default under the terms of a mortgage, has obtained possession but not ownership of the property.
Mortgagor
The borrower in a mortgage transaction who pledges property as a security for a debt.
Mother Hubbard clause
A provision in a mortgage that allows the lender, in the event of a default, to foreclose not only that mortgage, but also any other mortgages that may have been executed by the borrower and which are held by the lender.
MSA
See METROPOLITAN STATISTICAL AREA.
Multifamily development
A complex consisting of two or more residential buildings as a part of a single development. Generally associated with garden apartments, townhouses, and high-rise apartment complexes.
Multifamily housing
A building with more than four residential units.
Multifamily mortgage
A mortgage on a dwelling that is designed to house more than four families, such as a high-rise apartment complex.
Multiple Listing Service (MLS)
A service provided by the Board of Realtors which renders access to real estate listings of properties for sale or lease.
Mutual Mortgage Insurance Fund (MMIF)
The actuarially sound FHA insurance fund for the 203(b) unsubsidized single family mortgage program. It is "mutual" because mortgagors whose mortgages are insured by the fund receive rebates of premiums in excess of the amounts needed to pay costs and losses.
Mutual savings bank
An institution owned by its depositors as evidenced by certificates of deposit rather than stock.
NAHB
See NATIONAL ASSOCIATION OF HOME BUILDERS.
NAIC (National Association of Insurance Commissioners)
An organization whose membership consists of state insurance regulators. NAIC's objectives are to promote uniformity in regulation by drafting model laws and regulations for adoption by the states and to provide support services to insurance departments such as examinations and statistical information.
Naked option
The sale of a call or put option without having an offsetting position on the underlying security.
Naked position
An uncovered or unhedged market position. For example, the position of an investor who sells a call or put option without having a corresponding long or short position on the underlying security.
NAMB
See NATIONAL ASSOCIATION OF MORTGAGE BROKERS.
Named insured
An individual, business, or organization that is specified in the declarations by name as the insured(s) under a policy.
Named perils
A policy will specifically list the perils insured against as opposed to an "all risk" policy which covers all perils other than those specifically excluded.
NAR
See NATIONAL ASSOCIATION OF REALTORS(r).
National Association of Home Builders (NAHB)
A national trade association located in Washington, D.C. that provides support to the building industry through lobbying and educational services.
National Association of Mortgage Brokers (NAMB) Professional society for mortgage brokers which was developed to foster professional business relationships.
National Association of Realtors(r) (NAR)
Trade association representing real estate sales professionals. Realtors(r) is a registered trade mark of the National Association, and is properly used only to describe members of the Association, not all real estate brokers or agents.
Negative amortization
The unpaid interest which is added to the mortgage principal in a loan where the principal balance increases rather than decreases because the mortgage payments do not cover the full amount of interest due.
Negative carry
In warehousing, the deficit that is created when the interest rate charged for short-term borrowing is greater than the interest rate on the mortgages being financed; also called negative spread.
Negative cash flow
The deficit that is created when expenditures required to maintain an investment exceed income received on the property.
Negotiable instrument
Written order to pay, such as a check or promissory note, that may be transferred from one person to another provided certain conditions are met.
Neighborhood shopping center
A group of retail businesses, providing a limited variety of convenience services for a limited area, and having common parking and ownership or management. The smallest type of shopping center, neighborhood centers usually range in size from 25,000 to 100,000 square feet.
Net effective rent
The rental income generated by a lease computed over the life of the lease after deduction of total rent concessions and expressed as an annual dollar amount or annual dollar amount per square foot.
Net lease
A lease calling for the lessee to pay all fixed and variable expenses associated with the property, including real estate taxes and insurance. Most commonly used with large commercial or industrial properties.
Net mandatory position
The difference between the dollar volume of loans in inventory and mandatory sales commitments.
Net operating income (NOI)
The amount remaining after total operating expenses (excluding interest payments) are deducted from effective gross income.
Net present value analysis
A method by which the present value of future earnings is compared with present market value of an investment.
Net proceeds
Amount of cash which accrues to the seller after expenses are deducted from a home sale.
Net Operating Income (NOI)
The amount remaining after total operating expenses (excluding interest payments) are deducted from effective gross income.
Net rate
The rate of interest remitted to an investor after servicing fees have been deducted from the gross rate.
Net realizable value
An amount or figure resulting from the sale or disposition of property or an asset after all expenses associated with such sale or disposition are paid.
Net rentable area
The actual square footage of a building that can be rented (common areas such as hallways, lobbies, elevator shafts, etc. are not generally included).
Net return
The amount remaining after total operational expenses and debt service are deducted from effective gross income. Synonymous with cash flow.
Net worth
The value of all assets, including cash, less total liabilities. Often used as an underwriting guideline to indicate creditworthiness and financial strength.
Net yield
That part of gross yield that remains after the deductions of all costs, such as servicing, and any reserves for losses.
Neural networks
Automated system that uses artificial intelligence (AI) to make decisions based on models created from actual data.
No-bid
An option open to the VA where VA opts to pay the guaranty rather than take possession of the property and pay the full amount of the loan. VA takes such an action when it would lose less by doing so than by taking possession and selling the property. The VA must exercise this option when it is in the government's best financial interest. The no-bid derives its name from the fact that the VA does not specify the amount bid at the foreclosure sale. No-bid properties become real estate owned until disposed of or resolved by the lender.
No cash-out refinance
Also known as a rate reduction mortgage, a transaction in which the mortgage amount is limited to the sum of the unpaid principal balance of any existing first mortgage(s) and closing costs.
NOFA
See NOTICE OF FUNDING AVAILABILITY.
NOI
See NET OPERATING INCOME.
Nominal interest rate
The stated rate of interest in a loan agreement.
Nonassumption clause
A mortgage clause that prohibits the assumption of a mortgage by a third party without the prior approval of the lender.
Nonconforming mortgage loan
A mortgage loan in which the loan amount, the loan-to-value ratio, the term, or some other aspect of the loan exceeds permissible limits as specified in agency regulations.
Nonconforming use
A permitted use of real property that does not conform to current zoning laws because it was lawfully established and maintained before the current zoning laws were in effect.
Non-disturbance agreement
An Agreement that permits a tenant under a lease to remain in possession despite any foreclosure.
Nonjudicial foreclosure
Power to sell property at foreclosure without court procedure. This foreclosure proceeding can be used by a trustee named in a deed of trust.
Non-monetary default
A breach or nonperformance of any of the terms or covenants of the loan documents other than debt service and escrow payments.
Non-performing loan
A loan which has not fulfilled one or more of the terms, covenants, conditions, or obligations required under the mortgage.
Nonprofit sponsor
A group not motivated by profit that backs a housing project. Units can be rented on a nonprofit basis or the sponsor can allow individual, cooperative, or condominium ownership.
Nonrecourse loan
Type of loan which prohibits the lender from attempting to recover against the borrower (personally) if the security value for the loan falls below the amount required to repay the loan.
Non-waiver provision
A provision reserving to a lender every right under a document or at law not previously waived.
No point mortgage
A mortgage which carries a higher interest rate in exchange for no discount points or origination fee.
Note
A general term for any kind of paper or document signed by a borrower that is an acknowledgment of the debt, and is, by inference, a promise to pay. When the note is secured by a mortgage, it is called a mortgage note and the mortgagee is named as the payee.
Notice of commencement
In some states, a document recorded after a construction loan has been recorded. All mechanic's liens relate back to the date of recording of the notice, thereby enabling the mortgage to remain a first lien, not subordinated to any labor, supplier, or other claim for nonpayment of bills.
Notice of completion
Notice recorded after completion of construction. Mechanic's liens must be filed within a specific period of time thereafter.
Notice of default
Notice recorded after a default under a deed of trust or mortgage. Also, the notice sent to defaulting borrowers, required by insurers or guarantors such as FHA, VA, or MIC.
Notice of funding availability (NOFA)
Notice by HUD area offices to inform potential project sponsors of contract authority available under federal programs.
Novation
The substitution of a new contract or obligation between the same or different parties. Also, the substitution, by mutual agreement, of one debtor for another or one creditor for another, whereby the existing debt is extinguished.
Nut
The carrying charge on a property, such as the monthly nut for an investment piece of real estate.
Obsolescence
Loss of value resulting from outmoded physical features, technical advances, or economic influences.
Occupancy rate
The percentage of space or units that are leased or occupied.
Occurrence
An accident, including continuous or repeated exposure, which results in bodily injury or property damage neither expected or intended by the insured. Occurrence policies cover claims which occur during the policy period regardless of when the claim is made against the policy. Also see CLAIMS MADE.
Offer
The price asked by a seller of securities. Same as ask price.
Offering sheet
A one-page summary that points out important features of loan products offered by a given lender.
Office of Thrift Supervision (OTS)
The successor thrift regulator to the Federal Home Loan Bank Board and a division within the Treasury Department. The OTS is responsible for the examination and regulation of federally chartered and state chartered savings associations.
Off-site improvements
Improvements outside the boundaries of a property that enhance its value, such as sidewalks, streets, curbs, and gutters.
OMSR
See ORIGINATED MORTGAGE SERVICING RIGHTS.
On-site improvements
Any construction of buildings or other improvements within the boundaries of a property that increase its value.
Open and notorious
A description of the use of property which is essential in establishing adverse possession.
Open-end commitment
A commitment to make a construction loan where there is not a permanent mortgage takeout.
Open-end mortgage
A mortgage with a provision that the outstanding loan amount may be increased upon mutual agreement of the lender and the borrower.
Open equity line
A second trust mortgage which is a open line of credit. That is, the balance can be increased by future draws up to a set amount.
Open listing
A written contract that does not allow 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.
Open period
The interval of time under a mortgage during which the loan can be prepaid.
Operating expense ratio
The percentage relationship between operating expenses and effective gross income.
Operating expenses
All expenses of operating and maintaining a property with the exception of depreciation and debt service.
Operating statement
See INCOME AND EXPENSE STATEMENT.
