1.16 Mortgage Transaction Elements and Mortgage Lending Laws - Vocabulary Flashcards

Vocabulary flashcards covering key mortgage concepts, terms, and lending laws from the notes.

promissory note

A legal instrument in which the borrower promises to repay a loan under specified terms (amount, rate, and repayment schedule).

mortgage

A pledge of real property as collateral for a loan.

hypothecation

Use of real property as collateral for a mortgage loan.

original principal

The initial amount borrowed on which interest is calculated.

loan balance

The remaining unpaid principal at any point in a loan’s life.

interest

Charge for the use of money; can be fixed or variable.

APR (Annual Percentage Rate)

The total cost of borrowing including interest and other charges; required disclosure on residential loans.

point

One percent of the loan amount, often used for origination costs.

loan origination fee

A fee charged by the lender at origination to obtain the required return.

term

The period of time for repayment of interest and principal.

payment

The periodic payment of interest and/or principal.

down payment

The borrower’s cash payment toward the purchase price.

loan-to-value ratio (LTV)

The loan’s share of the property’s value, expressed as a percentage.

equity

Difference between market value and loan balance; borrower’s cash invested in the property.

deed of trust

Title to property used as collateral, held by a trustee for the lender’s benefit.

trust deed

A deed conveying title to a trustee for collateral purposes in some states.

trustee

A third party who holds title for the lender’s benefit until debt is repaid.

negotiable instrument

A legal instrument that can be transferred or assigned to a third party.

escrow account

A reserve account for periodic payments of taxes and insurance.

PITI

Monthly payment amount including principal, interest, taxes, and insurance.

P&I payment

Monthly payment for principal and interest.

RESPA

Real Estate Settlement Procedures Act; regulates settlement practices and escrow limits.

hazard insurance

Property insurance required by the lender to cover damage.

occupancy

Borrower must occupy the property as their principal residence.

mortgage insurance (PMI)

Private insurance protecting the lender against borrower default when down payment is <20% (not FHA/VA).

flood insurance

Insurance required for property in designated flood hazard areas.

inspection

Lender may inspect the property for damage or risk to collateral.

condemnation

Property taken by Eminent Domain; lender may claim proceeds.

alienation clause (due-on-sale clause)

Lender may require immediate repayment if the property is transferred without consent.

acceleration

Requirement to repay the loan in full before the scheduled due date due to default or clause.

reinstatement

Borrower’s right to cure default by paying overdue amounts and expenses.

redemption clause

Gives the borrower time to satisfy obligations and avoid foreclosure.

release clause/defeasance clause

Lien release when the loan is paid; may require a satisfaction of mortgage or reconveyance.

release deed/satisfaction of mortgage

Documents recorded to release a lien after loan payoff.

escalation clause

Allows the lender to increase the loan’s interest rate under defined conditions.

Equal Credit Opportunity Act (ECOA)

Prohibits lending discrimination based on protected classes.

Truth-in-Lending Act (TILA) / Regulation Z

Requires disclosure of finance charges and APR; outlines rescission rights and advertising rules.

income qualification

Evaluation of a borrower’s income to determine loan eligibility.

income ratio

Front-end housing expense ratio; portion of gross income allocated to housing.

debt ratio

Back-end debt ratio; portion of gross income devoted to all debt obligations.

net worth

Assets minus liabilities; used to assess borrower reserves.

credit evaluation

Lender’s review of credit reports and payment history.

loan commitment

Lender’s written pledge to lend under specific terms (firm/lock-in/conditional/take-out).

primary mortgage market

Market where loans are originated directly to borrowers.

secondary mortgage market

Market where existing loans are bought/sold to provide liquidity.

FNMA (Fannie Mae)

Governing body that buys conventional, FHA-, and VA-backed loans and guarantees mortgage-backed securities.

GNMA (Ginnie Mae)

Guarantees payment on certain types of government-backed loans.

FHLMC (Freddie Mac)

Buys and pools mortgages and sells mortgage-backed securities.

mortgage loan originator (MLO)

Person who solicits/negotiates mortgage loans and must be licensed.

mortgage broker

Intermediary who brings borrowers and lenders together without using its own funds to originate loans.

mortgage banker

Entity that funds or services loans and may sell them to the secondary market.

conventional mortgage

A mortgage originated by banks or private lenders, not government-sponsored programs.

FHA loan

Federally insured loan for qualified borrowers; typically 15- or 30-year terms with a low down payment.

VA loan

Federally guaranteed loan for qualified veterans; often with no down payment.

amortized fixed-rate

Loan with payments that include principal and interest and a constant interest rate.

adjustable-rate mortgage (ARM)

Loan with an interest rate that fluctuates with an index, potentially changing payments.

negative amortization

Loan balance increases when payments do not cover accrued interest.

rate cap

Maximum amount by which the interest rate can increase over an adjustment period.

payment cap

Maximum amount by which the payment can increase over an adjustment period.

index

A financial index used to adjust an adjustable-rate mortgage.

margin

Fixed percentage added to the index to determine the interest rate.

teaser rate

Low initial rate designed to attract borrowers, which later increases.

custom mortgage

Non-standard loan features such as balloon payments or mixed amortization.

balloon payment

A large lump-sum payment due at the end of a partially amortized loan.

partially amortized with balloon

Loans that do not fully retire the balance until a final balloon payment.

biweekly mortgage

Mortgage payments every two weeks, reducing total interest and term.

package mortgage

Mortgage that finances real property plus personal property as part of the deal.

home equity loan

Loan secured by the borrower’s home equity; funds may be used for any purpose.

purchase money mortgage

Seller-financed loan used to cover part of the purchase price, with the property as collateral.

reverse annuity mortgage

Lender provides periodic payments to the homeowner in exchange for equity; balance grows as payments are received.

reserve requirements

Federal Reserve regulation affecting money supply and bank reserves.

FDIC

Federal Deposit Insurance Corporation; insures deposits up to a statutory limit per depositor per bank.