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BancMac - Your Community Bank Mortgage Partner

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 mortgage contract.

Accrued Interest - Interest earned for the period of time elapsed since interest was last paid.

Adjustable Rate Mortgage - 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.

Ad Valorem Taxes - Real estate taxes on the assessed value of property.

Amortization - Repayment of a mortgage debt with equal 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.

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) - The actual rate of interest paid, the APR represents the interest percentage of the total finance charge to the amount of the loan. The APR is disclosed to conform to federal truth-in-lending statutes.

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.

Assessed Valuation - The value that a taxing authority places upon real property that becomes the base for computing local property taxes.

Assessment - The 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.

Assumption Agreement - A written agreement by one party to pay an obligation originally incurred by another.

Assumption Fee - The amount paid to 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.

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.

Bankrupt - A person, firm, or corporation who, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court appointed trustee, for the protection of creditors. Bankruptcy may be declared under one of several chapters of the federal bankruptcy code. Chapter 7 covers liquidation of bankrupt business; Chapter 11, covers reorganization of bankrupt businesses; Chapter 12, covers certain farm bankruptcies; Chapter 13 covers workouts of debt by individuals.

Binder - Temporary hazard or title insurance granted prior to the issuance of a permanent policy. In real estate, a preliminary agreement between a buyer and seller which includes the price and terms of the contract.

Bi-Weekly Mortgage - A mortgage with payments due every two weeks, totaling 26 payments a year, allowing the debt to be retired in 18 or 19 years.

Blanket - The coverage of more than one piece of property under one instrument, such as blanket insurance policy or blanket mortgage.

Borrower - One who receives funds in the form of a loan with the obligation of repaying the loan-in-full with interest.

Buydown 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.

Caps (interest) - Consumer safeguards on an adjustable-rate mortgage which limit the amount the interest rate may change per year and/or over the life of the loan.

Caps (payment) - Consumer safeguards on an adjustable-rate mortgage which limit the amount monthly payments may change.

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.

Closing - In real estate, the delivery of a deed, financial adjustments, the signing of notes, and the disbursement of funds necessary to consummate a sale or loan transaction.

Collection - The servicing procedure followed to bring a delinquent mortgage current and to file the required notices to begin foreclosure when necessary.

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.

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.

Condemnation - The taking of private property for public use under the right of eminent domain with just compensation paid the owner.

Conventional Financing - In real estate, mortgage financing which is not insured or guaranteed by a government agency such as HUD/FHA, VA, or the Farmers Home Administration.

Convertible Mortgage - A type of adjustable-rate mortgage that may be converted to a fixed-rate mortgage at specified intervals during a predetermined time period. In income property lending, a mortgage in which lender-provided funds convert to equity ownership after a predetermined period of time.

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.

Credit Rating - A rating given to a person or company that establishes creditworthiness based upon present financial condition, experience, and past credit history.

Deed-In-Lieu - A deed given by a mortgagor to a mortgagee to satisfy a debt and avoid foreclosure.

Deed of Trust - A type of security instrument in which the borrower conveys a trust to hold property to a third party (trustee) as security for the lender, with the condition 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.

Default - A breach or non-performance of the terms of a note or the convenants of a mortgage.

Delinquency - Failure of a borrower to make timely payments under a loan agreement.

Demand Note/Mortgage - A note or mortgage that the lender can call due at any time and without prior notice.

Disbursement - Actual payment of monies. Sometimes used to describe construction loan draws.

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.

Easement - A right to the limited use or enjoyment of land held by another. Also, an interest in land to enable sewer or other utility lines to be laid, or to allow access to a property.

Encumbrance - Anything that affects or limits the fee simple title to property, such as mortgages, leases, easements, or restrictions.

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.

Equity - Net ownership, the difference between fair market value and current indebtedness, sometimes called owner’s interest.

Escrow - A situation in which a third party, acting as the agent for the buyer and the seller, carries out instructions of both and assumes the responsibility of handling all paperwork and disbursement of funds. Also, impounds or reserves for the payment of taxes, insurance, or other bills when due.

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.

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 payment held by a lender or servicer to pay taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.

Federal Home Loan Mortgage Corporation (FHLMC) - A quasi-governmental secondary market organization that offers various mortgage purchase and securitization programs. Its major program is the Freddie Mac Participation Certification (PC).

Federal Housing Administration (FHA) - A federal agency within the Department of Housing and Urban Development (HUD).

Federal National Mortgage Association (FNMA) - The nation’s largest mortgage investor. A quasi-governmental secondary market organization that offers various mortgage purchase and securitization programs.

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.

First Mortgage - A real estate loan that creates a primary lien against real property.

Fixed-Rate Mortgage - A mortgage in which the interest rate and payments remain the same for the life of the loan.

Foreclosure - A legal procedure in which a mortgaged property is sold to pay the outstanding debt in case of default.

