Mortgage Lending Fundamentals – Vocabulary Review

Comprehensive vocabulary deck covering institutions, loan types, calculations, federal laws, disclosures, and underwriting concepts essential for mortgage-origination exam preparation.

Primary Mortgage Market

The marketplace where loans are originated directly to borrowers by banks, mortgage bankers, and brokers.

Depository Institution

A federally or state-chartered bank, savings & loan, or credit union that uses customer deposits to fund mortgage loans.

Non-Depository Institution

A lender (e.g., mortgage banker) that funds loans with warehouse lines of credit instead of consumer deposits.

Bank

A depository institution that cycles customer deposits into loans and pays interest on those deposits.

Mortgage Banker

A non-depository lender that uses short-term warehouse lines to fund mortgages and quickly sells them into the secondary market.

Mortgage Broker

An independent middle-person who matches borrowers with funding sources but does not lend its own money.

Loan Originator (LO/MLO)

An individual who, for compensation, takes mortgage applications and negotiates rates or terms.

Registered Originator

An LO who works for a depository institution or Farm Credit lender and is registered (not licensed) through federal regulators.

Licensed Originator

An LO employed by a non-depository lender or broker who must obtain state licensure through the NMLS.

Warehouse Line of Credit

A short-term credit facility used by mortgage bankers to fund loans until they are sold to investors.

Loan Processor

Clerical/support employee who gathers documents but may not take applications or discuss loan terms.

Secondary Mortgage Market

The market in which closed loans are sold to investors, providing fresh funds to primary-market lenders.

Government-Sponsored Enterprise (GSE)

Federally chartered, shareholder-owned entity such as Fannie Mae or Freddie Mac that buys conforming loans.

Fannie Mae (FNMA)

A GSE that purchases conforming mortgages to provide liquidity in the secondary market.

Freddie Mac (FHLMC)

A GSE similar to Fannie Mae that buys conforming mortgages from lenders for securitization.

Ginnie Mae (GNMA)

A government agency that guarantees MBS backed by FHA, VA, or USDA loans.

Mortgage-Backed Security (MBS)

A bond created by pooling mortgages and selling the cash-flow to investors.

Securitization

The process of bundling mortgages into MBS for sale to investors.

ALIENS

Acronym for the six items that make a complete mortgage application: Address, Loan amount, Income, Estimated value, Name, Social Security number.

Loan Estimate (LE)

TRID disclosure that itemizes estimated costs; due within three business days of application.

Intent to Proceed (ITP)

Borrower’s acknowledgment that allows the creditor to collect fees beyond a credit report after the LE is delivered.

Closing Disclosure (CD)

Final TRID form that lists actual costs; must be received three business days before consummation.

Appraisal

Independent opinion of value selected by the lender and paid for by the borrower.

Underwriting Decision

Lender’s determination—approved, denied, incomplete, or counter-offer—issued within 30 days of application.

Security Instrument

Recorded mortgage or deed of trust that creates a lien and grants foreclosure rights.

Promissory Note

Legal document that states the loan amount, interest rate, payment schedule, and borrower’s promise to repay.

Lien

A monetary claim recorded against property that establishes repayment priority.

Lien Priority

Order in which liens are repaid, typically ‘first-come, first-served,’ except for super-liens like property taxes.

Down Payment

Borrower’s cash contribution toward the purchase price, reducing the loan amount.

Loan-to-Value Ratio (LTV)

Loan amount divided by property value or purchase price, whichever is lower.

Combined LTV (CLTV)

First mortgage balance plus second mortgage balance divided by value.

Total LTV (TLTV)

First mortgage balance plus full HELOC limit divided by value.

Closing Costs

Settlement service fees excluding the down payment (e.g., origination, appraisal, title insurance).

Discount Point

Prepaid interest equal to 1% of the loan amount, used to lower the interest rate.

Lender Credit (YSP)

Rebate created by accepting an above-par rate; lender applies premium to offset borrower costs.

Cash-to-Close (CTC)

Total funds the borrower must bring to closing: Total acquisition costs minus total credits.

Refinance

Replacing an existing mortgage with a new loan, often requiring a Net Tangible Benefit to the borrower.

No-Cash-Out Refinance

Refinance in which the new loan covers only the payoff plus closing costs—no extra cash to borrower.

Cash-Out Refinance

Refinance that provides the borrower with cash above the payoff and costs.

Fixed-Rate Mortgage (FRM)

Loan with an interest rate that remains constant for the entire term (e.g., 30-year).

Adjustable-Rate Mortgage (ARM)

Loan whose interest rate adjusts periodically based on an index plus margin.

Index (ARM)

Public benchmark (e.g., SOFR, CMT) that reflects general market rates and varies over time.

Margin (ARM)

Fixed percentage added to the index to determine the fully indexed rate; represents lender profit.

Fully Indexed Rate (FIR)

Sum of the current index value and the loan’s margin.

Initial Rate Cap

Maximum amount the rate can change at the first adjustment on an ARM.

Periodic Cap

Limit on rate change at each subsequent ARM adjustment period.

Lifetime Cap

Maximum total increase allowed over the life of an ARM.

Payment Cap

Cap that limits how much the monthly payment can increase on an ARM, regardless of rate movement.

Hybrid ARM

ARM featuring an initial fixed-rate period (e.g., 5/1 = 5 years fixed, adjusts annually thereafter).

Ability-to-Repay (ATR)

Dodd-Frank rule requiring lenders to verify borrower capacity to repay using documented income and debts.

PITI

Monthly housing cost: Principal + Interest + Taxes + Insurance.

