CFPM Exam

Stocks

Instruments that signify ownership in a corporation. There can be different classes such as common stock or preferred.

Bankruptcy

(1) The condition of being financially insolvent (2) The administration of an insolvent debtor's property by the court for the benefit of the debtor's creditors. Chapter 7 bankruptcy is a liquidation proceeding, available to individuals, married couples, partnerships and corporations. Chapter 13 bankruptcy is a repayment plan for individuals with debts falling below statutory levels which provides for repayment of some or all of the debts out of future income over three to five years.

Average Daily Balance

A calculation for determining finance charges on charge accounts, or credit accounts. The calculation method is to total up the daily account balances for a certain period of time, and divide by the number of days in that time period.

Bond

A certificate of debt issued by either a corporation or a government.

Upset Bid

A bid that is placed for a foreclosed property after the foreclosure sale has ended. It is a bid that is higher than the highest bid received at the sale.

Junk Bond

A bond issued by a company that carries a higher than average risk of default and has been given a low rating by a bond rating company.

Government Bond

A bond issued by the United States Treasury.

Finance Company

A company which makes loans to individuals.

Contingency

A condition that must be met before a contract can be binding.

Credit

A contractual agreement in which a borrower receives something of value now and agrees to repay the lender at some later date.

Depreciation

A decline in property value from the original purchase price to the current value.

Savings Account

A deposit account that pays interest and allows for unlimited deposits and withdrawals.

Deed

A document that evidences proof of ownership of a property.

Fair Credit Reporting Act

A federal law designed to promote accuracy and to ensure the privacy of information used in a credit report.

Fair and Accurate Credit Transactions (FACT) Act

A federal law designed, in part, to reduce identity theft and assist victims in recovering from fraud.

Fair Credit Billing Act

A federal law establishing procedures for resolving errors regarding credit card transactions and the transfer of electronic funds.

Fair Debt Collection Practices Act

A federal law prohibiting debt collectors from engaging in unfair, deceptive, or abusive practices.

Equal Credit Opportunity Act

A federal law prohibiting lenders from discriminating on the basis of the borrower's race, color, national origin, religion, age, sex, marital status, or public assistance program participation.

Truth in Lending

A federal law requiring lenders to fully disclose in writing the terms and conditions of a mortgage, including the annual percentage rate and other charges. (Also called Regulation Z)

Mutual Funds

A fund where people pool together their monies to invest together; typically professionally managed and management fees are charged.

Promissory Note

A legal document signed by a borrower promising to repay a loan under agreed-upon terms.

Will

A legal document which states your wishes for disposition of your belongings upon your death.

Debt

A liability or obligation in the form of a loan, owed by one person to another person and required to be paid by a specified date.

Security Agreement

A loan document pledging an asset as collateral for a loan.

Consumer Credit

A loan from a bank, credit union or finance company to an individual consumer.

Variable Rate Loan

A loan in which the interest rate can change during the term of the loan (as opposed to a fixed rate loan); also called an adjustable rate loan.

Fixed Rate Loan

A loan in which the interest rate does not change during the entire term of the loan. (Opposite of adjustable rate)

Installment Loan

A loan that is repaid with a fixed number of periodic, equal-sized payments.

Debt Consolidation

A loan, usually secured with the equity in a home, used to pay off other, higher interest debts resulting in one monthly payment.

Credit Score

A measure of credit risk calculated from a credit report using a standardized formula.

Reverse Mortgage

A mortgage product that allows the homeowner to borrow money against the built up equity in his/her home through either a lump sum payment, monthly payments, or upon demand from the bank.

Home Equity Conversion Loan

A mortgage product that allows the homeowner to borrow money against the built up equity in his/her home through either a lump sum payment, monthly payments, or upon demand from the bank. This is also known as a Reverse Mortgage.

Adjustable Rate Mortgage (ARM)

A mortgage whose interest rate changes over time based on an index.

Trustee

A neutral third party who advertises and conducts the sale of foreclosed properties.

Credit Union

A nonprofit financial institution that offers its members checking/savings accounts as well as loans.

Adverse Action Notice

A notice informing one that credit, employment, insurance, or other benefits based on information in a credit report have been denied. The notice should indicate which credit reporting agency was used, and how to contact them.

Pawnshop

A pawnshop lends money against personal items that an individual brings in as collateral.

