Finance Key Terms - Cumulative

1933 Banking Act

a depression-era federal act that created the Federal Deposit Insurance Corporation

abstract of title

an abbreviated history of a property, including info on any transfers, grants, wills, conveyances, liens, and encumbrances

acceleration clause

clause in a security instrument (mortgage/deed of trust) which makes the entire loan amount due immediately upon default

adjustable-rate mortgage (ARM)

a loan with an interest rate that can change during adjustment periods throughout the life of the loan

Administrative Procedure Act (APA)

Governs the way administrative agencies of the federal government may propose and establish regulations

affirmative easement

an easement that gives people the right to use someone else's personal property for a specific purpose

amortization

the process of paying off a debt/mortgage in regular installments based on a fixed payment schedule

Annual Percentage Rate (APR)

the ratio of the total cost of financing to the loan amount (not to be confused with the interest rate)

appraisal

a written estimate of a property's market value completed by an appraiser

assets

property owned by a person or company; holds value to meet debts, commitments, or legacies

assignment

the transference of obligations in a contract from one party to another

assumption loan

a loan that is transferred (assumed) by another party, usually the buyer, with the full acknowledgment and consent of the lender

balloon mortgage

a type of loan, at the end of which the (often large) remaining balance of the mortgage is due as a lump sum

benchmark

a figure that allows investors to compare how a given mortgage is doing compared to other similar types of mortgages based on qualities like risk and investment type; also known as the index

beneficiary

a lender in a deed of trust transaction; the person or party for whom a trust operates

blanket mortgage

a loan for which more than one collateral property acts as security

buyer rebates

the illegal money transfer during the transaction that causes money to go back to the buyer, either at or after closing, without the knowledge of the lender

closing

the consummation of a real estate transaction when all necessary contracts are signed and the lender disburses the funds of the mortgage loan

Closing Disclosure

a five page form used to itemize services and fees charged to the borrower by the lender when applying for a real estate loan

collateral

something of value that is pledged to a lender as a promise to repay a loan

collateralized mortgage obligations (CMOs)

collateralized debt obligations (CDOs) made up of bundles or pools of mortgage-back securities (MBS) that have been created by government agencies or investment banks and issued as investment-grade bonds

commercial banks

institutions that provide financial services to the general public and businesses

Community Investment Program (CIP)

a program operated by each FHLBank that offers below-market-rate loans to members for long-term financing for housing and economic development that benefits low- and moderate-income families and neighborhoods

Community Reinvestment Act

legislation that ensures depository institutions meet the credit needs of low- and moderate-income families

conforming loan

a loan that has been made according to the guidelines that will allow the loan to be sold on the secondary market

conservatorship

when one entity takes control over a corporation to ensure they don't go bankrupt

Consumer Financial Protection Bureau (CFPB)

independent agency created under the Dodd-Frank Wall Street Reform Act to supervise financial companies, banks, and credit unions as well as enforce federal consumer financial laws

consummation

the point at which the consumer becomes contractually obligated to the creditor on the loan

contract for deed

an executory contract in which the seller keeps the title upon sale; the buyer gets the title after making payments over a period of years

conventional loan

any loan that is neither insured by the government nor guaranteed by the government

correspondent lender

a lender who offers loans using their own money at their own risk, generally on a smaller scale than mortgage brokers and bankers

cost approach

method of estimating the value of a property by determining how much it would cost to completely replace it and then subtracting from that value to account for depreciation

credit

a positive balance or a positive amount

credit report

statement on a person's credit issued by one of the three credit reporting bureaus (Equifax, Experian, or TransUnion)

credit score

numerical representation of an individual's creditworthiness based on an analysis of their credit files

credit unions

not-for-profit financial cooperatives created to serve their members' needs and provide services similar to those of a bank

D.U.S.T.

an acronym for the characteristics of value (demand, utility, scarcity, transferability)

debit

a negative balance or a negative amount

deed in lieu of foreclosure

An alternative to foreclosure in which the defaulting borrower voluntarily transfers the property title to the lender

deed of trust

security instrument which places the deed to the property in a trust held by the trustee, who holds it as security on behalf of the beneficiary (lender)

default

Any breach of a valid contract

deficiency judgment

a court's decision to attach a judgement (lien) against a debtor in the event that a property's sale price does not cover outstanding debts

delinquent

Describes the state of a borrower who fails to pay the principal, interest, taxes, or insurance for a loan on time or at all

demand

consumers' ability and willingness to buy a good or service at a certain price

Department of Housing and Urban Development (HUD)

a department in the federal government which is in charge of enforcing federal fair housing laws

depository lenders (a.k.a. depository institutions)

institutions that use money from their depositors to loan out for mortgages

direct endorsement

When a lender has the authority to approve FHA loans in-house without submitting the file to the FHA regional office for prior approval

disclosure

the act of supplying previously unknown information to a party in a transaction

discount point

fees that the lender charges to lower the lending rate; one point is 1% of the loan amount

discount rate

the interest rate at which the Fed lends money to its member banks

Dodd-Frank Act

created a new consumer watchdog to prevent mortgage companies and payday lenders from exploiting consumers

dominant estate

the party that is gaining access to the servient estate's land in an easement

due-on-sale clause

a clause stating that if a property is sold, then the mortgage must be repaid in full

easement

an interest in, or a right to use, another individual's land or property, generally for a specific, limited purpose

easement appurtenant

an easement that applies to the land regardless of the owner

easement in gross

an easement that applies to the person or entity, not the specific land

economic bubble

forms when the value of something (typically real estate or stocks) grows so much that its market value is higher than its actual value

encroachment

physical property that crosses the boundary into a neighboring landowner's property