Operations and maintenance plan
A plan adopted for maintaining and remediating a known or potential environmental condition, usually utilized in the context of asbestos contamination.
Opinion letter
A letter issued by an attorney containing legal opinions addressing a variety of legal issues.
Opportunity cost
The rate of return available on the best alternative investment.
Option
A contract granting a right to purchase, sell, or otherwise contract for the use of a property at a stated price within a stated period of time. In secondary marketing, an instrument used to hedge marketing risk. Examples are over-the-counter mortgage options, or Treasury bond futures options.
Optional delivery commitment
An agreement which requires an investor to buy mortgages at an agreed upon price, but does not require the lender to sell or deliver them. The lender pays a fee for this option.
Option combo
Puts and calls bought and sold simultaneously to lock in price floats without sacrificing potential gains.
Option contract
In a call option, the right to buy or take a long position in an underlying contract (stock, index, commodity or futures contract.) In a put option, the right to sell or take a short position in an underlying contract.
Options on futures
An optional delivery commitment to deliver futures contracts in a specified amount, on a specified date, at a specified time. Also called "futures options."
Option premium
The difference between the strike price and the price of the underlying security. Consists of intrinsic value and time value.
Options spread
The differences in premiums resulting from a combination of put and call options on the same underlying security. Strike prices and expiration dates may be the same or different.
Ordinary income
Income subject to tax at full or ordinary rates rather than at capital gains rates.
Original face value
The original principal amount of a mortgage-backed security.
Origination
Securing a completed mortgage application from a commercial or residential borrower.
Origination date
Date of the mortgage note.
Origination fee
The lender's fee charged a borrower to prepare documents, make credit checks, inspect and sometimes appraise a property. Usually stated as a percentage of the face value of the loan.
Originated mortgage servicing rights (OMSR)
Aggregate value of a servicing portfolio acquired through a company's own production.
Originator
A person who solicits builders, brokers, and others to obtain applications for mortgage loans. Often called a loan officer.
OTC market
See OVER-THE-COUNTER MARKET.
OTS
See OFFICE OF THRIFT SUPERVISION.
Out of the money
When the strike price of the option is above (in the case of a call) or below (in the case of a put) the market price of the underlying security. The option, therefore, has no intrinsic value.
Outsourcing
Hiring contract employees to perform support services rather than using the mortgage company's own employees.
Overage
The amount of yield (interest and discount points) provided in a new mortgage that exceeds the minimum yield required by a mortgage lender or wholesaler, usually expressed in current dollar equivalent.
Overall capitalization rate
A market-derived capitalization rate based on sales prices and rentals of comparable properties. The rate is calculated by dividing the net operating income of a property by its sales price.
Overcollateralization
In mortgage-backed securities, mortgages as collateral in an amount that exceeds the face value of the security instrument.
Over-improvement
Renovation or remodeling inappropriate to a site due to its excess size or cost, or inadequate return.
Over-the-counter (OTC) market
The market created by local dealer trading, as opposed to activity on organized exchanges.
Overzoned
Zoning that exceeds the present highest-and-best use for land.
Owner occupied purchase
The purchase of a property for the purpose of the primary residence of the owner.
Package loan
In construction lending, interim and takeout loans made by the same investor.
PAC bonds
See PLANNED AMORTIZATION CLASS BONDS.
Pair-off
A buy-back to offset, and effectively liquidate, a prior sale of securities or mortgages.
PAM
See PLEDGED ACCOUNT MORTGAGE.
Par
A price of 100 percent of face value.
Parity
In futures trading, a situation in which cash and futures contracts are selling at equivalent yields.
Parking index
A standard ratio used to indicate the relationship between the number of parking spaces and the gross leasable area or the number of leasable units.
Partial entitlement
The entitlement remaining after the veteran has used part of his/her full entitlement in obtaining a VA mortgage. The partial entitlement may result from a legislated increase in entitlement which occurs after the veteran has purchased a home.
Partial payment
Payment of only a portion of the required amount due, including payments received without the late charge.
Partial release
An instrument discharging only a portion of the secured property from a lien.
Participation certificate (PC)
A mortgage pass-through security issued by Freddie Mac, which consists of conventional mortgages purchased from eligible sellers; the seller retains a five to ten percent interest in the mortgages.
Participation loan
A financing arrangement in which a mortgage lender receives a portion of cash flow, gross revenue, or shares of ownership of a real estate venture as a part of the loan. Also called a "kicker."
Participation pool
A loan or pool of loans in which two or more investors own a partial interest.
Partnership
A business association of two or more owners who share in the profits and losses of the business. Partners are jointly and severally liable for the debts of the enterprise.
Partnership agreement
A contract between a business association of two or more owners who share in the profits and losses of the business.
Party wall
A wall built on a line between two adjoining properties and common to both owners.
Par value
The face value of a stock, bond, or other financial instrument.
Passive investor
An investor who has no active role in the operation or construction of a business or project, and who participates only to earn a return on and of his investment.
Pass-through
A security in which principal, interest, and prepayments are passed through to investors of the security each month, as received. Mortgage collateral is held by a grantor trust in which investors own an undivided interest. In accounting terms, a pass-through is treated as a sale of assets.
Patent
In real estate, the original document issued for the purpose of granting public land to an individual.
Payment and performance bonds
A bond to guarantee payment/performance of certain specified acts, such as the completion of construction of a property or the payment/cost thereof.
Payment cap
The limitation on increases or decreases in the payment amount of an adjustable rate mortgage or fixed rate hybrid.
Payment delay
Time lag between the receipt of mortgage payments from borrowers and the remittance of monies payable to mortgage- backed security (MBS) investors.
Payment shock
A scenario in which monthly mortgage payments on an adjustable rate mortgage (ARM) rise so high that the borrower may not be able to afford the payments. Consumer protection guidelines regarding extremely low initial "teaser" rates, lifetime ceilings, and annual caps are designed to prevent payment shock.
Payoff figures (sales figures)
The unpaid principal balance and escrow amounts to be used for payment in full of the mortgage or for closing sale of the property.
Payoff letter
A statement detailing the unpaid principal balance, accrued interest, outstanding late charges, legal fees, and all other amounts necessary to pay off the lender in full.
Pay-through bond
A type of mortgage-backed security that is a general obligation of the issuer, and is secured by mortgage collateral. Like a pass-through, cash flow from the mortgage collateral is passed through to investors, however, a pay-through is a debt offering and not a sale of assets.
PC
See PARTICIPATION CERTIFICATE.
Pension fund
An institution that holds assets invested in long-term mortgages and high-grade stocks and bonds having acceptable yields and security. The purpose of a pension fund is to accumulate funds to hold and invest in such a manner that will provide retirement income to participating and eligible employees.
Percentage lease
A lease in which the rental on a property is determined as a percentage of gross receipts from the business. Although a straight percentage lease is occasionally encountered, most percentage leases contain a provision for a minimum rent amount.
Percentage rent
Rent, computed as a percentage of retail sales above a breakpoint, paid by tenants under typical retail leases. Usually paid instead of or in addition to a specified minimum base rent.
Percolation test
A test performed on soil to determine its ability to absorb liquid, for either septic tank or construction purposes.
Perfecting title
The elimination of claims against title.
Perfection
Perfection is frequently used in the context of a security interest, and means those steps legally required to give a secured party an interest in property against a debtor's creditors.
Performance bond
A bond to guarantee performance of specified acts, such as the completion of construction of a property or off-site improvements.
Performing loan
A loan which has and continues to fulfill all of the terms, covenants, conditions, or obligations required under the mortgage.
Periodic payment date
The day of the month on which the borrower's payment is due.
Permanent financing
A mortgage loan, usually covering development costs, interim loans, construction loans, financing expenses, and marketing, administrative, legal, and other costs. This loan differs from the construction loan in that financing goes into place after the project is constructed and open for occupancy. It is a long-term obligation, generally for a period of 10 years or more.
Personal injury
Injury other than those arising out of bodily injury such as false arrest, malicious prosecution, wrongful entry or eviction, libel or slander, or violation of privacy. The extent of such coverage may vary from policy to policy.
Personal property
Any property that is not real property. Also called "chattel."
PHA
See PUBLIC HOUSING AUTHORITY.
Phase I environmental audit
A basic study conducted to evaluate the environmental condition of real property and/or improvements.
Phase II environmental audit
A study of the environmental condition of property/improvements that is more detailed and in-depth than a Phase I audit. May include groundwater testing or testing of soil.
Physical approach to value
An appraisal method whereby property value is derived by estimating the replacement cost of improvements, less estimated depreciation, plus the estimated land value. Synonymous with cost approach.
Physical depreciation
Decline in the value of a physical asset or real property resulting from normal usage, age, wear and tear, disintegration, or action of the elements. Depreciation can be curable or incurable.
Piggyback financing
A loan made jointly by two or more lenders on the same property under one mortgage or trust deed.
Pipeline
Loan applications in process that have not yet closed.
Pipeline fallout
Percentage of loan applications which fail to close, usually because of changes in interest rates.
PITI
Acronym for the items included in a monthly mortgage payment
PITI ratio
The ratio of principal, interest, taxes, and insurance to income.
PLAM
See PRICE LEVEL ADJUSTED MORTGAGE.
Planned amortization class bond (PAC bond)
A bond with a fixed paydown schedule over a specified period of time, which eliminates cash flow uncertainty due to prepayments.
Planned unit development (PUD)
A comprehensive development plan for a large land area. A PUD usually includes residences, roads, schools, recreational facilities, commercial, office and industrial areas. Also, a subdivision having lots or areas owned in common and reserved for the use of some or all of the owners of the separately owned lots.
Planning commission
A local or regional organization, normally a government agency, responsible for the preparation and adoption of comprehensive long-term general plans for the physical development of property within its jurisdiction.
Plans and specifications
Architectural and engineering drawings and specifications for construction of a building or project. They include a description of materials to be used and the manner in which they are to be applied.
Plat
A map representing a piece of land subdivided into lots with streets, boundaries, easements, and dimensions shown thereon.
Plat book
A book showing the lots and legal descriptions of the subdivisions of an area, usually recorded and kept in city and county government offices.