Lender

A person or organization which extends credit to others. (Also called a creditor)

Creditor

A person to whom money is owed

401(K)

A plan offered by corporations to their employees to set aside tax-deferred money for retirement.

403(b)

A plan offered by nonprofit organizations and universities to their employees to set aside tax-deferred money for retirement.

Debt Management Program (DMP)

A program in which an agency works with a debtor and the debtor's creditors to come up with a repayment plan. The agency receives payment from the debtor and then distributes the money to the creditors. Creditors will occasionally make concessions, such as a reduced interest rate, waiving of fees or re-aging of accounts.

Simplified Employee Pension (SEP)

A retirement plan for self-employed individuals (and their employees) who have less than 25 employees.

Pension Plan

A retirement plan set by an employer for its employees.

Health Savings Account (HSA)

A savings account with tax benefits that can be used for paying medical expenses.

Mortgage

A security agreement in which a house is pledged for a loan.

Credit Scoring

A statistical technique used to determine whether to extend credit to a borrower.

Social Security Tax

A tax withheld from an employee's pay to fund the Social Security Retirement System. If you're self-employed you contribute the full percentage, if you are employed you contribute half and your employer the other half.

Money Market Account

A type of savings account that pays higher interest rates than a savings account, but may require a minimum balance and may restrict the number of withdrawals permitted.

credit counseling agency

Agency which collects and sells information about the creditworthiness of individuals. (Also called credit bureau)

Credit Bureau

Agency which collects and sells information about the creditworthiness of individuals. (Also called credit reporting agency)

Debt Negotiation/Debt Settlement

An arrangement under which an agency negotiates with creditors on a debtor's behalf to reduce the amount of money owed. The agency usually retains a monthly fee, percentage of the money saved or both. The money saved in such a program can be considered taxable income by the IRS. (Also called Debt Settlement)

Federal Deposit Insurance Corporation

Also known as the FDIC, this government agency was created in 1933 in response to the many bank failures in the 1920's and 1930's. Money deposited in banks and/or thrift institutions is insured for $100,000 per depositor (only if the institution is FDIC insured). Retirement accounts carry higher insurance coverage.

Federal Trade Commission

Also known as the FTC, this government agency has oversight for the FCRA, ECOA, the FACT Act as well as other credit-related regulations.

Roth IRA

An IRA which you deposit after tax dollars.

Individual Retirement Accounts (IRA)

An account that allows individuals to personally save for retirement.

Revolving Credit

An agreement by a bank to lend a specific amount to a borrower and to allow that amount to be borrowed again once it has been repaid.

Judgment Proof

An individual is considered to be judgment proof when (s)he cannot afford to pay the damages (s) he has incurred. Judgment proof status is a temporary legal status which is granted at a Show Cause Hearing by showing one's wage stubs, income tax statements, or providing oral testimonies. Once the court is satisfied that the individual cannot pay the judgment, a time extension may be granted.

Notary Public

An individual licensed by the state to certify the validity of a signature.

Cosigner

An individual other than the borrower who signs a promissory note and thereby assumes equal liability for it.

Debtor

An individual who signs a promissory note and assumes liability to repay under the terms of that note. (Also called a borrower)

Borrower

An individual who signs a promissory note and assumes liability to repay under the terms of that note. (Also called a debtor)

Infile credit report

An infile credit report is generated by merging information from two or three credit reporting companies (CRC). By filtering out duplicate information, a report is created with current credit history, public record information, creditor inquiries and comments from the CRC(s).

Automatic Stay

An injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed.

Annuities

An insurance industry investment product. These contracts between an individual and an insurance contract are set up so that the holder deposits a sum of money with the insurance company and they in turn make monthly payments to the holder.

Disability Insurance

An insurance plan designed to supplement an individual's income if unable to work.

Homeowners Insurance

An insurance plan that covers the value of real estate. Most mortgage companies require homeowners to insure the value of the home to protect against loss while there is a mortgage in place. May also be referred to as Hazard Insurance.

Personal Liability Umbrella Insurance

An insurance policy put in place that covers liabilities in excess of homeowner or auto insurance policies.

Life Insurance

An insurance policy that protects against loss of life. There are various types of polices such as term and permanent insurance.

Mortgage Insurance

An insurance policy that protects the lender in the event the borrower defaults on his/her mortgage.

Health Insurance

An insurance policy to cover against health claims. There are various types such as a Health Maintenance Organization (HMO), Preferred Provider Organization (PPO) and Health Savings Account (HSA).

