Federal Laws and Government Agencies

Things you might have heard but never understood, or things you haven't heard but understand, or things that are completely foreign. Hey, it's all jargon to you!

1. Department of Veterans Affairs (VA)
   • An independent agency of the federal government which guarantees long-term, low-or no-down payment mortgages to eligible veterans.
2. Due-on-Sale Clause
   • A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.
3. Equal Credit Opportunity Act (ECOA)
   • Is 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.
4. Farmers Home Administration (FmHA)
   • Provides financing to farmers and other qualified borrowers.
5. Federal Home Loan mortgage Corporation (FHLMC)
   • Is a quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers. Also called Freddie Mac.
6. Federal Housing Administration (FHA)
   • A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.
7. Federal National Mortgage Association (FNMA)
   • A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages, as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.
8. Government National Mortgage Association (GNMA)
   • Also known as Ginnie Mae, provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA.
9. Real Estate Settlement Procedures Act (RESPA)
   • Short for the Real Estate Settlement Procedures Act. RESPA is a federal law, which in part allows consumers to review information on known or estimated settlement costs, once after application and once prior to or at a settlement.
10. Truth-in-Lending Act
    • A federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for the loan. Also known as Regulation Z.

Glossary of Terms

Acceleration

The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due-on-Sale Clause.

Adjustable Rate Mortgage (ARM)

Is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also sometimes known as the re negotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.

Agreement for Sale

A document in which the purchaser agrees to buy certain estate (or personal property) and the sellar agrees to sell under stated terms and conditions. Also called sales contract, binder or earnest money contract.

Amortization

Gradual debt reduction. Normally, the reduction is made according to a pre-determined schedule for installment payments

Annual Percentage Rate (APR)

A term used in the Truth in Lending Act to represent the full cost of a loan including interest and loan fees.

Appraisal

A formal, written estimation of the current market value of a home.

Appraiser

The appraiser decides the market value of a home based on its condition and the selling prices of comparable homes recently sold in the area. His of her job is to compute a fair estimate of market value to help the lender decide a reasonable loan amount.

Appreciation

An increase in value, the opposite of depreciation

Assessed Valuation

The value that a taxing authority places upon personal property for the purposes of taxation.

Assumption

The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller.

Balloon (Payment) Mortgage

Usually a short-term fixed-rate loan which involves a set interest rate for a certain period of time (usually 5 or 7 years), and one large payment for the remaining amount of the principal at the conclusion of that time frame (may be able to convert or refinance).

Borrower

A mortgagor whoe receives funds in the form of a loan with the obligation of repaying the loan in full with interest, if applicable.

Broker

One who receives a commission or fee for bringing buyer and seller together and assisting in the negotiation of contracts between them.

Building Code

The local regulations that control design, construction and materials used in construction. Building codes are based on safety and health standards.

Cash-Out

Cashing out refers to the refinancing of a loan where the borrower will take out money on their own home. If a home is appraised at $100,000 and the borrower's outstanding mortgage loan is $60,000, it is possible to enter into an 80% cash-out refinance transaction for a loan of $80,000 (80% of $100,000). The new mortgage of $80,000 will pay off the $60,000 loan and leave $20,000 cash-out to the borrowers.

Certificate of Occupancy

Written authorization given by a local municipality that allos a newly completed or substantially completed structure to be inhabitated.

Chattel

Personal Property.

Closing

The conclusion of a transaction. In real estate, closing includes the delivery of a deed, financial adjustments, the signing of notes, and the disbursement of funds necessary to the sale or loan transaction.

Closing Costs

All of the costs to the buyer and seller individually that are associated with the purchase, sale or financing of real property. They include, but are not limited to, proprating of agreed items such as taxes and rents, the cost of title insurance policies, and the cost of credit reports, recording fees and escrow fees.

Closing Statement

A financial disclosure giving an account of all funds received and expected at the closing, including the escrow deposits for taxes, hazard insurance, and mortgage insurance.

Collateral

Property pledged as security for a debt, such as real estate as security for a mortgage.

Commitment

An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to compliance with stated conditions.

Contingency

A condition that must be met before a contract is binding. For example, the sale of a house might be contingent upon the seller paying for certain repairs.

Contract of Sale

A contract between a purchaser and a seller of real property to convey a title after certain conditions have been met and payments have been made.