Pledge agreement
An instrument pursuant to which a borrower will assign/pledge as collateral for a loan a security interest in certain types of property (e.g., stock, accounts, etc.).
Pledged account mortgage (PAM)
A graduated payment mortgage in which part of the buyer's down payment is deposited into a savings account; funds are drawn from the account to supplement the buyer's monthly payments during the early years of the loan. Also called a "FLIP mortgage."
Plot plan
A layout of improvements on a site, including their location, dimensions, and landscapes. The plot plan is generally a part of the architectural plan.
PMI
See PRIVATE MORTGAGE INSURANCE.
PMSR
See PURCHASED MORTGAGE SERVICING RIGHTS.
POC
A charge which is paid outside of closing. This would include closing costs such as the appraisal and credit report which an applicant pays up-front to the lender.
Point
An amount equal to one percent of the principal amount of a mortgage. Loan discount points are a one-time charge assessed at closing by the lender to increase the yield on the mortgage loan to a competitive position with other types of investments.
Police power
In real estate, that right by which the state or other governmental authority may take, condemn, destroy, impair the value of, limit the use of, or otherwise invade property rights. It must be affirmatively shown that the property was taken to protect the health, morals, safety, or the general welfare of the public.
Policyholder surplus
The amount by which an insurance company's assets exceed its liabilities, as reported in its annual statement. For a stock insurer the policyholder surplus would be the sum of its capital and surplus; for a mutual insurer, the policyholder surplus equals the company's surplus.
Pool
A collection of mortgage loans grouped by one or more similar characteristics.
Pool consistency
The similarity of the types of loans included in a pool, usually defined by interest rate, loan term, and loan type.
Pool factor
The outstanding mortgage pool principal divided by the original principal balance, used to evaluate the aging of pool collateral and/or the occurrence of negative amortization.
Pool maturity date
The maturity date of the latest maturing mortgage in a mortgage-backed security.
Portfolio
The collection of loans held for servicing or investment.
portfolio lender A lender who holds loans in their portfolio and does not sell to investors in the secondary market. The lender usually holds these loans until maturity or until the loan is paid off.
Position
The relationship of total mortgages in inventory to total investor commitments.
Positive carry
In warehousing, when the cost of short-term borrowing is less than the yield on the longer-term instrument being financed. Also called "positive spread."
Post closing reserves
Liquid assets required by a lender after closing on the mortgage.
Power of attorney
A legal document authorizing one person to act on behalf of another.
Power of sale
A provision in a deed of trust or mortgage that empowers a trustee, without court order, to sell property in the event of default by the mortgagor and to apply the proceeds of the sale to satisfy the obligation, the costs of invoking the procedure, and the expenses of the sale.
Preclosing
A meeting preceding formal closing in which documents are reviewed and signed and estimated prorations are made. Often used in the conversion of apartment units to condominium units.
Preferred debt
Any debt obligation that has precedence over others, as in a senior or first mortgage.
Preferred return
The return from a real property investment that is distributed entirely to preferred investors until they have received a specified return on their investment.
Preforeclosure sale
Settlement of a mortgage default where the borrower allows the mortgage insurance company or servicer to sell the property securing the mortgage rather than foreclose on it.
Preliminary title search
A title search by a title company prior to issuance of a title binder or commitment to insure.
Premises
A defined portion of land and the improvements thereon as described in a deed, deed of trust, or mortgage.
Premium
The amount paid, often in addition to the interest, to secure a loan.
Prepaid items
Costs paid at closing for taxes, interest, and insurance. Because prepaid items are recurring costs that do not relate to the acquisition of the property itself, they cannot be financed. Also called "prepaids."
Prepaid interest
Mortgage interest that is paid in advance of when it is due to obtain tax advantages.
Prepayment
The payment of all or part of a mortgage debt before it is due.
Prepayment assumption
Educated guess as to the rate at which mortgages in a pool or portfolio will pay off.
Prepayment lockout
A penalty imposed on a multifamily mortgagor to discourage prepayment of the loan.
Prepayment penalty/prepayment premium
A charge the mortgagor pays the mortgagee for the privilege to prepay the loan.
Prepayment privilege
The right given a borrower in the mortgage to pay all or part of a mortgage debt without penalty prior to its maturity.
Prequalification
Evaluation of a potential borrower's financial status to determine the size and type of mortgage available to him or her.
Present value
The current value of cash received at a definite point or points in the future.
Price
When referring to the buying and selling of bonds and mortgages, price represents the percentage relationship between the amount paid for an instrument and the face value of that instrument. If sold for par, the price is 100, a premium price could be 105, and a discount, 95 percent of face value.
Price guarantee
A price agreed upon when a futures contract is executed.
Price level adjusted mortgage (PLAM)
A mortgage loan in which the interest rate remains fixed, but the outstanding balance is adjusted periodically for inflation according to an appropriate price index such as the Consumer Price Index or Cost-of-Living Index. At the end of each period, the outstanding balance is adjusted for inflation and monthly payments are recomputed based on the new balance.
Primary financing
A loan secured by a first mortgage or deed of trust on real property.
Primary market
The market in which mortgages are created and funds are loaned directly to borrowers.
Primary mortgage lender
A mortgage banker who makes loans directly to the general public. The general public is known as the "primary market."
Primary residence
Residence which the owner physically occupies and uses as his or her home.
Prime lease
A lease from a property owner to a tenant who subleases the property to others.
Prime rate
The interest rate commercial banks charge their most creditworthy customers for short-term loans. Prime is a yardstick for trends in interest rates, and it is often a baseline for establishing interest rates on high-risk loans.
Prime tenant
A tenant, or related group of tenants, that is the largest single occupant of a building. Such occupancy is generally for 25 percent or more of aggregate square footage.
Principal
The original balance of money lent, excluding interest. Also, the remaining balance of a loan, excluding interest.
Principal reduction
The reduction in loan balance which occurs with each payment of a positively amortized mortgage.
Priority
The order of precedence of liens against property or assets. Priority is usually established by filing or recordation of liens, but may be established by statute or agreement.
Private conduit
A private market entity (without ties to the federal government) that increases the availability of real estate financing by purchasing and selling mortgages and mortgage-backed securities. Private conduits match lender and investor needs, allowing for the sale or securitization of loans by mortgage bankers to a national market.
Private letter ruling
An Internal Revenue Service determination addressed to an individual taxpayer on a specific transaction that may be relied upon only by that particular taxpayer for that specific situation.
Private mortgage insurance (PMI)
Insurance written by a private company protecting the mortgage lender against financial loss occasioned by a borrower defaulting on the mortgage.
Processing
The completion of a mortgage loan application and supporting documents for underwriting.
Profit and loss statement (P&L)
A financial statement provided by the applicant which reports the income and expenses for a business during a certain time period. The statement would be required of self-employed applicants.
Profit margin
Gross profit expressed as a percentage of net revenues. The net of revenues and expenses.
Pro forma statement
A financial or accounting statement using estimates and assumptions to project income and the performance of real property over a period of time.
Progress payment
A method for disbursing construction loan funds in which the contractor delivers all bills and lien waivers covering work completed through a certain stage to the lender for payment. Also called stage planning.
Project costs
Total cost of the project including professional compensation, land costs, furnishings and equipment, financing, construction costs, and other charges.
Promissory note
A written promise to pay a specific amount at a specified time.
Proof of loss
A formal statement by an insured to his insurer outlining the circumstances of a loss and the amount of damage being sought in compensation.
Property inspection
The physical review/evaluation of a property to determine its current structural condition, to report any deferred maintenance and/or environmental problems, and to verify leasing status.
Property manager
An individual or company responsible for the daily and long range management of the operations of a property.
Property residual
A technique for estimating the value of property as a whole, when neither the value of the land nor the building can be estimated by itself.
Proprietary lease
Type of lease used in cooperative buildings that defines the rights of a tenant or shareholder to occupy a particular dwelling unit.
Pro rate
The allocation of proportionate shares of income, ownership, or of an obligation, which a buyer and seller share at the time of closing.
Prospectus
A written proposal or offering to sell an investment that outlines all details pertinent to the investment.
PSA
See PUBLIC SECURITIES ASSOCIATION.
Public housing authority (PHA)
A public agency created by state or local governments to finance or operate low-income housing.
Public report
A report normally issued by a state agency before the sale of lots in a subdivision. The report is a factual description of the subdivided property.
Public Securities Association (PSA)
An association of investment banking firms that trades certain kinds of government-related securities, including mortgage-backed securities.
Public trustee
A person appointed or required by law to execute and administer a trust.
PUD
See PLANNED UNIT DEVELOPMENT.
Purchase agreement
A written agreement between a buyer and seller of real property, setting forth the price and terms of sale.
Purchase-money mortgage
A mortgage a purchaser of real property gives a seller as all or part of the consideration in the sales transaction.
Purchased mortgage servicing rights (PMSR)
Aggregate value of a servicing portfolio obtained from a source outside the purchasing company. It is classified as an intangible asset for both financial accounting and regulatory reporting purposes.
Put option
A contract granting the right, but not the obligation, to sell the underlying security at a specified price (the strike price) at any time prior to the expiration date. See CALL OPTION.
Pyramiding
The acquisition of additional properties through the refinancing of properties already owned.
Qualification
The process which determines whether an applicant can be approved for a mortgage loan.
Quality control
Policies and procedures designed to maintain optimal levels of quality, accuracy, and efficiency in the production, selling, and servicing of mortgage loans.
Quantity survey method
A system of projecting construction costs through a detailed estimate of required materials, overhead, and labor to be used in new building construction.
Quick asset
An asset that is immediately convertible to cash. Also called a "liquid asset."
Quiet enjoyment
The right of an owner to the use of property without disturbance.
Quiet title action
Legal action taken to eliminate any interest or claim to property by others; the procedure used to perfect title when a quitclaim deed is unobtainable.
Quitclaim deed
A deed relinquishing all interest, title, or claim an owner has in a property. A quitclaim deed implies no warranty.
Quote
See BID.