Auto Insurance

An insurance policy to insure the value of a consumer's automobile. Many states require a minimum insurance coverage to register vehicles.

Offer in Compromise

An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer's tax liabilities for less than the full amount owed.

Lien

An official claim or charge against collateral for funds owed.

Asset

Anything of value that is owned

collateral

Assets pledged by a borrower to secure a loan or other credit, and subject to seizure in the event of default. (Also called security)

Security

Assets pledged by a borrower to secure a loan. (Also called collateral)

Liquid Assets

Assets that can quickly be converted to cash, typically without incurring much, if any of a loss.

Secured

Backed by a pledge of collateral. (Opposite of unsecured)

Unsecured

Backed only by the integrity of the borrower, not by collateral.

U.S. Savings Bonds

Bonds issued by the United States government.

Zero-Coupon Bond

Bonds which pay interest only upon their maturity.

Good Faith

Business transactions conducted with honorable intent.

Acceleration Clause

Clause contained in a loan agreement, which allows the lender to speed up the rate of the loan's payment terms. In case of default on a loan, this clause allows the lender to require immediate payment of the loan in full.

Equity

In valuing real estate, the equity is the value of the property minus the mortgage(s) and any other claims against the property.

Qualified Retirement Plan

Employer-sponsored, tax-deferred retirement plans to which employees can contribute.

Delinquent

Failure to make a contractual payment on time; delinquency is generally reported on a credit report in 30-day increments.

Default

Failure to promptly pay interest or principal when due, according to the terms of a debt contract (mortgage).

FICO

Fair Isaac Corporation, the inventor of credit scoring models.

Deficiency Judgment

If a foreclosure sale occurs on a home without bringing in enough money to satisfy the outstanding mortgage, the lender can bring a deficiency judgment against the homeowner for the balance of the mortgage due.

Real Property

Land, houses, condos. (Also known as Real Estate)

NASDAQ

Largest OTC exchange (original abbreviation stands for National Association of Securities Dealers Automated Quotations).

Federal National Mortgage Association

More commonly known as Fannie Mae, this is a government-sponsored enterprise (GSE) chartered by Congress whose mission it is to provide liquidity and stability to the U.S. housing and mortgage markets.

Federal Home Loan Mortgage Corporation

More commonly known as Freddie Mac, this is a government sponsored enterprise (GSE) created in 1970. Freddie Mac's primary business responsibility it is to buy mortgages from lenders, package the mortgages into securities and sell the securities - guaranteed by Freddie Mac - to investors. Mortgage lenders use the proceeds from selling loans to Freddie Mac to fund new mortgages,

NYSE

New York Stock Exchange, the largest equity exchange in the world.

Federal Housing Administration

Otherwise known as the FHA, this agency provides mortgage insurance on loans made by FHA approved lenders throughout the United States and its territories. Congress created the FHA in 1934. The FHA became a part of the Department of Housing and Urban Development's Office of Housing in 1965.

Servicemembers Civil Relief Act of 2003

Previously known as the Soldiers' and Sailors' Relief Act of 1940. This act offers short-term financial and legal relief to military members as they enter active duty.

Bankcard

This is a bank-issued card, typically tied to a consumer's account at the bank. It serves to act as a debit card, as funds are directly debited from the holder's checking or savings account when the card is used. It can also be used to access funds from the consumer's bank account through an ATM.

Repayment Plan

Referring to a mortgage, this is a plan under which the homeowner can add the delinquent payments to future mortgage payments.

Pro Bono

Refers to services offered without compensation; for the public good.

Assumption

Regarding mortgages, the assumption of a mortgage is when the buyer of the property accepts the liability for the balance of the outstanding mortgage.

Keogh

Retirement accounts for self-employed individuals.

Credit Bid

This is a bid made at a foreclosure sale on behalf of the lender. The bid amount must be equal to or less than the balance of the defaulted mortgage.

HUD

The Department of Housing and Urban Development; founded in 1965 to develop and execute policies on housing.

Over the Counter (OTC)

The NASDAQ stock exchange is an example of an OTC exchange. Most stocks in the US are traded on the OTC.

Principal

The amount of a loan, exclusive of interest charges.

Closing Cost

The costs to a borrower of obtaining a mortgage. This may include origination fees, title insurance, appraisal, survey, and attorney fees. Prepaid taxes and insurance may also be included.