Conventional Mortgages

A conventional loan is the most common type of mortgage. With low down payments, conventional mortgages are usually insured by private mortgage insurance companies (PMI). Private mortgage insurance adds a relatively small cost to your financing ( about 6/10 of one percent of the loan amount per year, or $600 per year on a $100,000 loan), but it allows you to buy a home with a lower down payment.

Credit Rating

A rating given to a person to establish willingness to pay obligations based upon one's past history of timely payment.

Credit Report

A report to a prospective lender on the credit standing of a prospective borrower, used to help determine credit worthiness.

Debt Consolidation

Debt-to-Income Ratio

Long-term debt expenses as a percentage of monthly income. Lenders use this ratio to qualify borrowers for mortgage loans, typically setting a maximum debt-to-income ratio of 36%.

Deed of Trust

In many states, this document is used in place of a mortgage to secure the payment of a note.

Department of Veteran Affairs (VA)

An independent agency of the federal goverment created in 1930. The VA home loan guaranty program is designed to encourage lenders to offer long-term, low downpayment mortgages toeligible veterans by guaranteeing the lender against loss.

Discount Fee

In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to give the borrower a lower rate and lower payments for part of the mortgage term (usually for one year or less). After the discount period, the ARM rate will probably go up depending on the index rate.

Down Payment

When you borrow money for a home, any lender will ask you to contribute some of your own money to the purchase of the house. A lender will usually require a down payment of at least 20% of the sales price unless the buyer purchases mortgage insurance.

Due-on-sale Clause

A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

Earnest Money

A sum of money given to bind a sale of real estate; a deposit.

Equity

The home owner's interest in a property; the difference between fair market value and the current amount the owner owes on the property.

Escrow

An amount set up by the lender into which the borrower makes periodic payments, usually monthly, for taxes, hazard insurance, assessments, and mortgage insurance premiums.

Fair Market Value

The price at which property is transferrred between a willing buyer and a willing seller, each of whom has reasonable knowledge of all pertinent facts and neither being under and compulsion to buy or sell.

Fannie Mae

See FNMA.

FHA

FEDERAL HOUSING ADMINISTRATION - A division of the Department of Housing and Urban Development. It's main activity is the insuring of residential mortgage loans made by private lenders.

FHA Loan

A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans (loan amount varies by region), they are generous enough to handle moderately-priced homes almost anywhere in the country.

FHA Mortgages

The Federal Housing administration, a government agency created in 1934, provides insurance on some types of mortgage loans. An FHA-insurce loan also allows you to buy a house with a low down payment, ranging from 3% to 5% depending on the price of the home. The buyer pays a one-time fee of 3.8% of the loan amount for the mortgage insurance premium at closing time, and there is an additional annual fee for lown down payment loans.

FHLMC

FEDERAL HOME LOAN MORTGAGE CORPORATION - A private corporation created by Congress to support the secondary mortgage market. It sells participation certificates secured by pools of convential mortgage loans, their principal and interest guaranteed by the federal government through the FHLMC. Popularly known as the Freddie Mac.

First Mortgage

A real estate loan that creates a primary lien against real property. Also known as First Trust.

FNMA

FEDERAL NATIONAL MORTGAGE ASSOCIATION - A private corporation created by Congress to support the secondary mortgage market. FNMA sells mortgage-backed securities backed by pools of conventional loans. Payment of principal and interest on these securities is backed by the US Government. Popularly known as Fannie Mae.

Freddie Mac

See FHLMC.

Fixed Rate Mortgage

A mortgage on which the interest rate is set for the term of the loan.

Foreclosure

In the event that the borrower fails to pay back the loan through mortgage payments, the lender has the right to put the home up on the market for sale to recover the money owed to the lender. This is known as foreclosure.

Good Faith Estimate

An estimate of all the costs associated with a purchase, or refinance. This may include points, closing costs, escrow.

Goverment National Mortgage Association (GNMA)

Also known as Ginnie Mae.

Graduated Payment Mortgage (GPM)

A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.

Gross Monthly Income

The amount of consistent and stable income that an individual receives each month, averaged over a period of time. This amount includes overtime pay, bonuses, commissions and income from dividends or interest, provided that the individual can show a consistent history of receiving such income.

Hazard Insurance

A contract that pays for loss on a home from certain hazards, such as fire.

Homeowners Association

An organization of homeowners residing within a particular devlopment whose major purposes is to maintain and provide community facilities and services for the common enjoyment of the residents.

Impound

That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due (also known as reserves).