Radon
An invisible, odorless gas that may enter a structure through cracks or holes in basement floors. Radon is a suspected carcinogen.
Rally
A rise in price following a sudden decline.
RAM
See REVERSE ANNUITY MORTGAGE.
Rate of return on total capital (ROR)
The ratio of net operating income to total capital investment. Often called the "free and clear return" or the "overall rate."
Rate reduction refinance
The refinance of an existing mortgage balance solely to lower the interest rate.
Ratio analysis
A residential underwriting procedure used to compute the proposed housing expense plus other long-term debt expenses as a percentage of monthly income.
Ratio method
Method of qualifying which divides the monthly mortgage payment by the gross monthly income of the borrower (housing or first ratio) and then divides the monthly mortgage payment and monthly debt payments by the gross monthly income (debt or second ratio).
Raw land
Land in its natural state, having no physical improvements such as grading, sewers, or structures.
Real estate
See REAL PROPERTY.
Real estate investment trust (REIT)
An investment vehicle where title to real estate assets is held and managed by one or more trustees who control acquisitions and investments much like a mutual fund.
Real Estate Mortgage Investment Conduit (REMIC)
A vehicle for issuing multiclass mortgage-backed securities which allows the issuer to treat the security as a sale of assets for tax and accounting purposes.
Real estate owned (REO)
Property a lender acquires as the result of foreclosure.
Real Estate Settlement Procedures Act (RESPA)
Federal law which regulates the settlement practices within the real estate industry. This law requires the provision of Good Faith Estimates of Closing Costs, prohibits kickbacks for referrals of related services, and standardizes the closing with a required form and format (HUD-1).
Real estate syndicate
A group of investors who pool funds for investment in real property.
Real estate taxes
Local government taxes levied on the ownership of real estate. Also known as "real estate property taxes."
Real property
Land and improvements permanently attached to it, such as buildings. In some states, this term is synonymous with the term "real estate."
Realtor(r)
A person licensed to sell and/or lease real property, acting as an agent for others, and who is a member of a local real estate board affiliated with the National Association of Realtors(r) (NAR). Realtor(r) is a registered trademark of the NAR.
Reassessment
The revaluation of property for advalorem tax purposes.
Recapture rate
The rate at which an equity investment will be recouped over the life of the investment; the return of investment capital.
Recasting
Modification of the terms of an existing mortgage to cure delinquency.
Receiver
An impartial person appointed by the court to administer properties involved in foreclosure or other litigation, to receive its rents and profits, and apply or dispose of them at the direction of the court.
Reconciliation
The last step in the appraisal process in which all data are compared and the approaches to value considered to arrive at a final estimate of value.
Reconveyance
An instrument used to transfer title from a trustee to the equitable owner of real estate, used when the performance of debt is satisfied under the terms of a deed of trust.
Recordation fees
Fees charged by a local government to record the documents of a real estate transaction.
Recording
The filing of documents or details of a legal document to make them a matter of public record. Usually requires the witnessing and notarizing of the document or instrument to be recorded.
Recourse loan
A type of mortgage loan in which the lender's remedies in the event of borrower default are unlimited, extending beyond the property to the borrower's personal assets. In secondary marketing, a loan that the lender must repurchase in the case of loan default or other defect.
Recovery property
Tangible, depreciable property held for the production of income.
Redemption period
The time allowed by law in some states during which mortgagors may buy back their foreclosed properties by paying the balance owed on their delinquent mortgages, plus interest and fees.
Red flag
A warning term used to indicate further analysis is warranted.
Red lining
Arbitrary denial of real estate loan applications in certain geographical areas, without considering individual applicant qualifications.
Reduced closing cost mortgage
A mortgage which carries a higher interest rate in exchange for no points and/or a credit towards other closing costs from the lender.
Refinancing
The repayment of a debt from the proceeds of a new loan using the same property as security.
Regional shopping center
A shopping center with a gross leasable area of 300,000 to 1,000,000 square feet or more, and having one or more major department stores as anchor tenants.
Regulation B
Federal Reserve regulation prohibiting discrimination against consumer credit applicants, and establishing guidelines for collecting and evaluating credit information.
Regulation Z
Regulation written by the Federal Reserve Board to implement the Truth-In- Lending Act, requiring full written disclosure of the credit portion of a purchase, including the annual percentage rate.
Regulatory agency
An arm of the state or federal government that has the responsibility to license, pass laws, regulate, audit, and monitor industry related issues (i.e., NAIC, FHLBB, HUD).
Referral (finder's fee)
Money or a gift a company furnishes to another company as a reward for directing borrowers to it for services. The Real Estate Settlement Procedures Act (RESPA) prohibits payment of certain referral or finder's fees and requires disclosure of others.
Rehabilitation
The process of reconstructing or improving property which is in the state of disrepair, and bring it back to its full potential or use. A mortgage for such purpose would be referred to as a rehab mortgage.
Reinstatement T
he curing of all loan defaults by a borrower to return it to current status.
Reinsurance
The practice of one insurance company (the reinsure) accepting risks or business from another insurer (the ceding company). It allows insurers to maintain a larger spread of risk and avoid large catastrophes.
REIT
See REAL ESTATE INVESTMENT TRUST.
Release
The discharging of secured property from a lien.
Release clause
A stipulation in a blanket encumbrance, mortgage, or deed of trust under which a portion of the security may be released from lien if certain amounts are paid or conditions are met.
Release of liability
An agreement by a lender to terminate personal obligation of a mortgagor in connection with payment of a debt.
Release of lien
An instrument discharging secured property from a lien.
Release of record
The act of recording a release deed or satisfaction of a mortgage.
Release price
The amount of compensation, either partial or full, needed for a mortgagee to remove a lien.
Remainderman
An individual entitled to the remainder of an estate.
Remediation
The process by which contaminants are removed from a building or site.
Remedy
The means by which a right is enforced or the violation of a right is prevented, redressed, or compensated.
REMIC
See REAL ESTATE MORTGAGE INVESTMENT CONDUIT.
Remittance report
A report detailing the respective funds sent to the lender.
Rent control
Legal limitation of rent increases.
Rent roll
A list of tenants leasing a property, which details terms of lease, area leased, and the amount of rent being paid.
Rentable area
The area of a property, measured in square feet, upon which rent can be collected.
Rental attainment provision
A clause in a mortgage commitment requiring a minimum occupancy level in a project before the full amount of the mortgage is advanced.
Rental concession
A landlord's agreement to forego part of the advertised rent in an effort to attract tenants.
Rental holdback standby loan
A provision in a takeout commitment that requires that only a portion of permanent financing be funded on completion of construction, with the balance held back until specified occupancy levels or cash flow figures are met.
Rental income insurance
A form of property insurance that pays the owner of a building (or other designated loss payee) for the amount of rent lost due to damage from an insured peril. Also known as "loss of rents coverage."
Rent-up period
The period after construction that a rental property requires to achieve projected stabilized income and occupancy levels.
REO
See REAL ESTATE OWNED.
Replacement cost
The cost to replace a structure with one of equivalent value and function, but not necessarily identical in design or materials.
Replacement cost endorsement
An insurance endorsement used with a policy to insure that coverage is on a replacement cost basis.
replacement reserve A cash reserve for the replacement of fixed assets.
Repo
See REPURCHASE AGREEMENT
Report of Home Loan Processed on Automatic Basis (VA Form 26-1820)
A form used instead of the certificate of loan disbursement (VA Form 26-1826) when the mortgagee has processed and closed the loan under the VA Direct program.
Reproduction cost
The money required to reproduce a building using the same or equivalent materials, design, and construction methods, less an allowance for depreciation. An element of the cost-approach method of appraisal.
Repurchase agreement
An agreement between a buyer and seller of securities whereby the seller agrees to buy back the securities at a specified future date and price.
Request for Determination of Eligibility and Available Loan Guaranty Entitlement (VA Form 26-1880)
The form used to request a certificate of eligibility. It is forwarded to the local VA office with proof of the veteran's military service.
Request for Determination of Reasonable Value of Real Estate (Va Form 26-1805)
The basic application to VA, requesting appraisal of the property and determination of its eligibility for guaranty.
Rescission
The cancellation of a transaction or contract by law or by mutual consent.
Reserves
Funded or non-funded accounts set up at either the property or portfolio level in anticipation of periodic or non-periodic capital expenditures or cash needs.
Residual analysis
A procedure used in underwriting residential loans that evaluates the adequacy of an applicant's monthly income after the proposed housing expense has been deducted.
Residuals
Excess income generated by the underlying mortgage collateral of certain mortgage-backed securities, which is not needed to meet contractual obligations to security holders.
RESPA
See REAL ESTATE SETTLEMENT PROCEDURES ACT.
Resolution Trust Corporation (RTC)
A government agency responsible for managing and resolving the affairs of insolvent savings and loan associations placed into receivership by the FDIC. This includes the liquidation, operation, and sale of thrift institutions and thrift assets.
Restrictive covenant
A clause in a deed or lease that denies the buyer or lessor full rights to the property in question.
Restructure
A loan for which the basic terms, such as interest rate, maturity date, collateral, or guaranty have been modified as a result of actual or anticipated delinquency. Also known as a "workout."
Retainage (retention)
The amount of payments withheld from contractors or subcontractors per contractual agreement to insure final and satisfactory completion of a job.
Retirement community
A planned community for those of retirement age, providing attractively sized and priced dwelling units, and offering construction features, amenities and locations for aging residents.
Return of investment
The percentage of profit returned in relation to the original capital invested in a project. Equity divided by cash flow.
Return on equity (ROE)
The ratio of cash flow to the equity investment.
Return premium
The refund of an unearned advance premium resulting from cancellation of a hazard insurance policy prior to its expiration.
Reverse annuity mortgage (RAM)
A mortgage which uses present equity in the property to fund monthly payments from the lender to the borrower-in lieu of the borrower receiving the proceeds of the loan in a lump sum.
Reverse repurchase agreement
An agreement to purchase mortgage-backed securities from a party with a simultaneous agreement to resell them at a specified future date and price.