Certificate of Sale

The document given to the individual who successfully bids and purchases a property at a Sheriff's Sale. It does not convey title to the property.

Interest Rate

The fee charged by a lender to borrow money, expressed as an annual percentage of the principal.

Origination Fee

The fee charged to a borrower in obtaining a mortgage.

Balloon Payment

The final lump-sum payment made on a loan, which is typically the last payment; most commonly found in mortgages.

Appreciation

The increase in value of an asset from original purchase price to current value.

Maximum Claim Amount

The lesser of either a home's appraised value or the maximum loan amount that the FHA will insure.

Liabilities

The monetary obligations that you owe to others.

Fair Market Value

The price that property would sell at in the open market.

Appraisal

The process by which a licensed or authorized individual estimates the market value of a property.

Application

The process of a borrower asking for the extension of credit from a creditor.

Refinancing

The process of paying off a mortgage with the proceeds of a new mortgage which is secured by the same piece of property.

Yeild

The rate of return on an investment.

Grace Period

The time between the date a payment is due and the overdue date; there are no penalty fees/interest assessed during this period.

Assignment

The transferring of property to a trust, or to be used for the benefit of a creditor (or, for our purpose, a lender).

Assessed Value

The value placed on an asset (for our purpose, property is the asset) by the public assessor for the purpose of collecting taxes. The assessed value may not necessarily be the same as the appraised value.

Annual Percentage Rate (APR)

The yearly cost of using credit, including interest, mortgage insurance, and the origination fee (points), expressed as a percentage.

Hard Money Loan

This is a loan from a private lender. The interest rates and fees associated with this loan are typically higher than average.

Notice of Sale

This is a notice that gives specific information about a defaulted loan and the proceedings that will be taking place. Notice must be listed in the county where the property is located.

Payday Loan

This is a short term loan with high interest rates.

Reaffirmation Agreement

This is a voluntary agreement which is signed by the debtor petitioner after his/her bankruptcy petition has been filed. It is used to pay any specific debts that otherwise would be discharged in the bankruptcy.

Renters Insurance

This is an insurance policy renters can take out to cover the value of their personal belongings while renting a home or apartment.

Finance Charge

This is any fee or charge representing the total cost of credit or borrowing. It includes interest and other charges such as transaction fees.

Forbearance

This is the granting of a temporary relief in payments on a loan (in our case, a mortgage) to a defaulting borrower. It is granted by the lender, and gives the borrower time for a new loan to be worked out without penalty to the borrower.

Net Worth

This is the value that results from subtracting one's liabilities from one's assets.

Short Sale

This is when one sells their home for less than the amount owed on the mortgage. The lender must agree to the sale price.

Reinstatement

This is when the homeowner who had been delinquent on his/her mortgage starts making payments. This often happens in conjunction with a Forbearance Agreement.

Short Refinance

This is when the lender forgives some part of a mortgage and refinances the balance of the mortgage into a new mortgage agreement.

Mortgage Modification

This is when the lender works with the borrower to modify the terms of the existing mortgage to make the monthly mortgage payments more affordable for the borrower.

Partial Claim

This is when the mortgage lender advances funds to the homeowner in the amount needed to reinstate the delinquent mortgage. The past due payments are then packaged into a 2nd mortgage. Payments on the partial claim are due when the first mortgage is paid off. As of this writing, interest is not charged on funds lent under a partial claim. (This is offered by the FHA).

Right of Rescission

This legally provides a borrower a three-day time frame that a loan can be cancelled penalty free.

Title Insurance

This policy guarantees that the owner of the property has clear ownership of the property, and can legally transfer ownership to another individual. The policy protects the homeowner in case of any legal defects in the title.

Residential Mortgage Credit Report

This report is a detailed account of the credit, employment and residential history of an individual. It will also detail public records information concerning said individual.

Foreclosure

Typically refers to a legal proceeding initiated by a creditor to take possession of property for which the mortgage has been defaulted.

Charged Off

When a loan becomes uncollectible and is written off; 120 days delinquent for closed-end loan and 180 days delinquent for open-end loans.

Escrow

When money is held in trust by a third party, usually to secure the terms of a loan. This is typically found in one's mortgage payment, whereby the payment is held to meet property taxes and insurance premiums.

Judgment

When the court determines the existence of indebtedness or any other legal liability.

Commercial Credit

credit used by businesses

Deed-in-Lieu of Foreclosure

this is when a borrower in foreclosure hands the deed to the property over to the lender.