Governmental National Mortgage Association (GNMA) - A federal agency within the Department of Housing and Urban Development (HUD) that guarantees the timely payment of principal and interest for mortgage-backed securities backed by FHA-insured, and VA-guaranteed mortgages.

Grace Period - A period of time after an obligation is due during which a borrower can perform without incurring a penalty and without being considered in default.

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.

Hazard Insurance - Insurance coverage that provides compensation to the insured in case of property loss or damage.

Homeowner’s Policy - A multiple peril insurance policy available to owners of private dwellings that covers the dwelling and its contents, as well as personal liability.

HUD - The Department of Housing and Urban Development. 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.

Impound - That portion of a mortgagor’s monthly payment held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.

Index - A published interest rate, such as prime rate, LIBOR, T-Bill, or the 11th District COFI. Lenders use indexes to establish interest rates charged on mortgages or to compare investment returns. On ARMs, a predetermined martin is added to the index to compute the interest rate adjustment.

Insured Loan - A loan insured by FHA, VA, or a private mortgage insurance company.

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.

Investor - Any person or institution that invests in mortgages or mortgage-backed securities.

Late Charge - Additional charge that a borrower is required to pay as a penalty for failure to pay a regular installment when due.

Legal Description - A property description, recognized by law, which is sufficient to locate and identify the property without oral testimony.

Lien - A legal hold or claim of a creditor on the property of another as security for a debt. Liens are always against property, usually real property.

Loan Administration - A mortgage banking function, which includes the receipt of payments, customer service, escrow administration, investor accounting, collections, and foreclosures. Also called servicing.

Maturity - The date on which an agreement expires; termination of a mortgage note.

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 attached as well as buildings, equipment, or other property.

Mortgage - A formal document executed by an owner of property, pledging that property as security for payment of a debt or performance of some other obligation. Also, the security instrument itself.

Mortgage-Backed Security (MBS) - An investment instrument backed by mortgage loans as security. Ownership is evidenced by an undivided interest in pool of mortgages or trust deeds. Income from the underlying mortgages is used to pay off the securities, and provides a return on investment.

Mortgage Banker - A firm that conducts mortgage lending activities from its own funds. Newly formed mortgages are sold to investors in the secondary market, providing funds for subsequent lending. The mortgage banker generally continues to service the loans.

Mortgage Insurance (MI) - Insurance that 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 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 Portfolio - The aggregate of mortgage loans held by an investor or serviced by a mortgage banker.

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.

Mortgagor - The borrower in a mortgage transaction who pledges property as a security for a debt.

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.

Nonassumption Clause - A mortgage clause that prohibits the assumption of a mortgage by a third party without the prior approval of the lender.

Note - A general term for any kind of paper or document signed by a borrower that is an acknowledgement 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 Default - Notice recorded after 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.

Origination - The process of creating both commercial and residential mortgages.

Partial Payment - In loan collections, receipt of less than the full payment due.

PITI - An acronym for the items included in a monthly payment: principal, interest, taxes, and insurance.

Portfolio - The collection of loans held for servicing or investment.

Premium - In insurance, a payment for coverage.

Prepayment - The payment of all or part of a mortgage debt before it is due.

Prepayment Penalty - A charge the mortgagor pays the mortgagee for the privilege to prepay the loan.

Principal - The original balance of money lent, excluding interest. Also, the remaining balance of the loan, excluding interest.

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.

Quitclaim Deed - A deed relinquishing all interest, title, or claim an owner has in a property. A quitclaim deed implies no warranty.

Real Estate Owned (REO) - Property a lender acquires as the result of foreclosure.

Real Property - Land and objects permanently attached to it, such as buildings and fences.

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, interest and fees.

Reinstatement - The curing of all loan defaults by a borrower to return it to current status.

Satisfaction of Mortgage - The recorded instrument the lender provides to evidence payment in full of the mortgage debt.

Second Mortgage - A mortgage that has rights subordinate to a first mortgage.

Secondary Mortgage Marketing - A process whereby lenders and investors buy and sell existing mortgages or mortgage-backed securities, thereby providing greater availability of funds for additional mortgage lending by banks, mortgage bankers, and savings institutions.

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.

Servicing Agreement - A written agreement between an investor and mortgage servicer stipulating the rights and obligations of each party.

Servicing Income - Fees the investor pays the mortgage servicer for performing loan administration duties.

Subordination - The act of a party acknowledging by written record that a debt is inferior to the interest of another in the same property. Subordination may apply not only to mortgages, but also to leases, real estate rights, and any other types of debt instrument.

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.

Term - The period of time between the commencement date and the termination date of a note, mortgage, legal document, or other contract.

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 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.

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.

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.

Veterans Administration (VA) - The Department of Veteran’s Affairs, 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 guaranteeing the lender against loss.

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.

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.