Reversion
A right to future possession retained by an owner at the time of a transfer of an owner's interest in real property.
Reversion value
The estimated value of a property at a specified future date.
Reversionary clause
A clause providing that any violations of restrictions will cause title to the property to revert to the party who imposed the restrictions.
Revolving credit
Open lines of credit which are subject to variable payments in accordance with the balance. Credit cards are examples of revolving credit.
Revolving loan fund
A pool of money set up to make loans. The pool is replenished through borrower paybacks.
RHS
See RURAL HOUSING SERVICE.
Rich
In secondary marketing, a situation in which one securities contract is priced relatively higher than another.
Rider
An addendum or amendment to a contract.
right of first refusal A right given a lessee by an owner stating that if the owner decides to sell the leased property, the lessee has the first opportunity to purchase the subject property before it is offered to others.
Right of recission
Period of three full days after closing in which the consumer is allowed to negate an owner occupied refinance transaction.
Right of redemption
In some states, a right permitting the mortgagor to reclaim foreclosed property by making full payment of the foreclosure sales price. The right of redemption exists for a specified period of time, called the redemption period.
Right of survivorship
The survivor's right to the property of a deceased person. In the case of joint tenancy or tenancy by entirety (husband and wife), the undivided property passes to the survivor.
Right of way
The right to pass over land owned by another. Also, a strip of land used for a street or railway.
Right to Financial Privacy Act
Places restrictions upon governmental authorities having access to copies of the financial records of any mortgage applicant.
Riparian rights
The right of owners to the water and land within the normal flow of a river or stream, or below a high water mark. These rights vary with state laws.
Risk-based capital regulations
Rules established by the Office of Thrift Supervision (OTS) which dictate how much of certain types of capital a savings and loan may hold.
Risk rate
Generally, the rate of return required to attract capital to a particular investment.
Risk/reward ratio
The relationship between risks of investment and the anticipated rewards for undertaking that risk.
ROE
See RETURN ON EQUITY.
Rolled-in
To include the closing costs of a refinance transaction in the balance of the new mortgage - i.e., to finance the closing costs of the refinance so that they are not paid in cash by the borrower, or out of pocket.
Rollover
The renewal of a loan at maturity. Also, reinvestment of proceeds of a sale of an investment into another, which defers payment of taxes on the gain from the sale.
ROR
See RATE OF RETURN ON TOTAL CAPITAL.
RTC
See RESOLUTION TRUST CORPORATION.
Rule of 78s
Method used by a lender (usually on installment loans) for calculating an interest rebate on a loan paid off or refinanced prior to its maturity date.
Rural housing service (RHS)
A government agency within the U.S. Department of Agriculture which offers various financing programs available to aid in the development of rural America. These rural housing programs are divided into three categories; Community Facilities (CF), Single Family Housing (SFH), and Multi-Family Housing (MFH). These programs were formerly operated by the Rural Development Administration and the Farmers Home Administration.
SAIF
See SAVINGS ASSOCIATION INSURANCE FUND.
Rale-buyback
A financing arrangement in which a developer sells a property to an investor then buys it back on a long-term sales contract. Also called an "installment-sale contract."
Sale-leaseback
A sales arrangement where a seller deeds a property to a buyer for consideration. The seller then leases the same property back from its new owner.
Sales concession
Something a seller pays of value to a purchaser in order to entice the purchaser to buy the home. Another term for seller contribution.
Sales contract
A written agreement between buyer and seller stating terms and conditions of a sale or exchange of property.
Salvage value
The estimated value of a depreciable asset at the end of its useful life. Net salvage value is the asset's depreciated value minus the cost of disposing of or removing it.
SAM
See SHARED APPRECIATION MORTGAGE.
Sandwich lease
A lease in which the "sandwich party" is a lessee, paying rent on a leasehold interest to one party, and is also a lessor, collecting rents from another party or parties.
Satellite tenant
A secondary tenant in a shopping center that depends on the ability of an anchor tenant to draw customers.
Satisfaction
The discharge of an obligation by paying a party what it is due.
Satisfaction of mortgage
The recorded instrument the lender provides to evidence payment in full of the mortgage debt.
Savings and Community Bankers of America (SCBA)
Trade association located in Washington, DC serving the savings institution business and the public interest by furthering thrift and home ownership.
Savings and loan association
A mutual or stock association chartered and regulated by the Office of Thrift Supervision. Traditionally, deposits are invested in residential mortgage loans, although savings and loans now have broader lending powers.
Savings Association Insurance Fund (SAIF)
Successor insurance fund to FSLIC, this fund insures the deposit accounts of federally insured savings associations. The SAIF, which is separate from the Bank Insurance Fund (BIF), is administered by the FDIC.
SBIC
See SMALL BUSINESS INVESTMENT COMPANIES.
SCBA
See SAVINGS AND COMMUNITY BANKERS OF AMERICA.
Scheduled/actual
Remittance agreement which requires the servicer to give investor scheduled interest, regardless of actual collections from borrowers, and actual principal collected.
Scheduled/scheduled
Remittance agreement which requires the servicer to give the investor the scheduled interest and the scheduled principal due, whether or not payments are collected from borrowers.
Schematic
An architect's sketches illustrating space planning, structural systems, and structure in relationship to a site plan.
Scope of work
A description of the nature of service, activities, studies, jobs, or work to be undertaken by a party.
Seasoned mortgage
A mortgage on which payments have been made regularly for a year or longer.
SEC
See SECURITIES AND EXCHANGE COMMISSION.
Second generation leasing
The leasing of space in a shopping center or other property that was previously occupied by another tenant.
Second home purchase
A property purchased for occupancy by the owner but is not the primary residence. Usually recreational properties.
Second mortgage
A mortgage that has rights subordinate to a first mortgage. Also called "second trust."
Second trust
Another term for a second mortgage.
Secondary financing
A funding method using a loan secured by a second mortgage on a property. Sometimes used to refer to any financing technique other than equity and first mortgage debt.
Secondary mortgage market
The market where lenders and investors buy and sell existing mortgages or mortgage-backed securities, thereby providing greater availability of funds for additional mortgage lending.
Section
A division or parcel of land on a government survey comprising one square or 640 acres.
Secured party
An entity party holding a security interest or lien. Also called the mortgagee.
Securities and Exchange Commission (SEC)
A governing body that regulates the sale and registration of securities. The SEC protects investors and the general public against fraud and malpractice in financial markets.
Securitization
The process of pooling loans into mortgage-backed securities for sale into the secondary mortgage market.
Security deposit
A deposit of money by a tenant to a landlord to secure performance of a written or oral rental agreement (lease).
Security document/security instrument
Mortgage or deed of trust evidencing the pledge of real estate as collateral for the loan.
Security instrument
Mortgage or deed of trust evidencing the pledge of real estate as collateral for the loan.
Security interest
The interest of a creditor in the security collateralizing an investment.
Security rating
Reflects the quality of a private issue mortgage-backed security (MBS). The security rating gives an investor some idea of the likelihood that the mortgage comprising the pool of a private issue MBS will repay. Security ratings range from triple A (highest quality) to triple B (lowest quality).
Seed money
Funds required to start a development project, generally advanced by a developer or equity owner as a capital contribution to the project. Also called "front-end money" or "front money."
Self-employment
A person who owns at least 25% of the entity for which generates income for that person.
Seller contributions
Payment by the seller or any other interested party of some or all of the purchaser's usual closing costs. Investors and insurers sometimes limit the amount of seller contribution and require lenders to adjust the property's value if contributions exceed limitations. Undisclosed seller contributions (such as decorating allowances, appliances, or payment of moving expenses) are made to borrowers outside of closing and are also subject to investor and insurer restrictions.
Seller-servicer
A term used by Fannie Mae and Freddie Mac for a mortgage banker or other entity that has met the requirements necessary to sell and service mortgages for Fannie Mae or Freddie Mac.
Senior mortgage
A first mortgage.
Sensitivity analysis
A method of valuation of the rate of return on an investment with changes in a single factor.
Sequester of rents
A court-related action by which rental income derived from property is ordered by the court to be deposited with and held by the clerk of the court or other governmental/court official.
Servicing
See LOAN ADMINISTRATION.
Serial options
Optional delivery contracts with different expiration dates, but identical underlying contracts.
Servicing agreement
A written agreement between an investor and mortgage servicer stipulating the rights and obligations of each party.
Servicing fee/servicing rate
The fee earned by a servicer for administering a loan for an investor usually expressed as a percentage of the unpaid principal balance of the loan and deducted from the monthly mortgage payment.
Servicing files
See WORKING FILES.
Servicing income
Fees which the mortgage servicer earns for performing loan administration duties.
Servicing released
A stipulation in the agreement for the sale of mortgages in which the seller is not responsible for loan administration.
Servicing retained
A stipulation in the agreement for the sale of mortgages in which the seller is responsible for loan administration and is paid a fee for doing so.
Servicing rights
See MORTGAGE SERVICING RIGHTS.
Servicing runoff
Reduction of principal in a loan portfolio due to monthly payments, payoffs, and foreclosures which reduce the value of the portfolio.
Servicing spread
That portion of the interest rate added by the lender to cover the cost of administering the mortgage asset.
Setback lines
Lines that define the required distances for the location of a structure in relation to the perimeter of the property. They are in accordance with building codes, deed restrictions, and zoning requirements.
Settlement
The closing of a mortgage loan. Also, the delivery of a loan or security to a buyer.
Settlement agent
A person or entity which coordinates or conducts a closing or settlement.
Settlement costs
Money paid by borrowers and sellers to effect the closing of a mortgage loan, including payments for title insurance, survey, attorney fees, and such prepaid items as taxes and insurance escrow.
Settlement statement
See CLOSING STATEMENT.
Shared appreciation mortgage (SAM)
A mortgage in which the lender offers the borrower a below-market interest rate in exchange for a portion of the profit upon eventual sale of the property.
Shell and allowance
An agreement whereby the developer or landowner builds the walls, roof, and floor of a building, then gives tenants a cash allowance to complete the interior.