Mortgage Insurance (MI)

Insurance protecting the lender when the borrower’s down payment is below program thresholds.

Front-End Ratio

Housing expense (PITI) divided by gross monthly income; measures affordability.

Back-End Ratio

Total debt payments (PITI + other debts) divided by gross monthly income.

Conforming Loan

Conventional mortgage that meets Fannie/Freddie underwriting and loan-size limits.

Jumbo Loan

Nonconforming conventional loan that exceeds conforming loan limits.

FHA Loan

Government-insured mortgage featuring low down payments and UFMIP/annual MIP premiums.

Up-Front Mortgage Insurance Premium (UFMIP)

One-time, financeable insurance charge on FHA loans, currently 1.75% of the base loan amount.

Mortgage Insurance Premium (MIP)

Annual FHA insurance collected monthly; duration based on LTV and term.

VA Loan

Government-guaranteed mortgage offering 100% financing to eligible veterans and service members.

Funding Fee (VA)

One-time, financeable charge that funds the VA guaranty; waived for certain veterans.

USDA Rural Housing Loan

Government-guaranteed mortgage for rural, low-income borrowers with 100% financing and guaranty fees.

HECM

FHA Home Equity Conversion Mortgage—a reverse mortgage for borrowers 62 or older.

Non-Recourse Loan

Loan in which the lender’s recovery is limited to the collateral; heirs are not personally liable (e.g., HECM).

RESPA (Regulation X)

Law that bans kickbacks, regulates escrows, requires disclosures, and governs servicing transfers.

Section 8 (RESPA)

Provision prohibiting the giving or receiving of a thing-of-value for mortgage referrals.

Section 10 (RESPA)

Provision that limits escrow account balances to a two-month cushion and mandates annual analysis.

Servicing Transfer Notice

RESPA-required notice 15 days before and 15 days after a loan’s servicing is transferred.

Your Home Loan Toolkit

RESPA booklet that explains the mortgage process; given within three business days of application for purchases.

Affiliated Business Arrangement (ABA) Disclosure

RESPA form disclosing ownership interest in referred providers and stating that consumers may shop elsewhere.

TILA (Regulation Z)

Law governing disclosure of the cost of credit, advertising rules, and right of rescission.

Finance Charge

Total cost of credit expressed in dollars; must be accurate within $100 or redisclosed.

Annual Percentage Rate (APR)

Cost of credit expressed as a yearly rate including interest and certain fees; accurate within 0.125% for fixed loans.

Trigger Term

Specific ad detail (payments, # of payments, down payment, finance charge) that triggers full TILA disclosures.

Right of Rescission

Three-business-day period allowing owners to cancel certain refinances of their primary residence.

CHARM Booklet

Consumer Handbook on Adjustable Rate Mortgages provided within three business days for ARM applicants.

HOEPA Loan

High-cost mortgage subject to special restrictions and counseling when APR/points exceed set thresholds.

HPML

Higher-Priced Mortgage Loan with APR above APOR thresholds; requires escrow and ATR analysis.

Zero Tolerance Item

Cost on the Loan Estimate that may not increase at closing (e.g., origination, credit report, transfer tax).

Ability-to-Repay Rule

Dodd-Frank requirement that creditors make a reasonable, good-faith assessment of borrower repayment capacity.

Qualified Mortgage (QM)

Loan meeting Dodd-Frank standards: points ≤3%, 30-year term, no balloon, no interest-only, no negative amortization.

Negative Amortization

Payment structure where monthly payments are insufficient to cover interest, causing principal balance to grow.

Gramm-Leach-Bliley Act (GLBA)

Federal law protecting consumers’ non-public personal information through privacy and safeguard rules.

NPI (Non-Public Personal Information)

Sensitive consumer data protected under GLBA Regulation P.

Safeguards Rule

GLBA requirement that financial institutions implement a security program to protect customer information.

Fair Credit Reporting Act (FCRA)

Law ensuring accuracy and privacy of consumer reports and requiring permissible purpose to pull credit.

Permissible Purpose

Legitimate reason, such as a credit application, required before accessing a consumer credit report.

Equal Credit Opportunity Act (ECOA)

Law prohibiting credit discrimination based on protected characteristics; mandates 30-day Notice of Action.

Notice of Action

ECOA disclosure informing applicants whether a credit request is approved, denied, or incomplete within 30 days.

Home Mortgage Disclosure Act (HMDA)

Law requiring lenders to collect and report applicant demographic data to detect discriminatory lending patterns.

USA Patriot Act

Anti-terrorism law requiring CIP, SAR, and AML procedures to prevent money laundering in financial institutions.

Customer Identification Program (CIP)

Patriot Act requirement to verify the identity of each applicant before opening an account or loan.

Suspicious Activity Report (SAR)

Document filed with FinCEN for transactions ≥$5,000 that appear suspicious or fraudulent.

Anti-Money Laundering (AML) Program

Institutional policy designed to detect and report money-laundering activities under the Patriot Act.

Reverse Redlining

Predatory practice of targeting high-cost loans to borrowers in specific underserved neighborhoods.

Equity-Based Lending

Illicit practice of approving loans based solely on property equity rather than borrower ability to repay.

SAFE Act

Federal law establishing national standards for mortgage licensing, education, and background checks.

Warehouse Funding Gap

Time between funding a loan with a warehouse line and its sale into the secondary market.

Super Lien

Lien (e.g., property taxes, IRS, HOA) that takes priority over earlier-recorded mortgages in foreclosure.

Seller Concession

Seller-paid closing cost credit (not down payment) usually limited to 3-6% of purchase price depending on program.