Equal Credit Opportunity Act (ECOA)

law prohibiting credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or use of public assistance

equitable interest

a secondary and lesser interest in a property than the ownership interest with which it is associated

equitable redemption

Occurs before the sale (auction) of a property; allows defaulting debtors to pay the defaulted portion of the debt (and costs the lender incurred) in order to reinstate the loan and prevent a foreclosure sale

equity

the difference between the amount owed to the mortgage company and the amount the home is worth

escrow

(as "escrow account" An account set up by a mortgage company for paying property taxes and insurance during the term of the mortgage

exculpatory clause

a clause that relieves the borrower of personal liability to repay the loan

executory contract

a contract that has not yet been fully performed (both sides have not yet completed their obligations)

expansion

the economic phase in which market activity really picks up (businesses start hiring again, people are investing in real estate)

express easement

an easement created by a written agreement between two or more parties

Fair Credit Reporting Act

legislation that promotes accuracy, fairness, and privacy of consumer information in the files of consumer reporting agencies

Federal Deposit Insurance Corporation (FDIC)

an independent agency that provides deposit insurance to depositors in U.S. banks

federal funds rate

the interest rate that banks charge other banks for overnight loans

Federal Home Loan Bank Act of 1932

an act that extended $125 million in credit to savings and loan institutions and created the Federal Home Loan Bank System, setting up the twelve regional banks

Federal Open Market Committee (FOMC)

the Federal Reserve's policy-making body charged with overseeing the federal government's open market operations

Federal Reserve

centralized United States bank created to conduct monetary policy and stabilize the U.S. economy

Federal Reserve Act

the 1913 act that created the Federal Reserve

FHA

The Federal Housing Administration; government agency charged with insuring mortgages

fixed-rate loan

a mortgage for which the interest rate stays the same, or is fixed, for the entire life of the loan

flipping

a type of loan fraud in which a property is purchased and then quickly resold at a value that is artificially inflated by false appraisals

floating easement

an easement that does not have a clearly marked, fixed location to which access is granted

float-to-fixed rate loan

a loan that has an initial interest rate determined by a margin and an index, and after the initial float rate period the loan converts to a fixed-rate loan

forbearance

the act of refraining from exercising a legal right

foreclosure

The legal process whereby a lender takes control of a property held by a borrower in default and sells it to recover the lender's losses

funding

the transferring of funds by the lender to a title company or escrow company so that they may be disbursed

general lien

a lien in which the real estate AND personal property may be sold to satisfy the debt

general warranty deed, a.k.a. full covenant and warranty deed

warranty that identifies the owner of the property and guarantees that the property is free of defects

gift

cash the borrower receives from a relative, fiancé, or domestic partner that does not need to be repaid

Glass-Steagall Act

a part of the 1933 Banking Act; prevents investment banks from taking deposits and preventing commercial Federal Reserve members banks from various risky behaviors

Government National Mortgage Association (Ginnie Mae)

a government-owned entity that supports the secondary mortgage market by guaranteeing mortgage-backed securities (MBS) insured by the U.S. government

government-backed loan

a loan that is insured, guaranteed, or provided by any government agency

government-sponsored enterprises

the major participants of buying and selling mortgages in the secondary market; includes: Fannie Mae, Freddie Mac, Farmer Mac, and the Federal Home Loan Bank

hard money loan

an asset-based loan in which a borrower receives funds secured by real property; typically issued by private investors or companies

holding cost

the investor's cost of owning a property (including taxes, insurance, and utilities) for the time period before it is sold

home equity loan

a loan in which funds are borrowed using the homeowner's equity for collateral; funds can be used for any purpose

housing affordability index

compares median household income to the income needed to purchase a median-priced home

Housing Finance Agencies (HFA)

the many government agencies dedicated to providing fair housing standards and practices

hyper supply

the economic phase in which supply catches up with (and then surpasses) demand; the first warning sign is an increase in vacant or unsold property

implied easement

an easement created as a logical feature of the land

income approach

method of estimating the value of a property based on the amount of income it could produce for its owner

inflation

a general rise in prices as the result of a decrease in the dollar's purchasing power

Internal Revenue Service (IRS)

the revenue service of the U.S. federal government

judgment lien

a lien that reflects a court decision concerning the rights and claims of parties in a suit