Sheriff's deed
A deed given by court order when a property is sold to satisfy a judgment or tax lien.
Shipping
In the sale or securitization of mortgage loans, the preparation and delivery of documents for loans sold to investors.
Short position
Owning commitments in excess of mortgages in the pipeline.
Short rate
A method of calculating the amount of premium refunded on a hazard insurance policy cancelled between anniversary dates.
Short risk ratio
The dollar difference between mandatory commitments and inventory loans divided by pipeline dollar volumes adjusted for fallout.
Short sale
A workout program wherein the lender accepts less than the total payoff amount
Silent partner
One who invests in a business but does not participate in the operation of the enterprise and may be anonymous, except to the other partners.
Single debit
A system of mortgage accounting under which a servicer reports currently paid installments as a single item. The only other items detailed are uncollected installments and collections of anything other than current monthly installments.
Single-item analysis
An accounting method servicers use in conducting an escrow account analysis by computing the sufficiency of escrow account funds by considering each escrow item separately.
Single line corridor
A design where all apartment units are placed on only one side of a corridor.
Sinking fund
In commercial real estate, funds regularly set aside for the replacement of improvements.
SIOR
See SOCIETY OF INDUSTRIAL AND OFFICE REALTORS(r).
Site development
All improvements made to a site, such as clearing, grading, and the installation of public utilities, before the actual construction of a building.
Site plan
A drawing which shows all improvements to a site, such as clearing, grading, and the installation of public utilities, before the actual construction of a building.
Site value
The value of land without improvements, as if vacant.
Sky lease
Lease of air rights, sometimes involving a cantilevered structure or a bridge.
Small Business Investment Companies (SBIC)
Privately owned companies, licensed and regulated by the
Small Business Administration. The SBA provides equity capital and long-term financing.
SMSA
See STANDARD METROPOLITAN STATISTICAL AREA.
Society of Industrial and Office Realtors (SIOR)
A real estate trade organization that serves industrial and office property owners, users and investors.
Society of Real Estate Appraisers (SREA)
A professional and educational association for the appraisal profession. SREA confers the following designations
soft costs Architectural, engineering, and legal fees associated with building construction, as distinguished from land and other costs.
Soft dollars
The amount invested in the development or purchase of a property that is immedi-ately deductible for tax purposes, such as prepaid interest and fees.
Sole proprietorship
A form of self-employment in which the individual who is self-employed has formed no separate legal entity such as a corporation.
Special assessment district
A governmental subdivision with the power to tax and improve property within its jurisdiction. Also called "special improvement district."
Special warranty deed
A deed containing a covenant whereby the grantor agrees to protect the grantee against any claims arising during the grantor's period of ownership.
Specific performance
A remedy in a court of equity compelling a defendant to carry out the terms of an agreement or contract.
Specified amount
A dollar amount determined by the VA that must be credited against the veteran's indebtedness at completion of foreclosure. Used as the amount to be bid by the lenders at the foreclosure sale and also used in calculation for the lender's claim under the VA guaranty.
Speculative construction
Construction of a build ing without prior rental, lease, or sale agreements.
Speed
The rate of principal prepayments (foreclosures and payoffs) of a pool of mortgages.
Split financing
A method of securing financing for commercial real estate by splitting property into fee and leasehold interests (land and improvements). Each interest is then sold or financed separately.
Split-fee option
An option on an option. The right, but not the obligation, to buy an option for a specified premium on a specified date.
Spot loans
Single-family loans solicited on an individual basis, rather than through Realtor referrals.
Spot market
See CASH MARKET.
Spot zoning
Zoning on a lot by lot basis, following no prescribed pattern or plan.
Spread
The difference between the rate at which money can be borrowed and the rate at which it is loaned. Also, the difference between the ask and bid prices on a security.
stabilization Measurement over a period of time to establish an average or expected outcome.
Stabilized operating statement
A detailed projection of all income and disbursements over a selected period of years, averaged for a single year.
Staff appraiser
An appraiser who works as an employee for a mortgage company as opposed to the company hiring an independent firm to appraise properties.
Stage planning
See PROGRESS PAYMENT.
Standard metropolitan statistical area (SMSA)
A central city area and its surrounding suburbs and small jurisdictions.
Standard rate
A usual rate a rating bureau establishes for all companies writing hazard or title insurance policies in a specific area.
Standby commitment
In secondary marketing, a commitment to purchase mortgages with specific terms, understanding that delivery is unlikely. The commitment is issued for a fee paid by the seller to the purchaser. Synonymous with an optional delivery commitment.
Standby contract
An option to sell a specified dollar amount of mortgages or mortgage-backed securities by or on a specified date at a specified price.
Standby fee
A nonrefundable fee a lender pays an investor for a standby commitment.
Standing mortgage
A loan where no amortization payments are required and the entire loan comes due at maturity. Interest is normally paid at periodic intervals while the loan is outstanding.
Starts
The number of residential housing units begun within a stated period of time.
Stated amount coinsurance
See AGREED AMOUNT.
Statutes of fraud
State laws requiring that certain contracts be in writing; including contracts for the sale of real property.
Step-down lease
A lease that provides for decreases in rent at set intervals.
Step-up lease
A lease that provides for increases in rent at set intervals. Increases are sometimes based on appraisals. Also called a "graduated lease."
Stop order
A supplemental order submitted with an initial futures trade that will be executed, should the market move to or beyond a specified level. This move limits gains and/or losses on the futures position.
Straddle
An options strategy that involves buying or selling both a put and call on the same security with the same expiration date and same strike price.
Straight-line depreciation
A method of depreciation in which an equal amount of depreciation is taken annually over an asset's economic life.
Straw buyer
One who purchases property for another to conceal the identity of the real purchaser.
Streamline
A rate reduction refinance which requires less documentation than a full package mortgage application.
Strict foreclosure
A type of foreclosure proceeding used in some states in which title to the foreclosed property is invested directly in the mortgagee by court decree, without holding a foreclosure sale.
Strike price
The stated price on a securities contract at which the underlying security may be bought or sold prior to or upon expiration.
Stripped mortgage-backed security
A security formed by segregating principal from interest to make separate interest only and principal only mortgage-backed securities.
Strip development
A commercial development in which the main thoroughfares are bordered by an almost continuous row or strip of retail stores and allied service establishments. Also, any shopping area that consists of a row of stores.
Subcontractor
A person or company contracted to perform work for a developer or general contractor.
Subdivision
Improved or unimproved land divided into a number of parcels for sale, lease financing, or development.
Subject to mortgage
A mortgage clause in which title to a mortgaged property is taken without assuming personal liability for the mortgage debt.
Sublease
A lease executed by a lessee to a third person for a term no longer than the remaining portion of the original lease.
Submortgage
The use of one mortgage as collateral to obtain another.
Subordinate lien
A lien or encumbrance (for example a second mortgage or mechanic's lien) on real estate whose priority is inferior to another's recorded interest in the same property.
Subordinated ground lease
A lease in which rights of the lessor of the ground are junior to the rights of the holder of the first mortgage.
Subordination
The act of a party acknowledging, by written record, that a debt is inferior to the interest of another in the same property. Sub-ordination may apply not only to mortgages, but to leases, real estate rights, and any other types of debt instruments.
Subordination agreement
A document by which parties acknowledge, by written record, that the debt of one is inferior to the debt or interest of another in the same property. Subordination may apply not only to mortgages, but to leases, real estate rights, and any other types of debt interests.
Subordination (lease) provision
A clause in a lease by which the tenant acknowledges that its interest in the lease premises is inferior to the interest of the lender whose mortgage encumbers the leased premises.
Subrogation
The right of a party to proceed against another for recovery.
Subservicer
Lender that performs the on-going servicing activities for the mortgage or pool under an agreement with the contractually responsible servicer.
Subsidize
A term for aid. Federally subsidize mortgages typically have an interest rate lower than market because of government assistance. Temporary Buydowns are considered subsidized mortgages, because there is money placed in an escrow fund to supplement the regular payment for a certain period of time.
Substitute sale
A hedging strategy involving the sale of futures, offset by the purchase of an equivalent security before delivery is necessary. An alternative to a forward sale.
Substitution of liability
The assumption of liability by another on a mortgage or trust deed note, with the concurrent release of the original maker by the mortgagee.
Sub-surface rights
The right to ownership of everything beneath the surface of the earth, such as oil and minerals.
Super lien
A government lien imposed on a property for violation of environmental and public health and safety rules.
Super priority lien
A lien or encumbrance on property that is superior to most every other claim against the same property irrespective of the time of recording or claiming the lien or encumbrance (usually arising in the context of liens for remediating hazardous waste).
Superfund
The term "Superfund" is frequently used to refer to the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), enacted in 1980, and modified by the Superfund Amendments and Reauthorization Act (SARA) in 1986. Under this federal statutory framework, the U.S. Environmental Protection Agency (EPA) is empowered to determine which locations are contaminated by hazardous waste, respond appropriately to protect public health and the environment, and allocate liability for associated response costs.
Superior lien
A lien or encumbrance (for example a mortgage or mechanics lien) on real estate whose priority is greater (or superior) to the interest of another's interest in the same property.
Super-regional shopping center
A shopping center that provides an extensive variety of general merchandise. Usually built around at least three department stores of at least 100,000 square feet each. A super-regional usually contains about 750,000 square feet of gross leasable area, but may exceed 1,000,000 square feet.
Superstructure
That part of a building or structure above the ground or foundation.
Surety bond
Written evidence of a third party, called the surety, that will be primarily liable for a debt in the case of default.
Survey
A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any improvements.
Surveyor's certificate
A formal statement, signed, certified, and dated by a surveyor, giving the pertinent facts about a particular property and any easements or encroachments affecting it.
Swap
The exchange of one asset or liability for a similar asset or liability to lengthen or shorten maturities, raise or lower coupon rates, or exchange fixed and variable payment streams.
Syndication
The sale of equity interests in real estate projects to investors other than the original developer.
Synthetic put
Combining a short position with a call position. In mortgage banking, selling mortgages forward while simultaneously buying call options.