Index

The measure of interest rate changes that the lender uses to decide how much the interest rate on an ARM will change over time.

Interest

Money paid for the use of money -- that is, money paid for a loan.

Investor

A money source for a lender.

Jumbo Loan

A loan which is larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate. These loans involve amounts between $214,600 to $650,000.

Lender

Any person or institution that provide money to a borrower.

Lien

A claim on the property of another as security against the payment of a just debt.

Loan

An amount of money a borrower will take out from a lender to pay for a purchase.

Loan Officer

Loan-to-Value Ratio

The relationship between the amount of a home loan and the total value of the property. For example, if you receive a loan of $80,000 on a home that costs $100,000, the loan-to value ratio is 80%.

Lock-In Rate

A commitment from a lender to make a loan at a pre-set interest rate at some future date, usually for not more than 90 days.

Margin

The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Market Value

The highest price that a willing buyer would pay and the lowest a willing seller would accept.

Mortgage

An interest in real property given as security for the payment of an obligation.

Mortgage Insurance

A policy that allows mortgage lenders to recover part of their financial losses if a borrower fails to full re-pay a loan. Mortgage insurance makes it possible to buy a home with as little as 5% down.

Mortgage Investor

Any person or institution that invests in mortgages. By buying mortgage loans from lenders, the mortgage investor gives the lender funds that can be used for more lending.

Mortgage Life Insurance

A type of term life insurance. The amount of coverage decreases as the mortgage balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.

Mortgagee

A lender to whom property is conveyed as security for a loan.

Mortgagor

One who borrows money, giving as security a mortgage or deed of trust on real property.

Negative Amortization

Occurs when the monthly payments on the mortgage do not cover all of the interest cost. The interest cost that isn't covered is added to the unpaid principal balance.

Origination Fee

The fee charged by a lender to prepare loan documents, process, underwrite, make credit checks, inspect and sometimes appraise a property (lenders profit is also included).

PITI

Principal, Interest, Taxes and Insurance are the components of a mortgage payment.

Point

A dollar amount paid to a lender for making a loan. A point is one percent of the loan amount. Also called discount points.

Power of Attorney

A legal document authorizing one person to act on behalf of another.

Prepaids

Necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

Prepayment

A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

Prepayment penalty

Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia.

Pre-qualification

Qualifying a borrower for a loan amount before looking for a home. Final approval subject to appraisal of property.

Principal

The original blanace of money loaned, excluding interest. Also, the remaining balance of a loan, excluding interest.

Purchasing

Obtaining a mortgage loan for the acquisition of a property, usually a home.

Rate

A percentage of the monthly mortgage payment paid to the lender.

Real Estate Broker

The seller of the house pays the real estate broker to attract potential buyers and help negotiate the contract between the seller and the buyer. The broker identifies available properties for buyers and shows them homes that meet their criteria.

Realtor

A member of the National Association of Realtors.

Refinance

Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.

RESPA

Real Estate Settlement Procedures Act. RESPA is a federal law that requires lenders to provide home mortgage borrowers with information about known or estimated settlement costs.

Second Trust

A mortgage made subsequent to another mortgage and subordinate to the first one.

Servicer

After a mortgage loan closes, the loan servicer collects the payments, manages escrow accounts, pays escrowed taxes and insurance, and manages delinquent payments. Lenders often "release" servicing to another business, which means that a home buyer will not necessarily send house payments to the original lender.

Settlement

The closing of a mortgage loan.

Title

The evidence of the right to or ownership in property. In the case of real estate, the documentary evidence of ownershp is the title deed. Title may be acquired through purchase, inheritance, gift, or through foreclosure of a mortgage.

Title Insurance

A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search (Owners Title Insurance). The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller. Policies are also available to protect the lender's interests (Lenders Title Insurance).

Underwriter

He/she who performs the analysis of the risk involved in making a loan to a potential home buyer based on credit, employment, assets, and other factors; and the matching of this risk to an appropriate rate and term or loan amount.

Unsecured Note

A loan that is not backed by collateral (property).

VA Mortgages

If you are current in the United States military, or if you have ever served in U.S. armed forces, you may be eligible to get a loan insured by the Veterans Administration. If you qualify, this special government benefit to veterans might be a good option.

Variable Rate Mortgage (VRM)

See Adjustable Rate Mortgage (ARM).

Verification of Employment

A document signed by the borrower's employer verifying his/her position and salary.

Wraparound Mortgage

Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking their share.