Section 203(k)loan program
HUD's primary program for the rehabilitation and repair of single-family properties. A 203 (k) loan is a first mortgage that covers the costs of rehabilitation and purchase or refinance of an eligible property. The goals of the Section 203(k) loan program are community and neighborhood revitalization and expanded opportunities for homeownership for low- and moderate-income families.
Sable funding
Mortgage transaction where the broker or third-party originator (TPO) closes the mortgage in its own name for simultaneous assignment to an investor who advanced money for the funding.
Takedown
See CONSTRUCTION LOAN DRAW.
Take home pay
A borrower's paycheck after taxes and other deductions have been subtracted.
Ttakeout commitment
A commitment by a lender to provide a long-term mortgage upon satisfactory completion of construction.
Takeout loan
A first mortgage loan that is committed and expected to be made upon completion of a specified real estate project.
Tangible asset
Physical assets.
Tax abatement
The exemption or reduction of local taxes on a project for a specific period of time.
Tax basis
A taxpayer's cost of property for tax purposes, including cash paid and the principal amount of mortgage debt encumbering the property at the time of acquisition. The property's tax basis is increased from time to time by additional cash investment in the property, and is decreased from time to time by tax deductions (such as depreciation) relating to the property and by cash withdrawals.
Tax deduction
An expense that the government allows you to subtract from your income before tax liability is computed. The federal government allows you to subtract certain itemized deductions such as mortgage interest in lieu of utilizing the standard deduction.
Tax deed
A deed on property purchased at public sale for nonpayment of taxes.
Tax escalation clause
An agreement between a landlord and tenant whereby the tenant absorbs any increase in real estate taxes attributable to the leased property.
Tax-exempt bond
A bond partly or wholly exempt from federal and/or state income tax.
Tax-increment financing
The financing of an urban renewal project by a bond issue to be serviced from the anticipated additional tax revenues generated by the renewal process.
Tax lien
A claim against property for unpaid taxes.
Tax sale
The sale of property by a taxing authority or an officer of the court acting on a judgment to satisfy the payment of delinquent taxes.
Tax service contract
A service performed by a tax service company which identifies the payment due date of local taxes for the servicer.
Tax shelter
A reduction of taxable income through the reinvestment of earnings on capital; any investment that postpones or avoids tax payments.
Tax stop clause
A provision in a lease whereby real estate tax increases imposed on the lessor are passed along to the lessee as additional rent.
Teaser rate
A starting rate which is below the fully indexed accrual rate (FIAR) on an adjustable rate mortgage.
Technical analysis
A securities valuation strategy based on the philosophy that past price movement patterns are useful for predicting future price movements.
Temporary buydown
A lower interest rate on a mortgage for a fixed period at the beginning of the mortgage term.
Tenancy
The use of real estate under any kind of right of title.
Tenancy at will
A holding of real estate without agreement or fixed term of possession, that can be terminated at the will of either the lessor or lessee.
Tenancy by entirety
A form of ownership in which husband and wife are co-owners with rights of survivorship.
Tenancy in common
A form of undivided ownership interest by two or more persons that provides for no right of survivorship. The interest need not be of equal percentage.
Tenancy in partnership
A type of ownership whereby real property is held in the name of the partnership rather than in name of individual partners.
Tenant
One who is not the owner but occupies real property under consent of the owner and in subordination to the owner's title. The tenant is entitled to exclusive possession, use, and enjoyment of the property, usually for a time and amount specified in the lease.
Tenant contributions
All costs that are a pro rata responsibility of the tenant over and above the contract rent specified in the lease, for example, a fee for common area maintenance.
Tenant improvements
Constructed improvements to the base building, such as interior partitions, drop ceilings, and other finishes which prepare a space for occupancy and use by a tenant.
Tenant mix
In commercial real estate, an arrangement of tenants who offer different products or services and, when placed together, complement one another in their ability to attract customers.
Term
The period of time between the commencement date and termination date of a note, mortgage, legal document, or other contract.
Term mortgage
A mortgage in which, for a specified period of time, only interest is paid, after which the principal is due.
Testate
The state or condition of leaving a will at death.
Theta
The change in the time value of an option between points in time.
Thin market
A market characterized by low liquidity and trading volume. Price fluctuations relative to volume tend to be wide, as are spreads between bid and ask prices.
Third party
One not a party to an agreement or a transaction, but who may have rights therein.
Third-party originator (TPO)
Entity or individual that completely or partially takes the mortgage loan application from a borrower. A TPO may process, underwrite, or fund the mortgage before transferring, assigning, or selling it to another mortgage lender.
Thrifts
Savings banks or savings and loan associations.
Tight market
A market in which trading volume is high and competitive, and spreads between bid and ask prices are narrow.
Tick
A minimum change in price up or down. In the mortgage securities market, a tick is one thirty-second of a point in price.
TILA
See TRUTH-IN-LENDING ACT.
Time is of the essence
A phrase in a contract stating that performance within a specified period of time is an essential element of the transaction.
Time value
The value of an option above its intrinsic value.
Title
Written evidence of the right to or ownership in property. In the case of real estate, the documentary evidence of ownership is the title deed that specifies in whom the legal estate is vested and the history of ownership and transfers. Title may be acquired through purchase, inheritance, devise, gift, or through foreclosure of a mortgage.
Title binder
Written evidence of temporary title insurance coverage that runs for a limited time and must be replaced by a permanent policy.
Title defect
Any legal right held by others to claim property or to make demands upon an owner.
Title exception
An exclusion appearing in a title insurance policy against which the insurance company does not insure.
Title insurance commitment
See TITLE BINDER.
Title insurance policy
A contract by which the insurer agrees to pay the insured a specific amount for any loss caused by defects of title to real estate, wherein the insured has an interest as purchaser, mortgagee, or otherwise.
Title I loan
Under the Title I loan insurance program, established by Title I of the National Housing Act in 1934, lenders make loans from their own funds, and HUD insures the lender against loss if the borrower defaults on the loan. Title I loans are made for property improvement or manufactured home and lot purchase. Title I loans are also used as part of state and local community revitalization programs.
Title search
An examination of public records, laws, and court decisions to ensure that no one except the seller has a valid claim to the property, and to disclose past and current facts regarding ownership of the subject property.
Title theory
A system in which the holder of a mortgage (the lender) has actual title to the mortgaged property until the mortgage loan is repaid.
Title update
An examination of public records from the date of a previous title search to ascertain the status of title to property since such last search.
Top ratio
See HOUSING EXPENSE RATIO.
Torrens certificate
A certificate issued by a public authority called a registrar of titles, establishing title in an indicated owner. Used when title to property is registered under the Torrens system of land registration.
Townhouse
A row house on a small lot which has exterior limits common to other similar units. Title to the unit and its lot is vested in the individual buyer with a fractional interest in common areas, if any.
TPO
See THIRD-PARTY ORIGINATOR.
Tract
A parcel of land.
Tract loan
A loan to a developer secured by land being subdivided.
Trade date
The date on which parties enter into an agreement for the purchase or sale of mortgage-backed securities. The settlement date may be the trade date or a later date.
Trade fixtures
Articles of personal property attached to real property that are necessary to conduct business, and are subject to removal by the owner.
Tranche
A level or class of investment interest in a CMO or REMIC, differentiated by maturity, interest rate, and/or accrual structure.
Transaction set
The name given to a complete trading document sent via electronic data interchange. Examples of mortgage-ralated documents which might be transmitted via EDI include loan applications, credit reports, and appraisals.
Transfer
See ASSUMPTION.
Transfer fees
Fees charged by an investor or servicer to process a transfer of ownership request.
Transfer taxes
Taxes levied by a state or local government upon the transfer of real property. Sometimes referred to as "tax stamps."
Transmittal form
Form which summarizes the data contained within a loan application.
Treasury constant maturities indices
A series of indices issued by the federal government which measure the yield of treasury securities for a the term measured by the index.
Tri-party agreement
An agreement between a borrower, construction lender, and permanent lender to ensure delivery of a loan.
True interest cost
The interest cost of a bond issue that considers the time value (i.e., present value) of money.
Trust
A fiduciary relationship whereby legal title to a property is transferred to a trustee with the intention that such property be administered by the trustee for the benefit of another, the beneficiary, who holds equitable title to such property.
Trust deed
The instrument given by a borrower (trustor) to a trustee vesting title to a property in the trustee to ensure the borrower's fulfillment of an obligation. A mortgage.
Trustee
One who holds legal title to property for the benefit of another, or to secure performance of an obligation.
Trustee in bankruptcy
An agent of the court authorized to liquidate and protect the assets of the bankrupt, and bring them to court for final distribution for the benefit of the bankrupt and creditors.
Truth-in-Lending Act (TILA)
Federal law which requires a truth in lending statement to be disclosed for consumer loans. This statement would include disclosure of the annual percentage rate, or APR, as well as other facets of the mortgage program. The law also requires the right of recission period which follows the closings of refinances.
Two-step mortgage
Mortgage where the interest rate stays the same for a stated period, then changes, typically after 5 or 7 years.
Turnkey project
A project in which a builder, contractor, or developer contracts to construct and deliver a completed facility, ready for occupancy and operation.
UCC
See UNIFORM COMMERCIAL CODE.
UDAG
See URBAN DEVELOPMENT ACTION GRANT.
ULI
See URBAN LAND INSTITUTE.
Umbrella insurance
A type of policy obtained by an insured to cover loss or damage for a number of properties or other assets, or a number of companies (such as subsidiaries of a parent company).
Underlying
The stock, commodity, index, or securities contract to be bought or sold under the terms of an investor commitment.
Underwriting
In mortgage banking, the analysis of the risk involved in making a mortgage loan to determine whether the risk is acceptable to the lender. Underwriting involves the evaluation of the property as outlined in the appraisal report, and of the borrower's ability and willingness to repay the loan.
Underwriting criteria
In mortgage banking, the analysis of the risk involved in making a mortgage loan to determine whether the risk is acceptable to the lender. Underwriting involves the evaluation of the property as outlined in the appraisal report, and of the borrower's ability and willingness to repay the loan.
Unencumbered property
A property that is free and clear of debts or liens.
Uniform Commercial Code (UCC)
A comprehensive code of laws regulating important legal aspects of business and financial transactions. The Code has been accepted by every state except Louisiana.
Uniform Residential Appraisal Report (URAR)
The appraisal form which is utilized by appraisers of residential properties to estimate the value of properties to be financed with FHA, VA and conventional mortgages.
Uniform Residential Loan Application Form (Fannie Mae/Freddie Mac 1003/FHA 2900/VA 1802)
Form which is accepted by all major mortgage sources for application of residential mortgages.
Uniform Settlement Statement (HUD-1)
Settlement summary form required by RESPA to be used by closing agents.
Uniform single attestation program
Guidelines for auditing the servicing operations of mortgage banking firms, and used by virtually all of the independent public accountants who conduct annual audits of mortgage banking companies and who prepare reports provided to institutional mortgage investors.
Unimproved land
Raw land.
Unit-in-place method
A method of estimating construction costs by figuring the cost of each component installed. Also called the segregated cost method.
Upset price
The amount for which a property may be sold to cover all expenses. The break-even point.
URAR
See UNIFORM RESIDENTIAL APPRAISAL REPORT.
Urban Development Action Grant (UDAG)
A federal program administered by HUD under which distressed cities and urban counties may obtain funding for community development projects.
Urban Land Institute (ULI)
An independent, nonprofit research and educational organization that conducts research, educational, and publishing activities in the areas of land use and development.
Urban renewal
The redevelopment or rehabilitation of property in an urban area.
Usable area
The actual number of square feet contained within a tenant's demised space.
Usury
The act of charging borrowers a rate of interest greater than that permitted by law.
Usury ceiling
A maximum legal rate, established by state law, for interest, discounts, or other fees that may be charged for the use of money. The ceiling may vary depending on the nature or type of loan.
Usury saving clause
A clause in a loan document intended to protect the lender from a claim that an unlawful amount of interest is being charged.
Utilities
Basic services associated with developed areas that include provisions for electricity, telephone, gas, water, and garbage collection.
VA
See DEPARTMENT OF VETERANS AFFAIRS.
VA automatic
Department of Veterans Affairs program which allows a lender to approve VA mortgage applications directly instead of sending the applications to the Department for approval.
Vacancy factor
The percentage of gross rental income that represents vacant units.
Vacancy rate
The ratio between the number of vacant units and the total number of units in a multi-tenant building or development.
VA fasttrack refinance
Another term for a VA interest rate reduction refinance which is a VA to VA refinance accomplished solely to lower the interest rate.
VA funding fee
Fee charged on VA mortgages to cover the administrative costs of the program.
VA loan
Mortgage loan made by an approved lender and guaranteed by the Department of Veterans Affairs. VA loans are made to eligible veterans and those currently serving in the military, and can have a lower down payment than other types of loans
Valuation
The estimation of a property's price through appraisal.
VA no-bid
See NO-BID.
Variable income
Income which will vary from year to year. Examples of income which will vary include
Variable rate mortgage (VRM)
See adjustable rate mortgage.
Variance
An approved special change in construction codes, zoning requirements, or other property use restrictions.
VC sheet
A separate sheet, designed and prepared by local HUD/FHA offices, listing conditions of mortgage insurance related to the property and attached to and made a part of the conditional commitment. Specific conditions are identified on the commitment itself by number (VC-10, VC-25, etc.).
Vendee
The party to whom personal or real property is sold.
Vendor
The seller of personal or real property.
Vendor's lien
An unpaid seller's right to a lien on property until the purchase price is recovered.
Venture capital
Capital put in highly risky or speculative investments.
Verification of deposit (VOD)
A form that requests and secures verifications of amounts on deposit at financial institutions. When a depository institution is also the applicant's creditor, the VOD verifies the obligation.
Verification of employment (VOE)
A form that requests and secures documentation of a mortgage applicant's work history and/or occupation, to assist in the lender's credit investigation.
Verification of mortgage
Form that requests and secures verification of payments made on an applicant's current or past mortgage.
Vested interest
A legal claim or right to the present or future enjoyment of real property.
Veterans Affairs
See DEPARTMENT OF VETERANS AFFAIRS.
VOD
See VERIFICATION OF DEPOSIT.
VOE
See VERIFICATION OF EMPLOYMENT.
Volatility
The sensitivity of a security's price to changes in the overall market. Also, interest rate fluctuations resulting from an unstable market.
Voluntary conveyance
An elective transfer of property title from a defaulting borrower to the lender, as an alternative to foreclosure. This arrangement saves the lender the expense of foreclosure, and the borrower receives credit for payment in full.
Voluntary petition of bankruptcy
A voluntary action filed under the United States Bankruptcy Code (the "Code") by a debtor seeking protection under the Code.
Voucher system
In construction lending, a system of "paying" subcontractors vouchers in lieu of cash; they then redeem the documents to the construction lender for actual payment.
W-2
IRS form which reports income paid and taxes withheld by an employer for a particular employee during a calendar year.
W-4
IRS form which determines the amount of Federal taxes the employer will withhold from a person's paycheck each pay period.
WAC
See WEIGHTED AVERAGE COUPON.
Waiver of lien
The written evidence from a contractor or supplier, surrendering the right of lien to enforce collection of debt against a property.
Waiver of subrogation
An endorsement issued by an insurer that waives its right of subrogation against a third party. It is usually requested by an insured in conjunction with a lease.
Waiver of trial by jury provision
A provision in a loan document whereby the borrower and/or lender waive their respective rights to a trial by jury in a legal action/lawsuit on a loan document.
Walking money
Funds borrowed in excess of costs required to develop and build a real estate project.
WAM
See WEIGHTED AVERAGE MATURITY.
Warehouse lender
A short-term lender for mortgage bankers. Using the note as collateral, the warehouse lender provides interim financing until the mortgage is sold to a permanent investor.
Warehouse loans
Loans that are funded and awaiting sale or delivery to an investor.
Warehousing
Short-term borrowing of funds by a mortgage bankers using permanent mortgage loans as collateral. The money borrowed is used to make additional mortgage loans. This interim financing is used until the mortgages are sold to a permanent investor.
Warehousing spread
Difference between the rate at which the mortgage banker is borrowing from the warehouse lender and the interest rate of the underlying collateral mortgages.
Waste
An abuse or destructive use of property by one in rightful possession (such as an owner or tenant).
Watchlist
A list of loans which, while current in terms of monthly payments, pose a potential risk of loss due to deferred maintenance, delinquent real estate taxes, low debt service coverage, major lease expirations, or other signs of increasing financial stress on property performance.
Weighted average coupon (WAC)
The weighted average of the gross interest rates of the mortgages in a mortgage pool, as of the issue date, with the balance of each mortgage used as a weighing factor.
Weighted average maturity (WAM)
The weighted average of the remaining terms to maturity of the mortgages in a mortgage pool as of the issue date.
Wet funding
Any advance of new funds to a mortgage banker for funding or purchasing mortgage loans where the collateral package is not in possession of the collateral agent or is not free of lien or bailment.
Whole loans
Unsecured mortgages sold individually to investors.
Wholesale origination
A loan origination strategy by which loans are purchased from mortgage brokers,mortgage bankers.or other loan originators (banks, thrifts etc.) The loans may be purchased prior to closing, at closing or after the loans are closed depending on the arrangement between the originator and the wholesale lender. Wholesale origination enables a lender to acquire mortgage servicing rights without incurring the fixed costs associated with a retail origination strategy.
Without recourse
A mortgage in which the lender will not pursue personal liability against the borrower. The lender's security is the real estate being financed.
Wood Destroying Insect Information, Existing Construction (VA Form 26-8850/HUD Form 92053)
A form used to report the findings of a pest control operator, in response to a condition imposed on conditional commitment or CRV, that an existing property be inspected for insect damage.
Worked-up
Process by which a fully verified loan application is prepared by the processor for underwriting.
Working capital
The excess of current assets over current liabilities.
Working capital ratio
The ratio of current assets to current liabilities; one of the most commonly used ratios to indicate a company's financial position.
Workout
An alternative action to foreclosure for the benefit of the lender and the borrower. Includes loan modification, short sales and various forms of forbearance. Also called "restructure."
Workout agreement
A plan between the lender and borrower to bring a delinquent or defaulted mortgage current.
Worst case scenario
A scenario in which the rate of an adjustable rate mortgage increases as fast as the caps will allow, i.e. the worst that can happen.
Wraparound mortgage
A refinancing technique involving the creation of a second mortgage which includes the balance due on any existing mortgages, plus the amount of the new secondary or junior lien.
Writ of execution
A court order authorizing an official to execute a decision such as eviction of a tenant or selling property (a writ to carry out the judgment or decree of a court.)
x-mark signature The signature made by a person who is unable to sign their name. This type of signature is only legally valid when witnessed by another person.
X12 data standards
The uniform standards for the electronic interchange of business documents developed by the American National Standards Institute. EDI transaction sets are developed using these standards.
Yeild
The ratio of investment income to the total amount invested over a given period of time.
Yield curve
A graphic representation of market yield for a fixed income security plotted against the maturity of the security.
Yield maintenance
The prepayment premium which will equal the present value of any costs to the lender resulting from the difference in interest rates between the date of the note and the date on which the prepayment is made.
Yield to maturity
The lender's percentage of annual return on actual funds loaned, assuming that the loan will be paid in full at maturity.
Z bond
The final class in a multiclass mortgage-backed security which receives no principal or interest until all other classes are retired.
Zero coupon bond
A bond which pays no interest until maturity, but is sold at a discount from its redemption price.
Zero coupon mortgage
Long term commercial financing that defers all principal and interest payments until maturity.
Zero lot line
The positioning of a structure on a lot so that one side rests directly on the lot's boundary line. Although such construction is usually prohibited by setback ordinances, it can be a part of a special space-conserving project.
Zoning
The creation of districts by local governments in which specific types of property uses are authorized.
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